Toyota (TM) has been poised to become the preeminent global car company for sometime. Its worldwide production passed GM’s (GM) in the first half of the year. It is well ahead of US rivals in next-generation hybrids. Its Prius model has sold over one million units.
Even in the US, Toyota has been a winner. Its market share is approaching 15%. Most months it sells more vehicles than Ford (F). But, it is ending up being king of the hill on top of a pile of dung.
Less than two years ago, Toyota’s share price was over $135, giving it a market cap of over $200 billion. It was the only large car company with a total stock value bigger than its annual sales. By that measurement, it was worth ten times Ford or GM on a share-value-to-revenue basis.
Now Toyota’s stock is at $63 and that company may post a loss in the second half, an extraordinary piece of news. According to Reuters, "Toyota Motor Corp is likely to further cut its earnings forecasts and report an operating loss of about 100 billion yen ($1 billion) in the October-March period."
Does that put Toyota in deep trouble? Yes and no. It has the balance sheet to make it through a few quarters in the red, but it would become more financially troubled of US vehicle sales keep dropping. The market is Toyota’s largest.
Most analysis says that a failure of a US car company could knock out a number of suppliers which send parts to all of the firms which have plants in America. That means that production across the entire industry could be undermined for months.
Even Toyota may not be able to handle a breakdown of that magnitude. The Japanese government could be headed toward getting into the bailout business.
Douglas A. McIntyre