In Toyota's (TM) Earnings, A Warning For Multinationals

Toyota (TM) reported a 7.5% increase in profits for the last quarter of 2007. By itself that is an achievement for any car company. The big Japanese firm did indicate that the current quarter might not be as good because of a slowing US economy.

Toyota did point to emerging markets like China and India as much of the reason behind its strong results. But, the good news ends there.

Toyota’s forecast should be a warning to the Wal-Marts (WMT), GEs (GE), and GMs (GM) of the world. A bad economy in the US may not necessarily be offset by improving results in fast-growing markets.

The hope that places like India will bail-out multinationals has two flaws. The first is that the US economy is still big enough that a slowdown here cannot be offset by sales outside America. That may change over time, but it has not changed yet

The other piece of news which may have been lost on Wall St. is that companies like Shanghai Automotive and Tata Motors (TTM) are not going to simply roll over and let big foreign companies take there markets. The current picture of corporations in emerging markets is that they are too small and too unsophisticated to stand up to a withering assault from large multinationals. That may be the conventional wisdom, but that does not make it true.

Douglas A. McIntyre