Toyota (TM) Catches Cold

Toyota (TM) reduced its earnings estimates by more than 50%, making it the last large global car company to admit that there is nothing to be done about salvaging this year or next. Declining consumer spending has ruined the car industry, and even the most successful operator cannot do a thing.

Investors thought that Toyota might dodge trouble by having large customer bases in Europe, Japan, and emerging nations such as India and China. But, by many estimates China’s auto sales will be flat in the last quarter of the year.

The Center for Automotive Research, which is the leading authority on the economics of the car industry, believes that one or more of the American car companies will falter and have to take its production offline next year. It has done a model to show what happens if all three fail. The consequence is three million lost jobs and hundreds of billions of personal income destroyed.

The effect of Detroit going under would compromise the US tax base and wipe it out in states such as Michigan.

The Toyota news could not come at a worse time for The Big Three, or, perhaps it comes at the best time. While Chapter 11 is a real possibility for Ford (F), GM (GM) and Chrysler, Washington has turned a deaf ear. Perhaps news that Toyota is in trouble will convince the administration that the failure of the auto industry is not a "local" problem.

Douglas A. McIntyre