Toyota on track to beat GM as world leader in auto sales

May 20, 2006

Both GM and Toyota released their corporate reports for first quarter 2006, but GM’s showed weakness and contraction while Toyota’s showed strength and growth.

GM reported a net profit of $445 million, but here is where it came from:

• They sold their part ownership of Suzuki for a net cash inflow of $316 million.
• Without this one time deal, their net income was only $184 million. However, this was only because their profit from GMAC, their financing arm, was more than their losses from their auto manufacturing and sales arm.
• They lost $462 million on auto sales in North America.
• They also lost $237 million on auto sales throughout the rest of the world.
• They would have lost another $345 million from health care insurance costs, but they rescheduled the payments over the next 7 years.

GM would not release a forecast for 2006, but their plans to improve their business include reducing North American manufacturing capacity by 1 million units by December 2008 via closing plants. They will also recognize gains from selling GMAC Commercial Mortgage.

Toyota reported a net profit of $3.45 billion for the first quarter. Of this, their automotive manufacturing and sales were $4.7 billion, and their U.S. sales was $850 million. Small, compared to the rest of their business, but still more than GM made in its own backyard.

Toyota forecast growth of a half million vehicles sold in the next 12 months, bringing the total to 8.45 million vehicles. Last year, GM sold 9.2 million vehicles, basically flat from the year before. Instead of shutting plants, Toyota is investing in and building plants, to meet surging demand. Part of the demand is from perceived scarcity - Toyota never makes quite enough cars, so that people see them as slightly hard to get, and therefore more desirable. GM, on the other hand, has spent the last year discounting their vehicles because they had made too many

What it Means:
Basically, GM is scrambling to get out of a hole, while Toyota is growing. Toyota may not overtake GM this year, but at current growth rates it could do so in 2007.

Action Steps:
Talk to your financial advisor about avoiding or even selling U.S. auto stocks. Make sure your Pacific funds include Toyota.

Source:
GM Q1 2006 Report
Toyota 2006 Financial Results, and 2006 Q3 Financial Results