Toyota passes GM and crushes it financially

The Japanese company takes the lead once again as the No. 1 carmaker. Should investors in the American car company worry?

By 247 Wall St. Jan 28, 2013 1:13PM

Row of cars in car lot fotog Tetra images Getty ImagesBy Douglas A. McIntyre

 

Toyota Motor Corp. (TM) passed General Motors Co. (GM) to become the world's largest auto company after selling 9.75 million vehicles globally last year. While that's the main headline, what should be more important to investors is the contrast in the market value of the two. Toyota's is $152 billion, while GM's is $46 billion -- a gulf too large to be explained by sales. High expenses at GM are a better explanation.

 

Some may argue that the ownership by the U.S. government and unions of GM has tamped down its value. Meanwhile, Toyota has recovered from the production problems it ran into after the massive earthquake and tsunami in Japan. Still, those facts are insufficient to explain the difference between the two companies' values.

 

GM's management, under CEO Dan Akerson, has crippled the company's bottom line with successive poor decisions. The first of those was to keep a major presence in Europe. The Vauxhall and Opel units lose several hundred million dollars a year, and they have been a drag on GM's profits for decades. Akerson claims GM can turn Europe around, but he has yet to give investors a plan for this. The European recession has continued to press down car sales in the region, meaning GM must increase its share of a shrinking market. Local companies, particularly Volkswagen, have such deep roots that they will be impossible to dislodge.

 

The second knock against Akerson, which appears frequently in commentary about GM, is that the carmaker has not produced enough new models in the U.S. to keep its market share at home. GM's U.S. market share dropped from 19.6% in 2011 to 18.1% last year.

 

GM's significant problems make clear Akerson's single largest mistake. He has not matched global expenses with revenue, which means that costs worldwide need to be cut. GM's revenue in the third quarter was $37.6 billion compared to $36.7 billion in the same period in 2011. But net income dropped from $1.7 billion to $1.5 billion. Specifically the problem was that:

 

GM North America (GMNA) reported EBIT-adjusted of $1.8 billion compared with $2.2 billion a year ago.
GM Europe (GME) reported an EBIT-adjusted of $(0.5) billion compared with $(0.3) billion a year ago.

Analysts may say that the heart of GM's problem is revenue in Europe and the U.S., but that is only half of its problem. The top car company in the U.S. spends too much.

 

More from 24/7 Wall St.

Tags: gmTM
8Comments
Jan 28, 2013 4:51PM
avatar
I'll never buy an Asian non-union made Automobile.....NEVER, NEver, never.
Jan 28, 2013 3:38PM
avatar
Get rid of the Union Thugs and I might buy one of their cars !
Jan 28, 2013 3:09PM
avatar
I think its time to break up GM and let each division fend for themselves. Bring back Pontiac and Oldsmobile. Let each division have their own proprietary power trains, body styles, and engineering. Like the days of old. Its the only way to bring true competition and free enterprise.

But for GM....the bottom line is the bottom line. Consolidate and make profit. I blame both corporate and union bureaucracy for the fall of such great auto makers.

I would have loved to have a new Pontiac G8 GT in Stryker Blue but what is the sense if there no support from the division for parts and such.

Jan 28, 2013 2:15PM
avatar
Goverment Motors spends too much?  

Tell me it an't soooo.....
Jan 28, 2013 1:48PM
avatar
This just in, Communism and Socialism breeds corruption, sloth, laziness and damage while capitalism and meritocracies and free-market forces breeds honesty, engagement, thoughtfulness, growth, and prosperity. 

The comparison beween GE and TM illustrate these yet again as has been shown every time since the beginning of time.

More propaganda at 11. 

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

111
111 rated 1
272
272 rated 2
474
474 rated 3
656
656 rated 4
638
638 rated 5
699
699 rated 6
623
623 rated 7
486
486 rated 8
260
260 rated 9
128
128 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.