When Did This All Happen

I was driving my son to his 8th grade semi-final football game a couple of days ago when it struck me like a bolt of lightning. Sitting at a red light, the car in front of me, the cars to my left and right, and the car behind me…were all Toyotas. I stopped to ponder this and wondered what are the odds of being stuck at a light and being surrounded by 4 Japanese cars, all from the same manufacturer?

Thirty years ago, I would have taken the odds and placed the bet, but today, it is more common than we all probably realize. So, being a financial coach, I thought I should do some research and understand this phenomenon a little better. The facts I discovered are shocking to say the least, so fasten your seat belt and get ready for this…

The stock market value (the market capitalization- all the shares of stock of a company multiplied by the current stock price) of Ford Motors(F) and General Motors (GM) COMBINED is $34 billion.. Seems like a pretty decent number, right? Pull that seat belt a little snugger…the stock market value of Toyota Motors (TM) is a staggering $193 billion!! Toyota Motors is worth 5 1/2 times the value of our two remaining American stalwarts COMBINED. 28 years in the investment business and I had no idea that it had gotten so out of control. The investing world has voted and Toyota is the overwhelming winner.

So let’s peel back this onion a little more: what gives here? What happened and when did this all occur?

Toyota will complete its fiscal year 2007 on March 31, 2007, and its revenues will be about $196 billion, followed by March 31, 2008 at about $210 billion. The earnings per share (EPS) expectations for March 31, 2007 is $7.67 per share, and March 31, 2008, $8.45 per share. For a company of this massive size, 10% earnings growth is quite admirable. Shareholders equity at Toyota is $90 billion. All very impressive numbers.

As for our two American companies, the news is not so good, and the overall income statement numbers are a bit depressing. GM’s revenues for calendar 2006/2007 are expected to be $170 billion for both years. Flat revenues, no growth whatsoever. Ford’s revenues for calendar 2006/2007 is also expected to be flat at $144 billion for both years. Ford will lose money this year and next, while GM is scheduled to be profitable for both years, but with negligible growth.

GM and Ford are saddled with huge long term debt, $285 billion and $154 billion, respectively; and very low shareholders equity at about $14 billion each. So where do we go from here?

Toyota is the leader in developing the hybrid line of autos, half combustible engine, half electric. Consumer surveys are showing great confidence in Toyota’s leadership position with the Hybrids. The Camry is also the number one selling car in the United States; not the number one import–the number one seller period . Toyota’s luxury line, Lexus, also leads the pack in customer satisfaction surveys and repeat buyers. Repeat buyers has been the strategy of Toyota since the 1970’s. Smother the customers with service, decent pricing and quality and guess what? They come back for more.

Toyota sells each car at a profit. Their operations are lean, efficient and cutting edge. Meanwhile, GM and Ford are hurting with exorbitant medical benefits costs to both their current workers and their retirees. Both companies have to play defense before they can play offense. Both have begun the painful exercise of plant closings, layoffs and extreme cost cutting. It is their only way out of the financial quagmire both are mired in.

Both GM and Ford have been rumoured to be involved in merger discussions with several different European auto makers. It may be a necessary outcome for their survival. Both companies need a major cash rich, profitable partner to go the distance. I predict that in the next 3-5 years, GM and Ford employess will be speaking a foreign language just to get along with their new partners or owners. Anybody remember Chrysler?

Well, we got to my son’s game a little early…his team eeked out a victory. When we got back to our car to go out and celebrate (that’s an ice cream treat for an 8th grader), guess what kind of cars were parked to my left and right? You guessed it….