Read the auto makers thread and was reminded of this story. Interesting.
http://blog.wired.com/cars/2008/11/gm-and-ford-may.htmlEveryone knows General Motors, Ford and Chrysler are in deep, deep trouble. Cratering sales, credit downgrades and cash reserves that are dwindling faster than a keg at a frat party have some analysts saying we may see one or two of the Big Three go down for good. Critics like to say Detroit's getting what it deserves because the Japanese build better cars, but guess what -- Toyota isn't looking so great these days, either.
Toyota's stock nosedived 17 percent last week -- its greatest decline in 18 years -- after the company announced it will see an operating profit of just $6.9 billion, a 73.6 percent decline over last year. That's far worse than expected, and it underscores not only the dismal state of the domestic auto market but some strategic mistakes Toyota made on its way to becoming the biggest automaker in the world.
"Toyota has become used to carrying excessive investment, and this has left it vulnerable in a downsizing," Takaki Nakasishi, a J.P. Morgan Securities analyst, told Reuters. "It's important to recognize that the current steep decline in Toyota's earnings is not only a cyclical problem -- the downturn has been exacerbated by its own structural problems."
If Toyota's in trouble, it means a global economic meltdown that has sent auto sales tumbling 32 percent in October alone could shake the entire auto industry to its core.
Toyota has been showing Detroit how it's done for almost two decades now, racking up eight consecutive years of profit growth and consistently delivering profit margins that make competitors drool. For years it seemed the company could do no wrong, cranking out successful cars like the Camry and Prius. Taking advantage of the big three's relative weakness, the company ramped up its sales and marketing operation and aggressively plowed its profits into new North American plants (it now operates 10). It paid off, allowing the company to push its market share from 7.5 percent in 1990 to 16.3 percent today.
But some missteps along the way mean the economic slump is hitting Toyota harder than its Asian rival Honda. Part of it is a timing issue. Seeing a hole in its lineup, Toyota rolled out the full-size Tundra pickup in 2007, just as gasoline prices started skyrocketing and U.S. consumers started abandoning trucks and SUVs in favor of more fuel efficient cars.
Now that the economy is on the skids, the company's breakneck expansion of its U.S. operations isn't looking all that smart, either. The soaring value of the yen hasn't helped, because it's made Japanese exports less competitive and undercuts the value of earnings made in American and elsewhere.
Also hurting the company is its unwritten but understood policy of not laying off permanent employees. It's a wonderful practice, but this year it will cost Toyota $300 million to keep workers on the payroll while its factories sit idle. Nissan, Daimler, GM, Renault, Ford, Volvo and Chrysler don't share Toyota's altruism -- they've all announced layoffs in the last month.
In a way, Toyota is a victim of its own success. It has over the past 20 years transformed itself into one of the two biggest fish (the other being GM) in the pond. But now that pond has turned into a festering swamp of freaked out consumers and eerily quiet dealerships, and it's not such a great place to be.
Toyota won't go the way of Bear Stearns. It has a fat $18.5 billion cash cushion, almost no debt and a big lead in clean technology led by the Prius. Demonstrating its flexibility, it announced earlier this year that it would flip its new plant in Mississippi from building Highlander SUVs to Prius hybrids. And it's speeding up the roll out of new hybrids, with plans to launch four new models next year.
That said, no one expecting things to turn around anytime soon. Toyota's in for some lean times. And that's a big change for a company that for years looked like it could do no wrong.
