Toyota Takes the Lead

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Photo: hobbes8calvin, Creative Commons, Flickr

A wise man once said that there's a first time for everything. Apparently the old adage holds true in the automotive industry as Toyota edged out General Motors in first quarter car sales for the first time in history. Industry analysts saw it coming as early as 2005, so the announcement didn't come as much of a surprise to those who had already watched the Japanese automaker pass Ford on its rapid ascent to the top. For now, Toyota (TM) holds a slim lead over GM (GM) in 2007 with 2.35 million units sold versus 2.26 million units for the declining domestic giant. Toyota's global sales figures increased 9% from the previous quarter.

At this point, marketwatchers have come to the consensus that Toyota's steady progression past the Big 3 means it will likely hold the pole position for more than just one quarter. The recent developments reflect more than just the major domestic automakers' inability to produce a top notch hybrid like the Toyota Prius. The Big 3 need to develop a streamlined design process, treat suppliers and retail customers more like people and less like variables that affect the profit margin, assign well-defined duties to their employees, and focus their energy on a couple of key brands instead of stretching themselves too thin.

Of course, GM CEO Rick Wagoner and others tell us that the #1 spot doesn't really matter and that the market has room for many winners. GM did pick up 3% in first quarter global sales and performed especially well overseas with a 17% sales increase in Latin America, the Middle East, and Africa. Analysts tell us that the key battleground will shift from America and Japan to highly-populated countries with growing economies such as China and India. In fact, the automotive industry spent $1.9 billion on advertising in China in 2006. Look for that number to increase as urban residents in those areas earn more income to spend on better transportation. Whoever gains the upper hand in Asia may very well have a distinct advantage for the foreseeable future.

So which automaker has the better outlook? Toyota has the edge for now. High growth and proximity to Asian markets add to the strong momentum that the Japanese automaker has built over the last few years. While GM has certainly made some positive strides, its stock presents a classic case where speculative investors can buy low and hope the brass will do what it takes to reward their faith. Unfortunately, analysts say that high debt and low sales may have GM on the ropes longer than it wants to admit.

Disclosure: I do own a mutual fund that may contain one or more of the stocks mentioned in this post. However, any interest that I may own is subject to the discretion of my mutual fund manager.

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