Analytical Wealth

The big news in the auto industry right now, is that Toyota has at least tied and may have even surpassed GM in total vehicle sales. The news is seen as additional evidence of the declining U.S. auto industry, the emergence of Japan as the dominant producer of motor cars, and perhaps even a stumbling block on GM’s path to recovery.

(From the Wall St. Journal) “General Motors Corp., which is growing in emerging markets but facing continued weakness in its home base in North America, may have lost its 76-year claim to sole position as the world's top auto maker, as its 2007 global sales look to be a virtual tie with Toyota Motor Corp.

GM on Wednesday said it sold 9,369,524 vehicles globally in 2007, up 3% from a year earlier, according to preliminary sales figures. Toyota said earlier this month it sold 9.37 million vehicles last year, but hasn't yet announced a more-precise figure.

The 2007 sales results highlight the divergent paths the two companies are on -- Toyota continuing to expand its footprint around the world, notably in the U.S., and GM's domestic sales and market share falling at home while overseas sales grow. A dozen years ago, Toyota's global sales were half that of GM….

Since 1998, GM's global sales have grown at an average annual rate of about 1.5%, while Toyota's growth rate has been five times that. Toyota expects to increase sales 5% in 2008, but GM wouldn't give a 2008 global sales forecast.

…To combat Toyota, GM is fighting essentially a two-front war. It has shifted strategies and cut labor costs in North America to try to turn around that region and has worked to establish itself as a leader in growing global markets. About 59% of GM's global sales in 2007 were generated outside the U.S.”

If you ask me this story is just much ado about nothing, as Toyota surpassed GM years ago in the key areas where it counts:

Brand Perception: In the eyes of the majority of consumers Toyota (whether it’s the Toyota or Lexus nameplate) simply produces higher quality, more desirable and all together superior cars. It really doesn’t matter if GM sold X many more cars in a given time period than Toyota, if their customers think the neighbor’s Toyota will last longer and is an all around better vehicle, or they wish could afford the Lexus parked down the street.

Growth: since 1998 Toyota’s growth rate has been 5X higher than GM’s; during that time Toyota has become a significantly more profitable company while GM has slowly deteriorated to the point where it’s very survival can be called into question. What good is being the world’s largest car maker if it doesn’t translate into profits and overall strength as a company?

Profits: at the end of the day the only metric that really counts is profit per vehicle sold followed by total profits. Look at the chart below comparing GM to Toyota and other major auto makers:

*Numbers above supplied by Yahoo Finance on 1/23/08.

Toyota claimed the title of world’s most financially successful car maker years ago, a much more important title than having the largest market share or selling the greatest number of cars. Honda sells less than 25% of the total vehicles of GM in a given year, yet is a significantly more profitable company with a MUCH stronger balance sheet; fat lot of good selling more than 4X as many cars is doing GM.

All of the focus on who is selling the greatest number of cars and who has the most market share is all together irrelevant, as GM’s business has been slowly deteriorating since the early 80’s (the mid 70s really) despite having held both titles. The title doesn’t matter if smaller competitors have been more profitable than GM for years now. There may be an emotional value in selling the most cars or having the biggest market share, but GM hasn’t been able to turn either into being more financially successful than its competitors.

The only metrics that should be tracked with respect to the big auto makers is profits per vehicle sold and total profits, followed by a look at YoY growth and brand perception in the eyes of consumers. These are the metrics that will translate into shareholder value and a viable, strong company down the road.

Sources:

The Wall St. Journal: “GM Ties Toyota in Global Sales” – TERRY KOSDROSKY, January 23, 2008

Disclosure: the Author doesn’t hold positions in any of the companies mentioned in this article.