Saturday, December 23, 2006

Toyota to become #1 Automaker


After 75 years atop of the automotive world, GM (NYSE: GM) is poised to lose its coveted crown to Toyota (NYSE:TM) in 2007. While the de-throning of GM has been expected for a while, this is finally becoming a reality as Toyota continues to open factories across the globe, to increase its world-wide presence, while GM continues shutting down factories and laying off workers solidifying its descent. I for one would rather buy a Toyota's Scion/Toyota/Lexus lineup rather than spend a simliar amount on GM's Saturn/GMC/Lincoln which have less bang for the buck and considerable quality nightmares.

A quick look at the stock prices of both these companies shows the picture. On the top, its clear that Toyota's value has well surpassed GM for a while, with its value over 4X that of GM. Perhaps one the biggest events that insured GM's death knell was news in November that major GM Shareholder Kirk Kerkorian would be selling his shares. Previously, he had ramped up in the stock building his holdings to 56 million shares. Thanksgiving week, he sold off 14 million shares lowering his stake to 42 million shares and showing his lack of trust in the company.

Toyota (TM)

General Motors (GM)

Who knows what 2007 will hold for this struggle of power. As customers demand quality and innovation, Toyota can stay on top of its game by continuing to offer the quality cars that have topped Consumer Reports most reliable cars list for years. While I forsee a quick rebound by GM as highly unlikely, Toyota may not have smooth sailing after reaching the top. Time will tell if its ultra aggressive expansion will cause havoc on quality controls as it spreads production around the globe. It may run into some of the same problems faced by GM and for the sake of brevity, instead of giving TM a STRONG BUY rating, I place a watchful BUY on Toyota's stock. As for GM, with no bright prospects in sight I keep a SELL rating GM's stock.

One Love,

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