Is Toyota the Next Sony?

I came across a story in Bloomberg this morning regarding Toyota needing a loan due to declining auto sales in the US.

From Bloomberg,

Toyota Motor Corp. borrowed from a Japan-owned bank in the first quarter to finance U.S. car sales as private investors demanded up to 50 percent more interest for the company’s debt.

“Our higher cost of funds shocked us,” following the bankruptcy of Lehman Brothers Holdings Inc. in September, George Borst, chief executive officer of Toyota Financial Services- America in Torrance, California, said yesterday. “We’ve been turning over rocks everywhere” to find capital to lend to buyers of Toyota, Scion and Lexus automobiles in the U.S.

Toyota, the world’s largest carmaker, is offering near- record incentives to lure consumers as demand plunges. The company posted better-than-expected sales in the U.S. last month in part because it increased incentives per vehicle by 88 percent from a year ago, according to Edmunds.com.

“Toyota needed the loan as it’s not making money in the U.S.,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages $28 billion. “This will make it easier for other carmakers to ask for government aid.”

While it is true that Toyota and other Japanese carmakers are run much leaner than US automakers were before they started their precipitous decline, the auto business requires a ton of leverage in general – whether it be for the firm or the consumer.  Toyota had a AAA credit rating up until recently and it appears that it is getting worse.  As the US market is not as creditworthy or appears to be shunning debt in general, borrowing to buy somethign that historically plummets in value when you drive it off the lot may appear somewhat silly.

Years of favorable foreign currency markets and a much cleaner better business model allowed Japanese automakers to operate much more efficiently and capture the bulk of US market, but omething makes me believe that the good times are coming to an end.  With US automakers going bankrupt and India’s Tata coming out with $2500 cars, it appears that there is a lot of turbulence in the auto industry right now.

People still need cars, but perhaps they don’t need NEW cars or the same type of cars.  One thing I can see coming out of this is a more robust secondary market for cars.   As financing for new cars becomes difficult, maybe the fact that the Japanese have built a better car will bite them in the foot, as people realize that right now a used car may be the best deal.

I think a very possible scenario is that Toyota could be the next Sony.  As we begin to see cheaper emerging market cars come out that have secondary market prices and lives, kind of like what happened to the TV and VCR.  The Japanese perfected the technology and then the Koreans made them cheaper (yet crappier).  Growing up I worked in a video store that did TV/VCR repairs and the repairman would tell me that the old VCR’s “never broke” but these days the new, cheaper, ones are basically “built to break”.   It will be interesting to see, but it appears to me that we may be seeing Toyota go the way of Sony.

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  1. Maklo

    Difference between VCRs and cars is if your car “breaks”, you might die.




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