Novice Investing - Toyota Deserves King of The Hill Title

Date: Monday 01st 2008f December 2008 04:32:30 PM

Toyota Deserves King of The Hill Title - 12/23/2005

By: Novice Investing Staff

In 2006, Toyota Motor Corp. (TM) is expected to eclipse General Motor Corp. (GM) as the world's number one car manufacturer. It reaches the plateau the old-fashioned way; building quality cars one car at a time. How about its biggest rival General Motor? It lost $ 5 Billion so far this year. Meanwhile, its balance sheet is leveraged due to its financing unit despite the unit's contribution to GM's coffer.

On the other hand, Toyota Motor is coming along nicely. It is expected to produce record profit of $ 10.9 Billion in fiscal year ending on March 2006. To give you an idea, General Motor currently trade at market capitalization of $ 10.54 Billion. Toyota can use its one year profit to buy out the entire common stock of General Motor, the number two automotive producer. The market of course values Toyota Motor stock highly. It has 16 times more market capitalization than General Motor. This is not surprising since in the long run, common stock will have a fair value corresponding to its profit, not revenue. Therefore, even when General Motor has revenue that matches Toyota, it is valued much much less due to its inability to produce profit.

What makes Toyota so successful? If you look at its product line, the company does not have dazzling products and yet, customers want them. Apparently, most customers are buying vehicle not because of its fancy design. Sure, design is important but not that important judging from Toyota's success.

Toyota is known for its durability and reliability. Therefore, it is safe to assume that consumers prefer cars that are durable rather than flashy. Toyota is not a one time wonder either. It has been steadily gaining market share for the last twenty years. It does this not by spending truckload of money in marketing. Sure, it does advertise its products. It gains market share with product quality and the right customer attitude.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Toyota Motor Corp. (TM) or any other securities.

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