Toyota spokeswoman Shino Yamada said, “It’s very regrettable that some of our suppliers have been involved in violations of antitrust laws and we recognize the seriousness of the issue. We will take concrete measures against individual cases based on the details of the investigation.”
Denso and Yazaki refused to comment on the ongoing cartel investigations. Fujikura, Yazaki, Mitsuba, Ichikoh Industries, and Stanley Electric say they will take measures to prevent price-fixing. Fujikura, Koito Manufacturing and Mitsubishi Electric disclosed that they have not allocated money to cover for possible fines, while at least eleven other Japanese companies under inquiry would not comment on the fund allocation issue.
Last year, Denso and Yazaki pleaded guilty to “multiple price-fixing and bid-rigging conspiracies” in selling parts to auto manufacturers in the U.S., according to the Justice Department. Yazaki paid $470 million, the highest by a Japanese parts maker, while Denso shelled out $78 million, accounting for over half of last year’s antitrust fines imposed by the U.S. Department of Justice. In Japan, Yazaki paid a lesser amount of 9.6 billion yen ($106 million).
Purdue University law professor John Connor said that last year, at least $1.1 billion in fines have been levied by antitrust regulators around the world on auto components producers involved in cartel investigations. Based on car parts global sales value, total fines could reach $5 billion even without including consumer damage claims. Osaka lawyer Takuro Maekawa, who represents clients in cases suing for damages involving auto parts price-fixing said, “The loss from the fines could be big enough to shake the foundation of these companies. Japanese companies have been extremely lax in terms of cartel prevention.”
Acura Re-invented as Premium Brand
Honda has created its own challenge for itself: repositioning Acura models as luxury. Basically, the company is trying to make its own version of Toyota’s Lexus. The problem with this strategy is that consumers already connect Acura to value, not luxury. Honda U.S. marketing chief Mike Accavitti said, “What we have to do from a marketing perspective is ramp up the emotional element.” This is a tall order and would require teaching consumers to rethink how they think about Acura as a brand.
This strategy is not going to be a slam-dunk.
Valuation
Unfortunately, Toyota and Honda are pricey on a price-to-earnings basis:
| Ticker | Company | P/E | P/S | P/B | P/FCF | D/E |
| F | Ford | 8.54 | 0.35 | 3 | 17.03 | 6.59 |
| GM | General Motors | 9.02 | 0.24 | 0.99 | NA | 0.44 |
| HMC | Honda | 16.93 | 0.65 | 1.31 | NA | 0.98 |
| TM | Toyota | 19.12 | 0.73 | 1.31 | 41.94 | 1.15 |
Ford Motor Company (NYSE:F) is highly leveraged, enough that investors should think twice about it. General Motors isn’t dramatically better in terms of stability: It went bankrupt in the financial crisis, and it is taking steps to become more leveraged.
Conclusion
There aren’t any compelling buys among carmaker stocks at this time. Current controversy in conjunction with a high P/E ratio would suggest that now is not the time to buy Toyota. Wait for valuations to drop to more reasonable levels before adding shares to your portfolio.
The article Can These Automakers Drive Your Portfolio Higher This Year? originally appeared on Fool.com and is written by Bill Edson.
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