The auto industry is one of the biggest industries in which to invest, with some of the industry giants poised to make incredible returns. The auto industry has seen tremendous growth recently and is set to shine by the end of the year, with industry giants looking to improve global operations. Toyota Motor Corporation (ADR) (NYSE:TM), along with General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F), is one of the major players in the industry. Even though the auto industry has seen incredible growth during the past couple of months, a lot of observers believe that the auto industry is yet another bubble that’s about to pop soon.
Auto industry analysis
Overall, the auto industry showed over 5% growth, with an increase in truck sales as a major factor. General Motors witnessed 6% growth in the trucks segment after selling over 53,000 units. The company sold nearly 250,000 vehicles in the period, which showed a growth of 6.4% year-over-year. Ford, after an incredible turnaround story from almost collapsing to being a healthy company, led the trucks market after selling 67,000 trucks last month, showing a 6% growth year-over-year. In terms of total vehicles, Ford witnessed 7% growth after selling nearly 230,000 vehicles in the period. Even though Toyota Motor Corporation (ADR) (NYSE:TM)’s overall growth during the month showed just over 1% increase, Toyota Motor Corporation (ADR) (NYSE:TM)’s Tacoma performed quite well and showed over a 7% increase, compared to the previous year.
Valuation
Toyota Motor Corporation (ADR) (NYSE:TM), with a market cap just under $180 billion, is currently trading around $113. So far, 2013 has been a good year for Toyota, as the company’s share price has seen decent growth. The company’s stock has been growing since reaching the $75 mark last November. Even though Japan has seen some crises recently, and still has several problems, Toyota Motor Corporation (ADR) (NYSE:TM) doesn’t seem to be affected in a major way.
Regarding American companies, General Motors is currently trading around $30 and has a market cap of over $40 billion. General Motors has also seen some growth, compared to last year’s share price of $20. Ford, on the other hand, is trading around $13, with a market cap of $53 billion.
After the bailout of General Motors, and Ford’s turnaround story, both companies have been looking better and healthier, with numerous growth opportunities going forward. Let’s now pay some attention toward the Japanese auto maker, Toyota. Here’s a SWOT analysis of Toyota, which will give investors a better picture of the company and where it stands in the auto segment.
Strengths
One of Toyota’s biggest strengths is its brand name. For decades, the company has been manufacturing quality vehicles, used all over the world. Both General Motors and Ford have improved the quality of their vehicles significantly, which is why they have seen impressive growth in recent years. However, the quality of these American companies wasn’t the best in the early 80’s and 90’s. Toyota, on the other hand, has maintained its brand image over the years. Even though Toyota is a Japanese company, its plants in the U.S adds something more, as consumers have an excuse to ditch good old American manufacturers.
There is no doubt that Toyota is still one of the favorites of consumers, as Toyota’s lineup is durable, reliable and known for its quality. An external strength for the company is the improving economic conditions and consumer confidence. March was perhaps one of the best months that Auto makers saw in recent years and if the conditions continue to improve, the demand is likely to grow, with Toyota being one of the major players to fulfill this demand.
I should also mention another short-term strength, which is not only benefiting Toyota, but is benefiting almost all Japanese auto manufacturers. The weakened Yen is already benefiting Japanese giants like Sony Corporation (ADR) (NYSE:SNE), and Toyota is set to improve its profitability as the Yen continues to decline. The company increased its profit forecast by 10% to $9 billion for the year, which makes it a 5 year high. The increase in profit would also be an indicator showing Toyota’s recovery after a downfall due to the Japanese disaster in 2011. The weakened Yen doesn’t only present Toyota with improving marginal profitability, but also helps Toyota to lower costs and prices in order to be more competitive. Aside from that, this factor also helps Toyota increase its advertising expenditure and include better and new features in the upcoming cars while maintaining a the same price.
Weaknesses
China is probably Toyota’s biggest weakness and the disputes between China and Japan is likely to affect all major Japanese manufacturers. China is a huge growing market for manufacturers like Toyota; however, after recent disputes, the company will have to lower its sales targets in China. Even though Toyota’s January sales showed an increase in the Chinese market for the first time in nearly a year, sales in China are likely to remain steady, if not drop, in the coming months.
The Japanese economy is another weakness for Toyota and we have seen how the 2011 natural disaster almost made Toyota collapse. Even though the company has seen impressive growth since the disaster, Japan’s current volatility is one of Toyota’s biggest risks. Toyota is heavily dependent on Japan’s economic conditions and if the country faces another natural disaster or economic downfall, Toyota could be affected severely.
Opportunities
Green technology is one of Toyota’s biggest opportunities going forward. Toyota is a leader in the green technology segment and is likely to maintain its position in the future. Green technology is a growing segment, as more and more people are adopting eco-friendly products. Once the green technology auto market reaches its potential size, Toyota will be set to capitalize in this relatively new segment.
Aside from that, Toyota’s upcoming models should also be monitored closely. Toyota already has a wide customer base with its popular lineups, including the Corolla. The company is expected to release new models soon, with its latest Corolla model for the U.S market. If the company manages to grab the attention of new and potential consumers with its upcoming models, then this can easily increase its global customer base.
Threats
Competition is one of the biggest risks associated with investing in the auto industry as the industry is extremely competitive. Toyota’s biggest competitors are General Motors and Volkswagen, and these three giants dominate the auto industry. However, the company also faces threats from relatively smaller players like Ford and Honda Motor Co Ltd (ADR) (NYSE:HMC). In order to measure how the company performs compared to competitors, we will need to look at some of the upcoming models from all the companies. Ford’s Focus recently beat Corolla and became the best-selling car, so threats are increasing as Ford and General Motors continue to release better vehicles. Toyota’s Corolla has lost some of its edge and dominance in recent years, and consumers are now expecting further improvement in quality and design from the company.
Conclusion
The auto industry looks set to give investors major returns, but only for those who invest in the right auto company. The competition in the industry is as fierce as ever, as all the major players are expected to release their latest auto models. Some investors might stick to investing in the good old American companies like General Motors and Ford. However, I believe that Toyota can beat all odds and become the leader in the industry, once again. Ford and General Motors have had problems in the European markets, and both are still struggling in that particular market. Toyota, on the other hand, is trying to improve its position in the huge Chinese market. Toyota’s future growth opportunities and expectations of increasing profitability are just too good to ignore, which is why investing in Toyota might well be worth the risk.
The article What You Need To Watch At Toyota Motors originally appeared on Fool.com and is written by Yasir Idrees.
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