Evaluating This Auto Giant's Many Strengths

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Driving around Las Vegas with my wealthy girlfriend in her Bentley, she confessed to me that she was tired of paying high gas prices and getting low mileage, and was seriously considering purchasing a Toyota (NYSE: TM) Prius.

“I’m the last person in the world who I think would buy a Prius, and I have seen a lot of them popping up all over Las Vegas,” she explained to me. “Based on this, don’t you think Toyota would be a good stock to buy?”

Fair question -- let’s do our initial piece of homework with a SWOT of the company.

Strengths

  • Innovation: They created the first hybrid car and were there to meet consumer demand when oil prices skyrocketed, while US manufacturers like GM (NYSE: GM) got caught behind the curve, still building gas guzzlers.
  • They have factories all over the world. The fact that Toyota has manufacturing plants in America enhances its brand and gives patriots the excuse to buy. The same applies in other countries.
  • Brand, Brand, Brand: Most of my cars have been Toyotas. Most people associate well-made cars that last a long time. Even though Ford (NYSE: F) and GM have by all reports increased the quality of their cars, I still have residual memories of the hunks of junk they made back in the 80’s that fell apart seconds after leaving the dealership. The Ford Pinto used to flat out blow up if you got rear-ended. This is sadly remembered, and often still joked about by the older generations.
  • Global reach: so few countries where it doesn’t have a presence.

Weaknesses

  • A temporary one, as things generally move back to equilibrium, but the ultra-strong yen over the last year has been a drag on Toyota profits.
  • Americans and Europeans have less disposable income than they used to. That pent up demand for new cars might only be catalyzed if we have an economic revival.
  • Bad press from the floor mat / accelerating cars: Whether true or not, the company had to recall many vehicles, and this negatively affected their brand.
  • The Chinese truly hate the Japanese and would much rather by a car produced by just about any other country. Sadly, this prejudice won’t be going away anytime soon.
  • They recently lost their #1 position in sales volume in the US, falling behind GM and Ford, a trend investors would not want to see continue.
  • Trading at 14 times earnings, the company is not especially cheap for a car manufacturer. It does, however, pay a decent 1.6% dividend.

Opportunties

  • The average car in the US is 11 years old, which is a record. This is due at least in part to the increasing quality of car manufacturing, making them last longer, but nevertheless, this is an opportunity for all car makers, as people like to upgrade to new technology.
  • Coinciding with the last point, there is pent up demand from the financial crisis of 2008
  • The driverless car: Google is working to outfit the Prius with robotic driving. Although Google will undoubtedly use this technology for all cars, this undoubtedly gives Prius and Toyota a leg up.
  • Current low interest rates (which the Fed has promised to maintain for some time) may make new cars more appetizing.
  • Robotics: Toyota is not just a car company, and it has created a robot to care for the elderly population of Japan, which will be largely financed by the government (to the tune of 90% actually). The creation of such technology is truly exciting and, with the amount of money Toyota puts into R&D, promises to show rapid advancement.
  • You heard it here first: If it bought out Tesla (NASDAQ: TSLA) (which it has the means to do), it would gain an instant foothold in the EV market, gain a cool factor it doesn’t have, and be able to give the vehicle maker instant economies of scale. Plus, it would enhance its environmental image as well. I admit it's unlikely, but if any of you readers have a thought on this, I’d be interested in hearing it.

Threats

  • Look at the ledgers of governments across the world. From Europe, to America, to the cities, and you will see red. As this bleeds over to consumers, demand for new cars will decrease.
  • As it is part of Japanese culture, where workers believe they have a job for life, the company is very unwilling to ax staff that might be redundant in function. The Japanese way is to find something different for them to do. While I commend this on a social level, it does cut into profits.
  • Continued recalls: the latest being 150,000 units of the Tacoma model. While no company is immune to recalls, as car manufacturing is incredibly complex, Toyota has had more than its share lately, and if this trend continues, it would certainly have a negative effect on its brand.
  • The increased quality from other auto makers, Ford and GM, is a big reason that Toyota lost its #1 position in the US. Other companies are simply more competitive than they used to be, and will likely become even more so. 


margiecfl has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and Tesla Motors. Motley Fool newsletter services recommend Ford, General Motors Company, and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure