More Automotive Developments: Toyota, GM and Nissan

The automotive sector is once again in the news this week.

A Wall Street Journal article earlier this week reported on the self-parking Lexus LS460. Toyota, its developer, demonstrated this amazing technology in a parking garage 'within sight of Ford's Dearborn headquarters'.

The story made, in my opinion, several key points.

One was the story of the crystal headlight glass. Evoking the attention to detail that was involved in the legendary development, over 20 years ago, of the original Sony Walkman portable cassette player, the car's chief engineer painstakingly redesigned the headlights to more accurately resemble fine crystal. To do so, he actually had a crystal headlight made, then sent this to the supplier in order to be sure the latter had the exact "look" desired, from which to manufacture the production-grade headlights for actual assembly.

Second, Toyota is now enjoying, and employing, the accruing benefits of success, including internal funding for growth. The article mentions many measures of Toyota's recent success: profits, size, hiring plans, etc. Suffice to say, their attention to consumer tastes, desires, and the fulfillment of those, has driven it past Ford and GM in terms of profitability and recent growth rates.

It should have. That's how markets are supposed to work.

The Journal story's ending comment is noteworthy. It comments on Toyota's continuing 'inferiority complex.'

To quote the piece, "Unlike baseball pennant races, contests for sales and dominance in the (auto) industry never end."

That's entirely right. Joseph Schumpeter taught us that "the race" never ends- anywhere, anytime. Thus my search for consistently superior performance, which, in a well-run, well-positioned company, can be the resulting hallmark of this healthy inferiority complex of Toyota's.

Next, we have yesterday's and today's coverage of the Paris alliance talks between Carlos Ghosn of Nissan, and Rick Wagoner of GM.

Between the WSJ piece yesterday, and this morning's continuing coverage on CNBC, it's evident that, for better or for worse, Rick Wagoner is rolling the dice now, with all of GM's shareholders' money on the line.

Personally, I find it laughable that anyone can call this year, based upon such brief and one-off events, a "turnaround" for GM. The chart on the left is what traders, analysts, and CNBC talking heads are all excited about right now. Over the past three and six months, GM's stock price is easily outperforming that of the S&P500.




This, we are told, is the result of investors believing that GM is now in turnaround mode, and will return to automotive dominance imminently.

Not so fast....







Here's what the charts look like for the past one and two years. Completely different, aren't they? GM is flat for the past twelve months, and down for the past two years.

Now I read, and hear, that GM's CEO is feeling so confident of his brief, one-time trick of shedding some labor costs, that he's decided to demand tribute from Carlos Ghosn and Nissan/Renault, should the two form an alliance. According to the Journal, GM wants a "multibillion-dollar payment" from Nissan and Renault.

Wagoner is really a clever guy- give him that. He doesn't want this alliance. It was forced upon him by Jerry York and Kirk Kerkorian, his newest and most irksome board member and shareowner. How to evade the alliance? Loudly proclaim that a non-sales, non-customer-based, one-time financial cost reduction is, in reality, the much-heralded "turnaround," and then use that "fact" in order to make an unacceptable demand as a condition of any alliance with Nissan and Renault.

Yesterday's Wall Street Journal front-page piece, and this morning's coverage of the situation by CNBC, both cast doubt on the likelihood of any alliance being consummated. The most recent word is that the two parties have agreed to go away and reconsider terms, etc, for the weeks remaining in their 90-day alliance evaluation period which ends on October 15.

So Rick Wagoner is now "all in" with his shareholders' money. The Nissan/Renault alliance probably marks the last refueling stop on GM's uncertain road to recovery. If Wagoner successfully derails the alliance, then his shareholders better pray he has more up his sleeve than more job and cost cuts. And maybe Wagoner better check his own liability insurance for coverage from gigantic shareholder lawsuits for fiduciary breach.

Back to Toyota, though. Because that company figures in the GM alliance talks, too. According to Ghosn, Toyota is the company to beat, and he wants this alliance in order to have a decent chance of surviving that juggernaut's impending rise to global automotive dominance. Being a game of momentum and scale, Ghosn realizes that his companies have to be able to stay the course with enough capacity and design capability to match the Japanese giant, stride for stride, going forward.

Clearly, Ghosn isn't sure he has enough resources to do it presently. But GM may be demanding too high a price, and for an alliance that Ghosn doesn't even seem, based on his comments this summer, will even work effectively.

Once again, we see Schumpeter's theories in action. Wagoner is playing in his little Detroit fishbowl, and just wants Nissan/Renault, and Ghosn, to go away. Maybe to Dearborn, maybe back to Tennessee. Yet, GM can't really demonstrate a full-fledged, customer-based resurgence in its own fortunes at this time, nor, really, a very highly-probable scenario in the near future, either.

Ghosn, on the other hand, is running scared. Which is a good thing. He's competent, tough, and now, scared. Just like Toyota, his main adversary for the coming, pre-Chinese automotive sector rise, decade. That kind of healthy fear transforms companies into nimble, fleet customer-needs-serving, consistently superior total return performers. Not always, but it helps.

So now we have the lay of the land, in the microcosm of two of this week's automotive sector stories. Toyota demonstrates why it's the company to fear in the sector. Nissan's Ghosn demonstrates why he's the best bet for challenging Toyota globally. GM's Wagoner demonstrates that he's more interested in being left alone, to the potential detriment of his shareholders. And Ford is desperately hoping that maybe Ghosn will come back to call on them, and let them at least fight on the number two team, rather than alone, against Toyota.