GM vs. Toyota

Nearly three years ago, I wrote this post as one of my first on this blog.

Entitled "Queens of Denial," the post contained this passage,

"I’ve done quite a bit of research on drivers of consistently superior company performances, looking over long timeframes among many large-cap companies. The very best companies consistently grow revenues at high rates. This typically involves both repurchases by customers, as well as an ability to sustain price levels. This type of customer behavior, repurchasing and paying full price, is usually seen when a company adapts its offerings to evolving customer needs over time in a competitively-advantaged manner.

GM and Ford don’t appear to be able to do either one. That’s their real problem. Failure to solve this problem will overwhelm the resolution of any of their other apparent problems, including those involving workforce healthcare.

Judging from where GM and Ford appear to be putting much of their energies these days, I’d say we’re going to be shy at least one major US-based car manufacturer before the decade is out."

Tuesday's Wall Street Journal article concerning Toyota's imminent dethroning of the once-vaunted GM as the largest vehicle seller in the US merely adds more evidence to my point.

But the really stunning information in the article which caught the attention of both my partner and me was this: GM's market value now stands at about $8B, while Toyota's is $154B.

That's nearly a 20x difference.

The nearby Yahoo-sourced price chart for Toyota, Ford, GM and the S&P500 Index tell a pretty clear story.

Since 1993, when, I'm guessing, Toyota was traded publicly in the US, the Japanese-based automaker has never really underperformed its American counterparts.

Since as far back as the late 1990s both Ford and GM have been on a downward drift, first flattening before gently sliding below their initial value early in the decade.

For an automaker, Toyota has actually done well, matching the S&P over nearly the entire period.

Looking more closely at the last two years, the same information shows that all three companies tracked the index closely until late last year. After a brief rise, GM began to slide severely, while Ford maintained its momentum with the index until its recent surprise announcement of unexpectedly low sales.

Zooming in on the last year, however, we see that GM really has deteriorated more rapidly and severely than Ford, while Toyota, while underperforming the S&P, has had a much milder decline of only -20%.

By contrast, Ford lost 40% of its market value in the last twelve months, while GM has now plunged by more than 60% in market value.

No wonder a recent stock price chart for GM on CNBC showed the current price below that of the late 1950s.

The Yahoo equivalent chart only goes back to 1962, but that is, sadly, sufficient time to show the same picture.

GM CEO Rick Wagoner has now taken shareholders back to a time when John Kennedy was still alive. All of the value (less dividends) created in the intervening 40+ years has been wiped out by Wagoner and his team of inept executives.

It's no wonder, with an eight-year decline in stock price, that the forward value ascribed by investors to GM is only 5% of that of Toyota.

That's a startling expression of the same information which I cited earlier from the Journal article. But that's what the numbers mean.

A stunning commentary on the total failure of the management of America's largest automaker in under a decade.

Is it any wonder that I believe GM is finally on the edge of death? Even my foreign exchange trading friend whom I mentioned in this recent post agreed that while Ford might survive, GM is likely to die before the economy recovers, barring some stupid political intervention.