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Buy Toyota When There is Blood in the Streets
Nearly 40 years ago I was starving in Japan, living on fish heads and rice, while waiting for the financial journalism thing to start paying off. SoI took a weekend job in Hakone to teach managers at Toyota Motors (TM) how to speak English. As we approached the hotel I saw a dozen men lined up out front wearing cheap suits, white shirts, and conservative ties. Each one took turns picking up a baseball bat and beating the daylights out of a severely shredded dummy on the ground before them, screaming a maniacal samurai scream. I asked my driver what the hell was going on, thinking perhaps that a serial killer had gotten loose. He deadpanned: “They’re beating the competition.”
This was back when Toyota made laughably tiny cars that looked like a giant ostrich eggs on wheels and had to get a running start to get up a freeway onramp. By 2006, the company had seized 18% of the US car market, and GM and Chrysler were wearing a toe tags. Toyota turned out to be a serial killer of American car companies.
Today Toyota, the world’s largest car maker, has been slammed by the perfect storm that has taken its share down to 14.7%. They took eight years to find a defect in an American made accelerator component that caused thousands of accidents, and dozens of deaths, forcing a worldwide recall of 9 million vehicles. Unsurprisingly, the ADR’s here plunged 17% in a heartbeat, to $73.
To me, this all adds up to a “BUY.” You can start with the recall, the largest in history, covering eight models, which promises to be speedy, lavish and generous. It prompted a production shut down, an unprecedented measure in auto history. The company is going all out to reinforce customer loyalty. Toyota still makes great cars. It has not turned into GM overnight. And let’s face it, many people would rather die than drive an American car, this author included.
It’s usually a great idea to buy when there is blood in the streets, and in the auto industry it doesn’t get any gorier than this. I know the management, the philosophy, and the strengths of this company intimately, and they will come roaring back. Take advantage of the rare discount and buy a Prius before gasoline prices spike up again. Let the ruckus over the recall burn out, and add Toyota to your “buy on dips” list. And for heaven’s sake don’t short it.
Remember what happened to that dummy. Ouch!
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily. You can also listen to Hedge Fund Radio at http://www.madhedgefundtrader.biz/
Trouble with fly by wire is that if there is some aberrant EMF handy the Jet crashes into the ocean or the throttle sticks.
Trouble with fly by wire is that if there is some aberrant EMF handy the Jet crashes into the ocean or the throttle sticks.
Sooo True.
Toyota is by far the best built vehicle out there. Now is the time to swoop one up. They blinked. u-Buy. American cars are for S#*t. Save my sixth ford Ranger. Total repairs on all six, $240.00 out of warranty. I never buy a car that doesn't have crank up windows.
Suzuki might be the next Toyota. They have some decent vehicles, and this one looks quite nice: http://www.suzukiauto.com/kizashi/?r=top
Does it make any difference that the "fix" Toyota is pushing is smoke to cover the actual defect in their electronic throttle? What happens after the "fix" is installed and the throttle accelerates uncontrollably and causes an accident? There are uncontrolled acceleration reports for hundreds of cars having throttles made by other suppliers. Toyota has claimed that hundreds of other people who reported accidents were lying about the conditions and circumstances (E.g. "the pedal was stuck by the mat" for cars with the mats removed long before the incident.)
Does it make any difference that the "fix" Toyota is pushing is smoke to cover the actual defect in their electronic throttle? What happens after the "fix" is installed and the throttle accelerates uncontrollably and causes an accident? There are uncontrolled acceleration reports for hundreds of cars having throttles made by other suppliers. Toyota has claimed that hundreds of other people who reported accidents were lying about the conditions and circumstances (E.g. "the pedal was stuck by the mat" for cars with the mats removed long before the incident.)
That chart is danger and opportunity. I dunno. Too hard for me.
Can Toyota go lower? It sure can, especially with Uncle Sam's "probing". But consider this: roughly 380 million Indians are going to enter the middle class in the next decade and these families need cars. Toyota's new commercial impresses me. Their mea culpa was late but they are admitting they screwed up and honing up to fixing their mistakes.
Leo,
No offence, but you dont seem to have much idea about India. They dont have roads to put any existing cars they have forget about the new ones. People park their cars 200 -300 meters away from their home. Right now roads and infrastructure stuff is just a mess.
They are blindly following amricans in terms of debt accumulation. The so called middle class takes loan for even a cell phone.
380 million sounds a good number and looks good only on cheesy mutual fund commercials...The reality is very different.....
Leo - Dont give me the scum about the Indian population and how many cars they will buy. I am Indian and I see a lot of hype being created about the Indian economy here in the US. Most Indians may buy a car but still prefer to use public transport since gas is very very expensive. Indian roads are pretty bad too. Plus Toyotas are way too expensive for Indian budgets. Stop fibbing you moron !!
Last but not least the Indian Sensex should be no higher than 5000 !! Thanks to 401k dollars its sitting at 15k +
Read my comment carefully. Over the next decade, there will be a huge Indian middle class, and yes, many of them will be buying Toyotas. Now, what's your problem? You don't think India can prosper over the next ten years?
I think India will prosper but I think that means this so called "middle class" will be upgrading from a 1 bedroom to a 2 bedroom shack. Some of them may even be able to afford a scooter.
Leo seriously what are you smoking because I want some. 380 million middle class Indians. Their population is about 1.2 billion. You think that a third of the population is going to be driving expensive cars in the next decade. No, they're going to have vast fields of chinese solar panels and electric cars right?
It will be a buy again one day, Let's let ststemic risk work it's way thru the markets. First one I buy will be GS (if they have not gone private). A riskless play if there is one.
Monsanto will control the GMO food supply we all will depend on. That may be a good one as well. Water co's may not be bad either if you are looking out LT.
You got good stuff Leo. thanks for sharing.
Yeah, but Toyota design is plain awful. And yes, i'm gonna buy Cadillac CTS. It's a bargain these days in Moscow.
I don't think TM is adequately priced for a 10-12MM SAAR world (vs. recent historical SAARs in the 16MM range driven by loose credit).
I have a relative who works at a shop that produces metal components for Toyota, GM, and Ford who says Toyota has the most stringent manufacturing tolerances and QC requirements. Stuff that routinely ships to GM and Ford would never get out the door to Toyota.
Design flaws are another matter.
I have bought TM some days ago (72.60).
Everybody on ZH is bearisch, so the stock will go up.
Madhedge. is right.
zh readers are always wrong,
see USD, Gold, Silver ( the new Gold), market short,etc, etc. lol
This guy should be selling stock to my mother. Fortunately she doesnt trade.
TM a buy? Meh. They are the GM of Japan. Fit, finish and quality are suffering. They are currenlty ruining Subaru to better fit their corporate model, and their cars are a far cry from the never-dead pick-ups they use to make.
http://www.youtube.com/watch?v=CWc_flGRT_o
For now, I am going long Seppuku implements.
A short blade is a good backup for a long rifle.
Stocks have been significantly overvalued since 1982 - ever since the 401k programs started. Check any of the global charts at chartsrus.com and you will know the extent of the bubble.
Toyota stock is NO EXCEPTION !!
I'll pass on catching a falling knife, if I miss a market top my losses don't get passed on to the taxpayer.
I think you underestimate how long it will take to repair 9 million cars. Huge number considering the only produce around 10 million a year. and lets not even get into the Pruis brake thingy. Nope our good old Union automakers could not compete so they resort to taking them out with politics. Fun how this recall problem spread to Honda too. I think Ill short, betting against a gov't who owns GM is insane.
Toyota is still expensive by almost any measure. 129 times 2010 earnings? 22 times optimistic analyst forecasts for 2011 earnings? The share price effectively attributes at least a $50 billion value to Toyota's brand equity, an intangible asset that has just suffered a lasting impairment. The problem is not just that multiple serious defects surfaced at the same time. The real issue is that Toyota has handled these issues horribly, with the CEO ducking the media for weeks and the entire company stonewalling the NHTSA for years. Is there an element of protectionism in this? Yes, but Japan is certainly in no position to complain about a little protectionism. And the insurance companies that are pushing this are not concerned about where the cars were made. They would be happy to have consumers buy cars made in North Korea and the Sudan if that would reduce insurance payouts. Moreover, don't be fooled by attempts to blame American manufacturers like CTS for any of Toyota's problems. The problem with the brake pedals sticking is a design flaw, not a manufacturing mistake by CTS.
Toyota's fortunes depend on what Obama is told by his UAW handlers.
Actually, Ford are making some pretty darn good cars these days.
I'm just saying.
and why would you want the company which is having trouble making the last centuries must have product? years ago I bought Chrysler stock during the bankruptcy proceeding, but I wouldn't do it again.
that said what should we buy? I don't think tech is the answer, as the economic effects of tech tend to be deflationary. A world with $5000 homes, $500 cars and free food and clothing raises some interesting problems for investors. The money you so covet may become obsolete.
In a world where the income you can derive from your labor is falling fast, or even nonexistent, and the cost of living remains a constant, some form of self sufficency seems like a good idea. Solar/ Natural Gas Hydrogen generators/ backyard Nuclear Reactors. Allocating savings, which aren't going to grow, in order to bring down the bottom line on corporate and personal liablities seems like the strong play. Water, food and energy.
But my real Warren Buffett play for the next 50 years is POT. Yep, Marijuana. The advocates of hemp are already touting the plants many uses, but no one has really worked with the THC ingredient, to provide medicinal solutions to everything from headaches to toothaches. POT is where COKE was a hundred years ago, and Coke is ubiquituous, mostly as a salubrial beverage. THC derived compounds, because they are organic offer solutions without the side effects, and this time around in the business cycle they will sell you the catalyst which converts the raw material into the finished product, and you grow the raw material yourself. Kindof like an attachment which turns tap water to Coca Cola.
This is only a guess at this point, but two things matter, pot is ubiquitious, and nearly legal in most states. The big pharma companies aren't coming up with anything new, they mostly recycle old compounds, market and test, and sell. They're not set up to handle it, but the corporate business model is doomed anyway.
That's a really forward looking idea if you have a few years left watch for it.
Hemp is an incredible plant with many uses other than medicinal or spiritual. the tree huggers should love it. It could revolutionize the paper industry and save millions of trees. Who takes it public first will have one hell of an IPO.
in a not too distant future you take your hemp plants to the recycling center, and receive either paper products, or vouchers for paper products, and you use chemical catalysts to convert the THC to the final product. medicinal, etc, that you want. you grow the basic stuff, they give you the means to make it into whatever you want. something like that.
You're kidding, right?
You do realize this is a weed that grows like crazy, and has been systematically hybridized so that the psychoactive properties are 20x stronger than they were 30 years ago?
What's to stop people from just growing it themselves? NOTHING. Christ, my friends and family are already keeping chickens for cheap eggs. You think they're gonna pay retail for corporate reefer?! LMAO.
Hemp (industrial use of cannabis) might be a good new agricultural product if the sentiment regarding cannabis improves, but it's sure as hell not going to be the next tech!
Unless the "reset button" is pushed on the global financial system, we are going nowhere.
Tobacco is legal to grow and has large demand and yet private growing is more or less non-existant.
Nobody is going to waste time growing their own weed when a pack of 20 joints is under $5
"They took eight years to find a defect in an American made accelerator component that caused thousands of accidents, and dozens of deaths, forcing a worldwide recall of 9 million vehicles."
Pedal assemblies under question are made in Canada.
http://www.ctscorp.com/locations/ca_ont.htm
wtf
canada is the 53 state
Actually, Ford are making pretty damn good cars these days. I'm just saying.
They truly are becoming an American company. First joining NASCAR and now this, let the long downhill slide begin. All that is left is a bankruptsy and bailout by the US Guv to complete the transformation..
Maybe a buy. Depends on how much more US gov't intervention is coming out of DC against Toyota.
If you knew that answer to that, you might have a clue where the bottom is.
+1 There is a not-so-subtle stink of protectionism in all this. The Japanese would be wise to shift more of their component manufacturing back to the homeland for QC measures. Let GM pick-up all those lost jobs.
Just for the hell of it, I just shorted 100 TM @ 75.90. Let's see how it plays.
You may have been a tad early, but I like it. I think you can get it down to somewhere near 68/70 at this time.
I assume you must have called your broker. You clearly cannot see a computer screen from behind your enormous ball sack.
I have no probem with buying Toyota, if it gets beaten down by a temporary crisis, like now. The problem with the MadHedge thesis is that the stock price has much lower to go. Why buy now?
This is typical of these times, BTW. Asset prices still have not collapsed, March 6 notwithstanding. The bottom still looms ahead--keep your powder dry.
Blood in the streets? Pshaw! At most, a paper cut (so far)...
i'm amazed that the mad hedgie has such a shallow anlysis. great company... stock down 17%... buy! that's what i expect Larry Cudlow's guest to talk about.
would i buy or recommend a post-recall manufactured toyota? especially those made without "made in the usa" components? yes, definitely. would many people listen? i doubt. the "black eye" will last many months or perhaps years. and so will the jokes on the late night TV.
so, i would not buy TM. even if the stock is down 17% the only way to make $$ would be if economy was on a sustained and accelerating growth track. as i see it, there's a global oversupply that's not going away anytime soon. the koreans sell cars that are just as (in case of toyota - now apparently even more) reliable than the japanese. TM won't be able to charge premium prices on their cars anymore, or they will lose customers. i'm afraid it will take a loooong time before TM can recapture the lost market share, or return to the old profit margins.
Oh what a feeling! Good idea mad.
Nothing to do with how good or bad Toyota is, but TM is significantly overvalued thanks to this new equity bubble !! I will buy it around $ 40. Thanks but no thanks for the drivel !!
Drivel?
You are free to disagree.., but drivel?
I'm just saying...
That was uncalled for, but the point he makes (MHFT is ignoring an incredibly bearish macro environment) is valid.
I will consider going long individual stocks again once the DOW:GOLD ratio approaches 1:1.
Either that, or they push the "reset button" on the global finanical system.
I agree. TM is goign to 80 very soon. People will still buy toyotas.
good reads: http://stocknews.freeoda.com
40-odd years ago, Toyota were making this http://en.wikipedia.org/wiki/Toyota_2000GT
Stunning.
It's nice, but it does bear an uncanny resemblance to this:
http://en.wikipedia.org/wiki/E_type
If you want a seminal Toyota, it's really the Camry or Corolla. Both cars are well designed, carefully built (most of the time) and run reliably for years.