Toyota and Honda Stock Take A Hit at Home

Samir Syed
by Samir Syed

Even as Japan's Nikkei index rose by a modest 0.3 percent in one day, reports that the market capitalizations of both ToMoCo and Honda declined. Their value sank by 1.2 percent and 1.4 percent respectively on their home turf trading index. Bloomberg's analysts attribute the decline in stock values to the fact that both companies do a significant part of their business in the currently bearish U.S. market. More specifically, they believe that slumping real estate prices in the United States will lead to a consumer spending slow down in the world's largest economy, which will reduce new car sales. As goes the U.S., so goes the world?

Samir Syed
Samir Syed

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  • Samir Syed Samir Syed on Nov 24, 2007
    The market is in decline in Japan, so having a stagnant market share is actually a good achievement. This statement doesn't make any sense. If the market is in decline and market share is constant, then overall percentage decline in sales will equal overall percentage decline in the market. If a market is worth 1 billion and one company has 50% of its share, it owns 500 million of the market. If the market declines by 10% to 900 million, the company can maintain 50% market share by selling for 450 million of goods and services. Market share remains constant, sales are down by 50 million (500 - 450). When a market is in decline and sales are maintained, the implication is that market share rose.
  • Jthorner Jthorner on Nov 25, 2007

    Japan is already in a declining population mode. I suppose that the Earth First crowd considers this a win, but for Japans economy and society it is a huge challenge. Japan's automotive market is saturated and likely to be flat-to-down for decades to come. The US is a far more important market for Japan's automotive and electronics industries than is their home market. Considering the huge success of Japanese based companies in these industries and the relative size of their home market vs. the US this is no surprise. Thus, economically Japan's auto makers are more linked to the US than to their home market. The softness of the US dollar also puts great pressure on them. It will, however, likely drive continued investment in US manufacturing, design and engineering facilities and people. Given all that, a slight pull back in Japanese automotive stocks is no surprise. All must be seen in context though: Recent market capitalization numbers from Yahoo finance based on close of business today: Toyota: $174.20B Honda: $121.31B GM: $15.37B Ford: $15.17B Trailing Price:Earnings Ratio Toyota: 10.51 Honda: 19.00 GM: not meaningful, loosing money Ford: not meaningful, loosing money Interestingly enough, at first blush the market says that a dollar of Honda earnings is worth more than a dollar of Toyota earnings. Of course simple P:E ratios are a crude way to value a company, but over time the point of owning a stock is for a share in the expected future earnings of the company. In theory Honda or Toyota could buy GM and Ford in stock transactions with minimal dilution. Neither seems likely to do such a stupid thing though. It could happen though. GM purchased Opel and Vauxhall at a time when those companies were struggling in their markets and GM was doing relatively well. Curiously enough, if you add up Ford's cost to purchase Jaguar, Land Rover, Aston Martin and Volvo plus the losses it sustained with it's English Patients you get a number larger than the total market cap. of Ford today.

  • Johnson Johnson on Nov 25, 2007
    Samir Syed, I worded that a bit awkwardly. What I meant was that Toyota is maintaining a very high market share in a declining market, which is a good thing. Also I'm not 100% on this, but Toyota's sales in Japan may be dropping slower than the market is declining as a whole. If that's the case, Toyota would be increasing market share.
  • Edgett Edgett on Nov 25, 2007

    I noted with interest that even the Chinese Yuan is actually increasing against the dollar, which is not a good sign for the U.S. economy. Seven years ago, the Euro was at about a 1:1 ratio with the dollar; today it has risen more than 40%; again this suggests that our "robust" economy is actually just inflation created by cheap money. The cheap money is needed to keep the debt under control as the government prints more and more in order to support a $450 billion military budget and a war. None of this is good for U.S. wage earners, and will definitely lead to a softer market for non-necessities like automobiles. Unfortunately the public seems not to understand that they work 3 1/2 weeks a year to support the bloated military budget. The spending is unsustainable, and the Nikkei values are reflecting the hit that Toyota and Honda will take as the U.S. market softens. Then again, if Ford or GM does a Chapter 11 and their sales tank as a result, Toyota and Honda may be the beneficiaries of this; as well, a low dollar may allow both to export "cheap" vehicles from the U.S. to other countries with stronger currencies.