What a difference a day makes. On Monday, analysts at Edmunds.com expected that with pent-up demand driving October car sales, Toyota (NYSE:TM) would be one of the biggest market-share gainers in the U.S. Unfortunately for TM, the sales growth it forecast for October turned into a disappointing sales slip of nearly 8% when the actual numbers came out Tuesday.
Toyota’s missed expectations came as the Detroit Three’s U.S. sales increased. Fiat SpA’s Chrysler unit posted 27% sales growth in October, driven by its Jeep brand, while Ford (NYSE:F) sales rose more than 6%. General Motors (NYSE:GM) retained its No. 1 spot in the U.S. auto market despite October’s flat growth. The market was comparatively kind to Toyota on Tuesday: TM stock slipped by about 2%, while GM was down nearly 10% and Ford slipped about 5%.
Tuesday’s numbers indicate that while vehicle production in Japan had returned to normal after being pummeled by the March earthquake, tsunami and nuclear disaster, headwinds remain for Toyota as it strives to get up off the mat. Just 13 months ago, TM was on top with 15.4% of the U.S. vehicle market. By September 2011, it had slipped to third with only 11.5% of the U.S. market.
TM shares have dropped more than 30% from their 52-week high of nearly $94 in March — before the Sendai disaster. The stock closed at $65.28 on Tuesday — more than 1% below its 52-week low set Oct. 4. While the Japan disaster dealt a similar blow to Honda Motor Co. (NYSE:HMC), its U.S. sales edged down less than 1% for the month and HMC shares closed up slightly on Tuesday.
Here are three reasons Toyota stock is not yet ready for a comeback:
Just when vehicle production in Japan was back on track, extensive flooding in Thailand — a major vehicle part and Asian manufacturing hub — threatened to wreak havoc with assembly lines. Toyota already suspended production at several North American plants because of worries that many of the 100 or more auto parts it needs from Thailand will be unavailable. While this second major supply chain interruption will impact U.S. automakers, too, Toyota can ill afford to lose any production volume now.
Automakers and all other Japanese exporters are struggling with a yen that’s at its strongest levels since the 1950s relative to other currencies. That means Toyota must cut costs further to make its vehicles competitive. The government is selling off yen to improve the exchange rate for exporters, and TM already has asked suppliers in Japan to cut costs or risk being replaced by parts manufacturers in other countries. Still, Toyota and others say the government needs to do more to help.
The Euro Debacle, Part Deux
The world’s markets turned bullish on last week’s deal to resolve the euro zone crisis. On Tuesday, markets fell just as fast when Greece threw its own stink bomb into the fray. Failure to resolve the debt crisis increases the risk of a global economic slowdown — a peril that would have a chilling impact on auto sales. Toyota’s European market share, which has slipped this year because of low inventories, could further lose traction if the crisis cannot be resolved quickly.
As of this writing, Susan J. Aluise did not own a position in any of the aforementioned stocks.