Toyota in the Comeback Driver’s Seat for 2012

Toyota Prius TMToyota (NYSE:TM) has had a rough few years. First, the financial crisis and resulting recessions brutalized the automaking industry and prompting Toyota to post its first-ever loss in 2008. Then, fears of “unintended acceleration” led to the recall of some 9 million Toyota vehicles across early 2010. Most recently, this year, Toyota production was thrown into disarray by the tragic earthquake and tsunami that affected businesses in Japan.

But investors and fans of the Prius and Camry should take heart — Toyota is revved up and ready for a comeback in 2012. And if you buy what Toyota is selling right now, the Japanese company will once again return to its perch as the world’s No. 1 automaker.

Toyota, like all auto stocks, certainly has room to improve. It has seen revenue crash from pre-recession levels — and TM stock has flopped as a result. Shares are off more than 50% in five years and are down 18% so far in 2011.

But Toyota’s woes have continued while other companies have started to pick up. Reports this week show Toyota’s global vehicle sales for 2011 are projected to finish at 7.9 million vehicles, down about 6% from 2010 numbers. That likely puts it in the No. 3 spot behind both Germany’s Volkswagen (PINK:VLKAY) and Detroit’s General Motors (NYSE:GM). Though full-year sales numbers aren’t available yet for either of these automakers, both are expected to top 8 million.

The good news for Toyota investors is that the company has targeted an ambitious sales total of almost 8.5 million for next year, thanks in part to stability returning after the disaster in Japan but also because of growth both in America and in all-important emerging markets like China.

General Motors had been at the top for more than seven decades until Toyota took the crown in 2008. And its recent return to dominance is bittersweet. GM had to enter bankruptcy and rely on Uncle Sam for a bailout, and the company remains a shadow of what it was during the boom times of the early 2000s.

Consider that in 2000, the auto industry moved 17.4 million cars. This year, analysts are heralding a “resurgence,” but U.S. auto sales are going to hit only about 13 million.

Still, there’s something to be said for having the biggest piece of a smaller pie. And Toyota is determined to topple GM once more thanks to the power of its Prius hybrids and a renewed focus on quality and reliability that Toyota became known for (before recall woes, of course). After all, it wasn’t long ago that the Camry was the gold standard of sedans for many American drivers.

Analysts like Mamoru Katou of Tokai Tokyo Research say that if Toyota can continue to push its hybrids, revitalize the Camry and tap into emerging markets, “it won’t be a surprise to me if Toyota reaches a new record in global sales.”

That’s not just crazy talk, either. Toyota is tracking almost $230 billion in sales in the current fiscal year — on par with its 2008 numbers — and is estimating $250 billion the following year. Profits aren’t even close, since smaller vehicles and smaller margins are the order of the day, but it’s certainly an encouraging sign.

Those are just sales projections, of course. Before investors run out and buy Toyota stock, let’s remember that the real success of these vehicles is going to be up to the consumers who drive them every day and their ever-changing tastes.

For instance, GM, Nissan (PINK:NSANY) and upstart Tesla (NASDAQ:TSLA) are betting big-time on electric vehicles being the way of the future — even though EV sales are dead in the water now. Hybrids are dominant, but a transition to electric vehicles might hurt the Prius’ appeal. And though Toyota has posted recent gains in year-over-year sales, making up for lost ground can’t necessarily be seen as true growth.

If Toyota takes its eye off the ball on quality or suffers another recall black eye, those estimates could just be wishful thinking.

Jeff Reeves is the editor of Write him at editor@investorplace??.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

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