Gojirra99

Toyota Is Way Too Smart to Bid for General Motors: Doron Levin

March 17 (Bloomberg) -- As General Motors Corp. slides deeper into financial distress, it's tempting to imagine rival Toyota Motor Corp. riding in to end GM's miseries by buying it.

Toyota would instantly vault to No. 1 in the world from No. 2. Then it could transfuse its proven genius for manufacturing into GM, making the automaker's factories competitive, while bringing hope to workers in crumbling U.S. communities like Flint, Michigan, and Anderson, Indiana.

Amid the nostalgic tears over GM's demise, Toyota would win kudos from the knowledgeable few who understand that more efficient methods of business and management inevitably drive out the old and outmoded, thereby creating value. (President George W. Bush has already ruled out a U.S. government bailout for troubled U.S. automakers.)

And maybe, since we're fantasizing, Honda Motor Co. might decide to buy and restructure Ford Motor Co., allaying the anxiety that stalks Ford's hometown of Dearborn, Michigan. Such an acquisition would be fraught with irony, of course, since the late Henry Ford II famously vetoed the not-so-dumb idea of installing engines from then-newcomer Honda in Ford cars.

Just Imagine

Toyota's market capitalization of $194.7 billion, combined with the auto industry's only AAA credit rating, permits the Japanese automaker to buy GM, should it choose, with less strain than a whale needs to swallow a herring. GM's market capitalization of $12.4 billion, about the same as chocolate maker Hershey Co., and junk-bond credit rating are tantamount to a for-sale sign.

So why not imagine it? The public has watched, time and again, as successful, growing enterprises devour weaker competitors.

But back to the reality of today's auto industry. Detroit's managers and experienced Wall Streeters know why Toyota, with all its financial clout and credibility, will never acquire GM: Poison pills, in the form of massive GM health-care and pension liabilities, plus a grossly non-competitive U.S. labor contract with the United Auto Workers union. (Honda won't touch Ford for the same reasons.)

Another major hurdle to a Toyota-GM rescue: Culture. Toyota's self-sufficient, deliberate and cost-conscious operations are the diametric opposite of GM's.

Bigger, Slower

Toyota would be weakened and slowed down by ingesting GM, which tends to overspend, overanalyze and appoint too many bosses. The U.S. automaker, unable to grow by dint of its own labors, has squandered untold billions on well-intentioned purchases of technologies and on alliances with others. The result has been mostly large write-offs and wasted time.

This week, by contrast, Toyota joined forces with Subaru, GM's erstwhile ally. Toyota will build Camry sedans at Fuji Heavy Industry Ltd.'s Subaru plant in Lafayette, Indiana, while investing a modest $230 million to upgrade the plant.

Fuji and GM had been partners until last October, when Toyota bought 8.7 percent of Fuji from GM for $315 million. GM had recognized Subaru's strengths, but somehow could never capitalize.

In its venture with Fuji, GM in 2004 introduced a restyled version of Subaru's highly-rated WRX sedan as the Saab 9-2X. The 9-2X -- nicknamed the Saabaru by some -- flopped in the U.S., selling fewer than 6,000 last year. Troy Clarke, president of GM Asia Pacific, announced in October that ``there were not enough collaborative projects to sustain an alliance'' between GM and Fuji.

Surprise in Korea

In fairness to GM, the automaker has done well turning around and realizing value from the once-bankrupt operations of Daewoo in South Korea -- a notable exception to the GM's general pattern of botching global alliances.

Toyota, if it has any interest in GM's U.S. assets, is too smart to try and grab them now. Should GM continue on its present course and land in bankruptcy court, Toyota and other automakers could bid for factories, brands, distribution networks, patents and other valuable assets at deeply discounted prices -- after legacy cost liabilities and flawed labor contracts are resolved and creditors are satisfied.

Even South Korea's Hyundai Motor Co., which is bouncing back from earlier stumbles due to poor quality, recognizes the opportunity to grow in the U.S. market at the expense of Ford and GM. Kia Motors Corp., 38.7 percent owned by Hyundai, on March 13 said it would spend $1.2 billion to build a second U.S. assembly plant.

March to Top

Kia's plant is slated for West Point, Georgia, a state where GM and Ford recently said they would close assembly plants because of falling sales.

Toyota, which overtook Ford as the world's second-largest carmaker by unit sales in 2003, is closing the gap with No. 1 GM. Toyota raised its global sales forecast to 8.03 million units for the year ending in March 2006, up 8.4 percent from a year earlier, while GM sold 9.2 million cars and trucks last year. Five years ago, GM sold 8.6 million, compared with Toyota's 5.8 million.

Toyota, though intent on becoming No. 1, is showing scant interest in growing by writing big checks to outsiders or employing merger specialists. That makes its march to the forefront of the world auto industry all the more remarkable.




To contact the writer of this column:
Doron Levin in Southfield, Michigan at dlevin5@bloomberg.net

bitkahuna

iTrader: (20)

No chance Toyota would touch GM with the current labor contracts and obligations to retirees.

TheRupp

That's very, VERY true. Toyota would want nothing to do with the union that GM deals with.

O. L. T.

iTrader: (17)

Toyota will wait for it to crumble and die then ****** all the remains with no strings.

Bercasio

iTrader: (1)

Toyota are like vultures(which is a great practice move in this kind of situation) wait, and wait, and wait. From there they will pick up the rest of the meaty scraps and carry on with little effort!....

toy4two

But Bankruptcy effectively ends Union control doesn't it? If GM workers aren't smart enough to accept working for a world class auto manufacter without Union protection, then let them be unemployed.

toy4two

Can you imagine a Toyota Corvette Z06

Finally the leaf springs and old push rod would be out.

bitkahuna

iTrader: (20)

As I understand corporate bankruptcy, GM could break any financial obligation as part of a restructuring proposal to a court. A company can't come out of bankruptcy unless a court thinks a proposal will make a viable company for at least a while. But with something the size of GM it will be very political, with politicians not allowing a 'slash and burn' exercise to get GM profitable coming out of bankruptcy, but that's what it's going to take.

I think the bigger problem is just the culture in Mo' town - where union workers have had it so good for so long (huge pay for guaranteed jobs with no performance incentives allowed for fear of rocking the boat) that nothing's going to change short of moving the work elsewhere which is only possible once the union agreements (extortion) can be broken. GM management is also to blame for not more aggressively working to change the situation instead of hoping it will go away as retirees DIE.

The union workers though haven't really faced up to the reality that they've almost killed the golden goose and that a huge number of the workers are going to lose their jobs with it.

bitkahuna

iTrader: (20)

Pushrods at least, aren't the problem. They permit a much 'lower' engine, which is kind of a signature look of the Corvette. Low vehicles with huge front engines (Corvette, Viper) benefit from pushrods. Pushrods are also SIMPLE and there's something to be said for that. But pushrod engines do have limited power for the displacement compared to amazing VVT-i double overcam engines for example. That's why you won't see a 4L Corvette.

papachino

But that will be cool, two of my favorite car companies merging. I never knew Toyota was that humungous

PhilipMSPT

iTrader: (5)

This is the big problem. It's been discussed before that the problem with GM is their way of building their cars, not the expense of the cars.

GM has many overhead costs, mainly people power. It is not GM's fault for providing such compensation to their employees; we all want the best pay possible. But the problem is that they provided compensation without being able to increase profit. Why give workers a raise when productivity and products do not improve? Their employees got "raises" without improving GM quality. That was a big mistake. Toyota is making profit and is compensating their employees accordingly. Now that GM is losing money, they need to lose employees accordingly. No profits mean no bonuses, yet unions think that they should still get it. GM employees, especially unions, will learn their lessons from this.

It is difficult for companies to provide their employees with high salaries, medical insurance and health benefits, matching 401k, bonuses, pensions, expense accounts, discounts on products, etc. GM should take all these into consideration and realize that you can't provide any of these without profit, no matter how much unions beg for it.

encore888

A friend told me he had invested in GM the other day and I dropped my fork...literally.

If Toyota buys GM, I will be severely disappointed. They are indeed way too smart to do that.

Ichigo

I totally agree that Toyota should stay far far away from GM. There is no way GM culture is going to mesh with Toyota culture. Look at AOL-Time Warner... not to much amounted from that "mega merger". The last thing I want to see is some sort of hybrid brand of Toyota-GM where the "quality" of Toyota is all mucked up with crap GM products.

rominl

iTrader: (4)

i definitely don't want to see toyota do anything about gm.... toyota can become world's largest by themselves already, they don't need anything from gm. plus, buying them, toyota probably needs to do a lot more (with a lot more money) to make it back into decent shape