Toyota Can Finally Take Over The US Car Market

Toyota’s (TM) share of the US light vehicle market is 18% and Honda’s (HMC) is 10%. GM’s (GM) share of its home market is about 22%. Fifty-five years ago, the No.1 US car company had 54% of the US market. By this time next year, GM’s piece of the American car pie could drop another 50%, bringing it closer to Honda’s.

It seems improbable that GM could lose that many customers so fast. But, Rick Wagoner, recently departed CEO of the company told Congress last December that consumers won’t buy vehicles from a bankrupt company. Some of the people at the hearings figured Wagoner was bluffing, trying to convince Washington that a Chapter 11 filing would bring an end to the firm’s ability to market its products because customers could turn to cars made by competitors which were in reasonably good financial shape. But, most research done recently indicates that Wagoner was probably right, at least right enough that GM’s sales could be clobbered by consumers who believe that their warranties will be worthless and that their dealers will disappear.

A new Consumer Reports survey shows that 78% of people polled are unlikely to buy a car from a bankrupt car company. Nearly two-thirds said they were highly unlikely to make a purchase under those circumstances. Another recent study by market research firm CNW polled consumers who plan to buy a new car within six months.  More than 8o% of the respondents said they would switch brands if the vehicle they wanted came from an automaker that went bankrupt. A third survey, this one from Rasmussen, showed that 51% of consumer said they would not buy a car from a manufacturer in Chapter 11. While the poll results are not the same, they point to a similar conclusion. GM and Chrysler will lose a tremendous amount of business if they are operating in bankruptcy.

The government has gone so far as to say that it will guarantee warranties on GM and Chrysler cars. To quote the President directly “Let me say this as plainly as I can. If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired just like always. Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.” Unfortunately, many people don’t understand what it means for the government to back a warranty if dealers close. Many others won’t have heard or read about Obama’s speech. But, most of all, a lot of consumers don’t want to be troubled. They can buy a car from Toyota, or Honda, or Nissan and not have to consider the matter at all.
After years of poor management or bad luck, GM and Chrysler have reached the point where they are not viable as independent companies. They need US aid whether they remain “solvent” or have to get court protection. Almost every American has seen that news on TV or read about it in the paper. It will be hard to imagine what consumers will think when they find out that a company which was the largest corporation in the US for years is bankrupt. It is like finding out that the telephone company has gone out of business. (Perhaps people actually do worry about that, which is why they subscribe to cable.)

The American consumer has already lost faith in his own ability to buy things. He knows he might lose his job, he might not qualify for a loan, that his house is worthless, and that the local Sears (SHLD) was closed. If he wants to return something he bought at the store, he will need to drive 50 miles to do it. People who have trouble buying things that they need probably do not want to have their problems compounded by worrying about what they should do if something they buy suddenly breaks.

Toyota has played a long waiting game. It played well. It made better cars than US companies. It kept labor costs low. It built a reputation for durable and dependable products. The Japanese car company is being hurt by the global car sales downturn, but it never had the labor cost or corporate debt problems that plagued GM. It has the balance sheet to make it through the crisis. Maybe Toyota has been lucky for decades or maybe Toyota was just smart.

Whether it is due to wits or good fortune, Toyota will become the No.1 car company in the US sometime in the next year, and an American car operation will never hold that position again

Douglas A. McIntyre