Toyota's grim warning
Toyota (TM) is the world's largest car company and probably the one with the strongest balance sheet. So when Toyota catches a cold, much of the industry gets pneumonia.
Toyota is warning of two more lean years in the global auto industry. That should chill GM (GMGMQ) and Ford (F) to the bone, since both are counting on at least a partial recovery to return them to profitability. The Treasury should take note as well. The money it has put into Chrysler and GM may be inadequate.According toReuters, Toyota's new CEO said, "We want to do everything possible to avoid a third consecutive year of losses." Based on his firm's projections, he knows that may not be possible.
Leaving aside the effect that a slow car market recovery will have outside the U.S., the lack of a recovery in America could devastate The Big Three. A domestic market that produced 16 million vehicle sales four years ago will produce about 10 million this year. Even with the cost cuts at U.S. car companies, another year or two of extremely low sales will challenge the new, stripped down industry.
Now that Ford, GM, and Chrysler have improved their balance sheets and hammered down costs, their only real enemy is continuing slow sales. Toyota is saying that is what they can expect.
Douglas A. McIntyre is an editor at 24/7 Wall St.