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Some really curious logic

June 24th, 2009 · No Comments

Most economist argue that publicly managed companies would fare worse than privately managed companies. Not this guy. He argues one should not buy Toyota because it’s facing nationalized competition in the US. Curious argument, that…

Why I’d Avoid Toyota, The #1 Automaker in the U.S.
Tom Lindmark

Depending upon your philosophical bent, this is either good news or another sign that the Apocalypse is near. The WSJ is reporting that Toyota is slated to take over the title as the number 1 seller of light vehicles in the U.S.

  • The bankruptcies of General Motors and Chrysler are changing the landscape of the auto industry. The two U.S. companies are shuttering plants, shedding dealers and reducing their product lines. As a result, Toyota Motor will become the largest seller of light vehicles in the U.S. It has held the top spot globally since last year.
  • The Japanese auto maker won’t be the only beneficiary of the two companies’ woes. But in terms of status, market clout and bragging rights, Toyota will be the No. 1 winner. Its share of the North American light-truck and car market probably will rise to around 20% from 18.4%. GM will end up in second place with 13% to 16% — with Ford hot on its tail.
  • Although Toyota stock doesn’t change hands directly in the U.S., the company’s American depositary shares (TM), which represent them, are listed on the New York Stock Exchange. And, at a recent price of around $76 — about $30 below their 52-week high — they’re a good bet for long-term investors.

The Journal suggests that the stock might be a good long-term buy. They point out that analysts suggest it could hit $115 and that it hit $137 a couple of years ago. Maybe, but just a caveat. Toyota and others now have the most fearsome of competitors – government owned companies.

In the long run that probably means success for the competitors as political decisions trump business common sense. In the short run it could be formidable as the government does whatever is necessary to prove it didn’t make the stupid decision that everyone acknowledges it did.

Buy the stock at your peril.

——–[End of article]———

Not buying Toyota because GM and Chrysler are being nationalized (sort off)? Huh? Usually the economic argument is the other way around.

By the way, ownership of a company matters less on performance than is usually assumed. What really matters is whether the company is facing competition. This lesson has been learned the hard way, when many public monopolies were privatized and became private monopolies.

This rarely led to better performance (it invariably led to a tremendous increase in compensation at top management level though). Only when competition was introduced in the markets (by technological developments or regulatory changes, like in the telecom markets), performance (like efficiency and innovation, customer responsiveness) increased.

Tags: The World according to Economics