W&L Economist Surveys Changing Auto-Industry Landscape

Washington and Lee economist Michael Smitka, who studies the automobile industry, reacts to the announcement that Toyota is again the world's largest automaker. Listen to his comments below:

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Michael Smitka, Professor of Economics, Washington and Lee University

Michael Smitka

Monday's announcement that Toyota has regained the No. 1 spot for global sales among automobile companies did not surprise Washington and Lee University economist Michael Smitka.

But Smitka, who specializes in the economics of the auto industry, is unconvinced that the unit sales number is the best metric on which to judge the comparative strength in the industry.

Toyota sold a record number of 9.75 million vehicles worldwide, placing it ahead of General Motors at 9.29 million and Volkswagen at 9.1 million.

"Toyota had faced a number of severe disruptions in production, not only from the earthquake and tsunami in Japan but also from floods in Thailand," said Smitka. "In addition, the U.S. recall of Toyota models because of unintended acceleration had a temporary hit on sales. All of these things combined to disrupt Toyota sales, so what we're seeing is a significant recovery on Toyota's part."

On the other hand, Smitka points to General Motors' strength in growing markets such as China, where the American automaker is No. 1, while Toyota is No. 3. He also notes that GM has shed several of its brands and is deliberately selling fewer cars now.

"As an economist, the metric I tend to look at is profitability," Smitka said. "In examining the most recent data from Toyota and GM, two things stand out. One is that GM is significantly more profitable in terms of income relative to assets. And second, GM is doing that with a comparatively small share, about 7 percent, of its profits coming from its financial services arm, whereas 25 percent of Toyota's profit comes from that part of its operation. When GM went into bankruptcy, it shut down the financial services arm and will be rebuilding it over time. That should help its profits in the future."

The sales number, said Smitka, is a reminder that Toyota is "not done and finished because of these short-term issues that were big negatives, but neither is it totally dominant in the automotive sector."

Even with Toyota and GM battling for the 1-2 spot in unit sales, Smitka said that Volkswagen out-earns GM and Toyota combined. "They may be weak in the U.S.," he said, "but globally they are the gorilla."

For more details on Smitka's views on the Toyota story, see his blog at Autos and Economics.

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