Servicing The Toyota
I sent in the Toyota for its first service: at 1000 km, it’s a minor checkup, where Borneo Motors (the authorised Toyota dealer in Singapore) cleans up the car, changes the oil and returns it to the owner almost-spanking new. The service centre (of which there are currently five in Singapore) was very comfortable - well stocked with newspapers, TV, Internet, and coffee. Booking a service over the Web was effortless, and if you arrive on time, the mechanics turn around the car in one hour.
Considering that each Toyota sells 20,000 new cars every year, the agent spares no effort to make sure that its customers are well taken care of. A quick calculation will estimate that there are about 100,000 Toyotas on the road, and if everyone serviced their cars twice a year - that makes 200,000 servicings. That’s about 40,000 per service centre or about 100 cars a day being processed at each centre. Impressive, isn’t it?
Not if you consider the car industry as a whole. With worldwide sales of 60 million new cars a year, its a $1 trillion industry - a mega-industry that powers whole economies. New cars spawn the need for spare parts, accessories and servicing - a virtual sub-economy to itself.
The size of the companies involved are tempting because of the sheer scale the revenues it brings in - surely there’s good money to be made. Yet, the valuation of car manufacturers are at an all-time low. Ford has revenues of $170 billion a year, and a market capitalisation of a mere $25 billion. EBay (my favourite Internet stock) has revenues of only $3 billion, but is valued at $75 billion.
Is the auto-industry doomed to languish in misery? It is laden with low margins and stiff competition as the invisible hand ruthlessly weeds out the inefficient and weak companies. The spate of industry consolidation will continue - my bets are that the smaller Japanese and European manufacturers will continue to disappear (American manufacturers have long been consolidated into the mega-companies, GM and Ford).
What about national manufacturers such as Malaysia’s Proton - surviving thus far through protectionist barriers that provide temporary shelter from the competition, but lacking the economies of scale to compete effectively. Struggling to survive, they will continue to serve niche markets and may even achieve limited success. Nonetheless, the odds are stacked against these manufacturers succeeding in the long term.
If I struggle to find any promise in this industry, it’s in the manufacturers that consistently outperform the competition. J.D. Power conducts comprehensive surveys of various automobile markets and their results are often reflected in market valuations. Manufacturers such as Toyota and Honda are at the top of the league of major manufacturers - both in market valuation and in reliability. A useful indicator, and perhaps it will convince me one day to invest in this industry.