With Toyota Gone, California's Loss Is Our Gain

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It's almost impossible to overstate the significance California has played in making Toyota Motor Corp. (ADR) (NYSE: TM) a U.S. success.

The Japanese firm set up its headquarters in Hollywood back in 1957. It used its surging popularity in this car-crazy, trendsetting state to become not just a major American nameplate but a dominant global brand.

No wonder California leaders were so shocked when they recently learned that Toyota is pulling up stakes in the Golden State. Toyota now plans to build a new North American headquarters in Plano, Texas, taking 3,000 jobs with it.

This surprise decision sparked an intense political debate here in California in which critics accuse the state's leaders of pursuing a political agenda that is clearly anti-business.

That may very well be true, but behind the scenes there is a much larger dynamic taking place – the rise of a truly global marketplace.

And it's giving us a beautiful, long-term, market-crushing opportunity…

Amidst Boom Times, Production and Profits Are Shifting

See, even the Sunbelt is losing its status as the auto industry's North American epicenter as more production is shifted to Mexico. Analysts say roughly 40% of all North American auto jobs are now in Mexico, up from 27% in 2000.

The Sunbelt accounts for another 30%, meaning two-thirds of all auto jobs (seen as a proxy for production) are now outside the industrial Midwest.

These trends are particularly important for technology investors because new cars and trucks have become showcases for such components as sensors, semiconductors, micro-controllers, and GPS, to name a few.

And make no mistake; we're in the midst of a major auto boom…

Double- and Triple-Digit Increases Mark the Trend

Consider that last month, U.S. sales rose 11% to 1.6 million vehicles. On an annualized basis, that amounts to a rate of 16.77 million cars and light trucks, according to market researcher Autodata Corp. Moreover, that's a 16% increase from the same month in 2012.

Here's the thing: Sales in China over the past two years are growing at twice that 16% rate, according to analysts at Scotiabank. They're projecting 2014 sales of 18.86 million vehicles, for a two-year gain of 39%.

And when you take the long view, the global market looks even more impressive. For instance, over the past quarter century, auto sales in Eastern Europe are up 245%. Over the same period, they've gained 190% in Latin America and 334% in Asia.

That's why I think investors would do well to take a look at the First Trust NASDAQ Global Auto Index Fund (Nasdaq: CARZ). This is an exchange-traded fund (ETF) that offers a broad play on the global auto industry.

Just take a look at what's happening with the nation's largest "domestic" automaker, General Motors Co. (NYSE: GM). It's one of the fund's largest holdings.

Among GM's top five global markets by volume, China and the United Kingdom posted the largest sales increases last year on a percentage basis. Each gained 11%.

GM's Cadillac brand did even better in China, growing sales some 67% to a record 50,005 vehicles. Cadillac broke ground on a new assembly plant there last year and plans to add one new model per year in the country through 2016.

Meanwhile, archrival Ford Motor Co. (NYSE: F) is another major CARZ holding with significant global sales. This year, it plans to open two plants in the Asia-Pacific region and one in Latin America.

Last year, Ford sold nearly a million wholesale vehicles in China, a 49% increase. In 2014, the company expects to launch more new vehicles globally than it has in more than a century. And it still makes the top-selling vehicle in the U.S. – the popular F150 pickup truck.

Global Exposure to a Surging Market

Of course, there's much more going on with CARZ than just two big American nameplates.

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About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

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  1. Jeff P. from Canada | June 6, 2014

    Your article title is still not explained. How is California's loss, our gain?

  2. madison19969 | June 6, 2014

    The title is dead-on. It's a pretty straight shot:

    1. Toyota, now un- or at least less-encumbered by California's onerous tax burden, is now off to Texas, where they will pay less in taxes. California will, unfortunately, lose jobs and revenue from the move.

    2. Paying less in taxes means more profit for Toyota shareholders.

    3. The First Trust NASDAQ Global Auto Index Fund has large exposure to Toyota.

    4. Higher profits for Toyota mean more returns for CARZ.

    And so California's loss (of jobs, revenue) is our gain (we'll make money from Toyota's higher profits through our holding of CARZ and CARZ's holding of Toyota).

  3. A efstratis | June 8, 2014

    Sounds good but what is under the hood?

  4. H. Craig Bradley | June 8, 2014

    SELF-ABSORBED CALIFORNIANS

    Guess What? California, its politicians, and residents could care less if Toyota leaves for good. Many other large companies ( Defense industry and aerospace) also left in the 1990's and for the same reasons: costs and taxes. Costs are going to stay where they are in Calif. Businesses can adapt or leave, it makes little difference to Californians. Our shet does not stink.

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