One year ago – 2012Q4 that is – Toyota lost money in North America, and made only modest amounts of money in Japan. Today is much different, in contrast to Nissan. Bloomberg nails the source: the yen boom.
Yes, the Japanese economy and the US economy are both doing better, and so therefore should Toyota. But others were profitable in the US in late 2012, and Toyota has not gained market share. My scan of Toyota's financial statements (with glances at those of Ford and GM) suggest the entire gain is due to a more favorable exchange rate. (I have yet to look at the reports of stock analysts to see their take.)
From Toyota's perspective this should be a cautionary tale. They now are rolling in profits, and have the opportunity to continue a restructuring pushed by Akio Toyoda, the firm's near-eponymous chairman. But it does suggest two big problems.
The first is that Toyota is not making substantial money on its North American operations – otherwise it would not have lost money last year. Yes, they have a good market share, but they face competition in key segments and are weak in light trucks (and then there's the failure of their full-sized pickup to gain sales commensurate with investment). Their lack of profits suggests these are major, not minor issues.
Do Toyota's vaunted cost controls no long provide them a competitive advantage?
The second is that Lexus remains their cash cow – which is primarily a US story – but the vehicles themselves come from Japan. When the yen was strong, Lexus lost money. With the weaker yen, that shifted dramatically (though not immediately since Toyota hedges their dollar receipts).
So Toyota needs to improve the bottom line on their US operations. That's surprising, suggesting that their vaunted cost controls are no long providing them a competitive advantage. Second, they need to move away from the yen cost basis on their most profitable products. Otherwise when the yen next strengthens profitability will again collapse. Given that the "cycle time" in the auto industry for realigning what is made where is measured in 4-6 year increments, they had better get moving.
Mike Smitka
Oh, and I did put Nissan in the title, but haven't looked at their financials. But as a quick cut, reverse the above logic: they're not booming because they've successfully aligned their cost base with their revenue base. Instead Nissan's profits will reflect markets strengths, not forex swings.
I have tried to love Datsun Nissan since the 1970s. But for every beautiful car they managed to produce, they make 50 butt ugly ones. I had a sales person, Tom O'Brien, in 1978 in the Datsun business who had his own theory. We had the great 280Z to sell, along with B210s and 200SXs. He figured the Japanese were in love with pagoda type flips and flourishes, and thought their designers couldn't help incorporating those styling themes into their cars. Other than rusting quickly, the cars were certainly dependable and we sure sold a lot of little Datsun trucks and large numbers of 280Zs. Along the way Nissan built many more ugly vehicles to good looking ones based on my subjective observations. I began a love affair with the Q45 Infiniti. I'd buy volumes of them for resale, and did quite well with them. But then I bought one as a personal car. I looked passed the ugly belt buckle of a grille substitute and focused on the lines of the side view and rear tail lights. The car drove and performed brilliantly. Then the timing chain broke. With an interference engine, 32 valves, and aluminum heads, that meant a new engine. So I opted for a Japanese salvage engine from a Japanese Q. I found one with around 27K miles, as represented. That's about 50K kilometers, the cutoff for Japanese warranty. Thinking the timing chain was a weak link, I had a new set of chains and gears installed before plopping the new mill into my Q. It ran great and I was happy with Nissan again, even though this process was quite pricey. A few years later, the chain broke again. I sold the car for salvage. It ended my attempted love affair with Nissan. When I look at the Juke a have to roll my eyes.
ReplyDeleteToyota might have made some mistakes over the years, but their cars look good with rare exception. Through engine sludge scandals and the over blown unintended acceleration, they have risen to become the most valuable car company on the planet. Can they keep it up? Its easier to get there than to stay there.