This Auto Giant Is Back

Ashok is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Toyota (NYSE: TM) has gone through various turmoil in the last few years. From being in the top position (in terms of sales) in 2009 it slipped down to eighth, a huge setback for the company. It could be attributed to the 3.8 million vehicles they had recalled for fixing the floor mat problem. Also key was the cruel hand of nature– the Tsunami in Japan, which led to a production halt. However, they have recovered well from these massive challenges and are reporting impressive figures this year. Let’s perform a SWOT analysis to understand its future perspective:

Strengths

Toyota is the leading auto manufacturer in the world in terms of sales. It surpassed General Motors in the first quarter by selling 2.27 million vehicles. It has a wide network with a presence in almost 170 countries across the globe.

The brand value of Toyota is also one of its key strengths. Toyota is best known for its environmental safety, quality products, durability, sleek designing, and high end engineering. Despite the recall of 3.8 million vehicles in 2009, they have regained consumer’s trust, especially in the U.S. and the Japanese market.

They have one of the best production processes across the globe which is based on the concept of “Just-in-time.” A lot of effort was put in by the company to put such a system in place which has helped them reduce their operational costs greatly. This has given them an upper edge over its competitors in terms of pricing and this is reflected in their global net earnings that tripled for the quarter ended Sept. 30.

Another area of strength is its strong R&D department. A company that spends a lot of time in R&D always tends to make more profits in the future as compared to its peers. It started the Innovative International Multi-purpose Vehicle plan (IIMV) to optimize global manufacturing and supply system. Also, cars like RAV4 and Vitz display the innovating powers of Toyota.

Weakness

One of the biggest challenges is a rising Yen against the dollar. They settle all invoices in Yen and this has reduced their profit. However, the buying of raw materials has neutralized this effect to some extent.

They have a good system in place to take care of their employees even post retirement. But these expenses related to post retirement is pinching them in the competitive automotive market.

The strong rivalry between China and Japan, has not allowed them to gain the market share in the Chinese market (one of the biggest markets) attributed primarily due to the pride factor. Chinese would prefer buying American, Korean, or German cars instead of Japanese cars.

Opportunities

An ocean of opportunities exists for all the automakers as the technology shifts from the gasoline to the hybrid market. This is the reason for the launch of its new Prius hybrids with a computer. They also had collaboration with Ford for the development of hybrid vehicles that are rear-wheel driven.

‘Toyota New Global Architecture’ is one of its key initiatives. It is launching a three front-wheel-drive platform that will account for as much as half of the company's worldwide production volume. This will help them to keep an edge over its competitors in terms of overall production costs.

Threats

The biggest threat for any automaker is a global competitive market where the competition is neck-to-neck.

General Motors (NYSE: GM) lost their top position (in terms of sales), but it is too early to make any assumptions on their capabilities. General Motors has strong fundamentals and are looking especially good with the growing demand of Chevrolet. They made sure they capitalized on the weak position of Toyota in 2011. This helped them capture market share and they regained their top slot they had lost to Toyota in 2009.

Ford (NYSE: F) has a strong background. They have the best matrix in the auto world, scoring above its peers in terms of customer satisfaction, growing dividends, and net profit margin. They are currently betting on their new Escape and Fusion models in order to combat Toyota’s increasing market share. The recall of 27,000 Windstar minivans might have hurt its reputation to an extent, but with the release of these new models these recalls might soon be a forgotten nightmare.

Tata Motors (NYSE: TTM) is one of the only auto companies from the Indian auto market to make an acquisition in the west is growing stronger as the days pass by. They had acquired Jaguar & Land Rover from Ford in 2009 for $ 3 billion and are currently cashing in on its brand value. The increasing popularity of Evoque in the European market might be of concern for Toyota and the other automakers.

The emission standards in the U.S. and other markets are getting more stringent due to environmental concerns. This is a real cause of worry for the company. Many of Toyota's models may not meet the requirement and they would have to halt their production. They had to kill the running 70 series LandCruiser in the Australian market for a similar reason.

Conclusion

Impressive third quarter results has boosted their reputation. Toyota needs to continue to improve upon their weaknesses in order to continue enjoying the top position. There are a world of opportunities in the automobile market with the growing demand of the hybrid model. The question is; can they move one step ahead of the competition in order to take this technology to its next level?


ashokkp has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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