Toyota’s Resurgence in Full Speed
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The auto industry has been one of the brightest spots of the sluggish US economy. Car sales have been the primary driver behind the GDP growth. Half the 2.2 percent GDP growth in the first quarter of the year is attributable to the increased sales in vehicles. Consumers don’t want to miss the opportunity of replacing their old cars with the new ones, given the availability of credit at low interest rates. Car sales touched 1.4 million in May boosting the seasonally adjusted annual sales rate to 14.2 million.
The industry gearing up
The top three auto players are General Motors (NYSE: GM), with roughly 18 percent market share, followed by Ford (NYSE: F) at 15.2 percent and Toyota (NYSE: TM) at 15 percent. Carmakers are having double digit sales gains ranging from 11.4 percent of GM and 16.3 percent of Ford to Toyota’s 90 percent followed by Honda Motor’s (NYSE: HMC) 50 percent gain.
Toyota and Honda, which suffered inventory shortage last May, are ensuring sufficient inventory levels this year. The boost in inventory is particularly profitable for Toyota as sales are surging for the automaker. The company reported a 12 percent increase in sales compared to last year. Camry, Toyota’s best-selling car in US for over a decade, witnessed 21 percent increase in sales, while deliveries of Prius more than doubled to 25,168.
Toyota’s homecoming: a threat to the top two
Toyota has made a strong comeback after a speedy recovery from the natural disaster. The homecoming is at the expense of US car manufacturers, whose market shares have shrunk back after they had improved in the months after the earthquake, when Toyota was struggling. The Japanese automaker is suppressing the market share of the industry leader, GM, and posing a threat to the second rank holder, Ford.
The global top carmaker, General Motors, experienced 11 percent sales growth yet suffered a loss of 3 percent in its market share, which fell to 17.8 percent. Ford is also picking up but struggling to stick to its second position as Toyota threatens to surpass it. In fact, in May Toyota’s market share hit 15.3 percent crossing Ford’s 15.2 percent, all credit to its Camry and Prius. But Ford isn’t oblivious to these developments. It expects to revive in the second half of the year, banking on its new Escape and Fusion models. The company has also kicked off the shipment of its first battery powered Ford Focus Electric, sending 350 Focus Electric cars in the next two weeks to 67 dealers in New Jersey, California and New York.
Toyota’s Executive Vice President Yukitoshi Funo said "we can't be resting on our laurels," so what else does the company plan?
Toyota tailoring models to emerge
The comeback isn’t enough. The company desires to decrease its dependence on the matured markets of North America, Europe and Japan and explore emerging nations. Toyota is shifting its focus to the growing economies of China, India and Brazil, which are presently dominated by Volkswagen, GM and Hyundai.
The company plans to roll out eight compact models, tailoring it to the needs of the emerging markets. It will increase its production capacity from 2.38 million in 2010 to 3.1 million cars a year by 2013. The cars components will be produced in the local markets to save on the cost. This means that Toyota will need to have strong R&D functioning in these markets. Toyota is hoping to sell half its vehicles in these growth markets by 2015.
My Takeaway
Toyota, which experienced a dip in its market share in 2010 and 2011 from back-to-back crises, restored production, which was disrupted by the natural disasters in Japan and Thailand. The company’s recovery has been remarkable. Not only did it make a comeback, it also regained its lost market share at a breakneck pace. After clawing back its market share in US, the company wants to increase its foothold in the growing markets.
With continuous rise in demand, increased spending on consumer discretionary and more access to credit there is every reason to believe that Toyota will have an exciting ride.
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