These Carmakers Have Another Reason to Worry

By Neha Chamaria - August 8, 2012 | Tickers: F, GM, HMC, TM, VLKAY | 0 Comments

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Tsunami, flooding, exchange rate disadvantage, spate of recalls – no company could have driven down a tougher road in recent memory. And to emerge victorious is the sign of greatness, one that Toyota (NYSE: TM) has exhibited.

The post-tsunami resurgence is visible at Honda Motor (NYSE: HMC) too, which reported a nearly four-fold jump in its second-quarter profits. But the story at Toyota gets a little more interesting as it revolves around a company that was once the global leader. Having sold more than rival General Motors (NYSE: GM) in the first half of the year and after reporting the stellar second-quarter numbers, Toyota has only come closer to snatching the crown back from GM this year. What’s going to take it far?

Hail, Toyota!
The Japanese auto major reported a phenomenal 60% jump in its second-quarter bottom line to earn a net income of 290.3 billion yen, or around $3.7 billion on brisk sales across the globe. But the high point is the way it is balancing growth with cost-cutting initiatives—it saved nearly 70 billion yen, or $892 million on costs during the quarter.

Toyota’s primary brands are already finding favor with consumers, and it derives more revenue from markets that are among the strongest right now. Together with smart management moves, these factors should keep Toyota rolling, at least for the time being.

Bread-and-butter does it
Both Camry and Prius continue to propel Toyota forward. Camry holds a proud second position in the latest top-20 vehicles list based on sales, while Prius is 15^th on the list. But that’s not the main point. What’s worth nothing is the massive jump in sales both brands have recorded year-to-date. Camry sales climbed nearly 40%, while Prius sales surged a whopping 93% compared to the same period last year. Comparatively, Ford’s (NYSE: F) Fusion gained a mere 6% in sales year-to-date, while Chevy Malibu doesn’t even feature on the list. Prius also continues to be a notch above Ford Fusion; and Chevy Cruze sales have actually dipped 13% year-to-date.

These numbers prove two things—that consumers have given a green thumbs up to Camry, and Prius is roaring back after a production setback because of the tsunami. Even Corolla’s unit sales were 20% more than rival Ford’s Focus during the first seven months of the year.

Your pain=my gain
Geographically too, Toyota is in better stead than the rest. While GM and Ford are busy thinking of ways to overhaul their operations in the beleaguered European market, Toyota can expend energy to chalk out strategies to increase presence in the strong U.S. auto market. That’s because Europe isn’t as big a market for Toyota (and thus, a concern) as it is for the others. The company derives major revenue from the U.S. and home-market Japan.

Toyota is not resting on its laurels. It has just launched redesigned versions of its luxury Lexus sedan targeting the U.S. market in particular. Stories of the excellent fuel efficiency its cars offer are always doing the rounds, even in American conversations. So the Japanese aren’t the only ones that have unnerving faith in Toyota’s products. In fact, China too is not shying away from affirming their liking for its cars, evidenced by the big jumps Toyota has been reporting in its car sales from the nation in recent months.

The North American and Chinese markets are currently where all the action is, and Toyota is sure working hard to climb the ladder in both. Japanese rivals Honda as well as Nissan, which is the second-largest auto maker in Japan after Toyota, are betting on these two markets for growth as well. But being a bigger player, Toyota has the advantage.

One leg into the future
Toyota is also trying to keep pace with emerging trends – a factor that should only work in its favor. It already leads in hybrid technology, and thinks better of hybrid cars than those fully electrified—a viewpoint rival Ford interestingly agrees with. Toyota isn’t satisfied with the 18 hybrids it sells currently, or the 15% of total sales these vehicles account for. It is keen on increasing the number of hybrids as well as the countries they have reach to in the next few years. Two new hybrid cars are already lined up for launch soon-- the Yaris Hybrid and Lexus ES 300h.

Taking its green initiatives a step further, Toyota has joined hands with BMW to jointly undertake research work for advanced lithium-ion batteries. In a separate agreement, BMW will also provide Toyota Motor Europe with diesel engines from 2014 onwards.

Back with a bang!
The General is already feeling the heat with sales in the U.S. slipping in recent months, while the Blue Oval’s premium prices might turn turtle if Toyota keeps moving into more American garages. Volkswagen, the other carmaker in the race to make it to the top might just have to pulls its socks up a bit more if it wants the big crown. For, Toyota has just raised its sales forecast for the year – a sure signal of the rising of the Japanese giant. 

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