By on August 3, 2012

 

Whenever we talk about middling sales and dwindling market shares of certain carmakers, moles pop out of the holes, check their talking points, and shout: “Volume is soooo lame. Awesome profits is where it’s at!” Point taken.

Today, Toyota reported a pre-tax profit of 415.2 billion yen ($ 5.3 billion) for the second quarter of the calendar year. GM’s pre-tax profit was $2 billion for the same period. Volkswagen’s pre-tax profit for the quarter was €5.8 billion ($ 7 billion.)  Volkswagen wins this round, with GM a distant third.

Toyota reported a  “better-than-expected result that underscored its rebound from the natural disasters that blighted 2011,” says Reuters.

If you don’t see moles popping out of holes, don’t worry, they are still around. They are busy digging for fresh talking points.

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13 Comments on “High Finance, Reduced To Whack-A-Mole...”


  • avatar
    Cammy Corrigan

    Herr Schmitt,

    Since you have experience with Volkswagen, Toyota and GM, could you do an article which, at least posits, why there such a gulf in profits between the three companies who have similar volumes?

    Toyota aren’t exactly a bloated company, but why are Volkswagen streets ahead? More efficient plants? Cheaper materials for their cars? etc.

    On the other hand, you could just dismiss what I’m saying and carry on posting shibari pictures? I’m cool, either way. :O)

    • 0 avatar

      A lot of Volkswagen’s current profits come from
      – the unwinding of stock options
      – the low Euro

      The high yen is a drag on Toyota’s numbers …

      Now, back to my collection of Japanese erotica….

      • 0 avatar
        Chocolatedeath

        You cant blame Yota for the high yen just like you cant VW for the sagging Euro. Profits are profits and from what I have seen the last two years VW has been doing it and doing it well. Also how often can VW “unwind” stock options anyway?

      • 0 avatar
        Toucan

        Bertel Schmitt

        > – the low Euro

        But the profits are reported back in USD, so this should not matter at all.

        I always though VW make so much money because they are the magicians of profitability:
        – they can take a 20k Golf and turn it into the 50k Audi TT without that much in parts upgrades and the result is so gorgeous it’s worth the price
        – they have absolutely wonderful component sharing; 3.0 TDI + two gearboxes powers just everything larger there;
        – they now use these MLB/MQB platforms. Engineer once and you have all the Audis >= A4, all the Bentleys and Touaregs. Engineer twice and you have all the smaller VWs, Skodas and Seats

      • 0 avatar

        @ Toucan:
        (Slapping forehead)

        That’s it! The solution to Toyota’s problems! Why has nobody thought of that earlier! Please submit your idea immediately to:

        Satoshi Ozawa, CFO
        Toyota Motor Corporation
        Financial Department
        1-4-18 Koraku, Bunkyo-ku,
        Tokyo, 112-8701, Japan

        Who knows, you might get a free car …

      • 0 avatar
        Toucan

        You’re mocking me, but why? It doesn’t matter what carmakers know but what they actually do.

        Toyota can only raise the Corolla to the 30k Lexus CT. VW can make the 60k TT RS out of the Golf.

        Corolla/Auris in Europe come in three bodies and with 5 power outputs. Golf offer 10 power levels and 7 bodies.

        The simple truth is that VW builds cars way, way, way more expensive to engineer, sells less of them and still makes a lot more profit. They must have mastered the engine/platform/component sharing to degrees unknown at Toyota.

        Toyota make their volume from selling terrible cars to impoverished nations. Or 4 speed Corollas to gullible Americans. On markets demanding technology and style, like Europe, they are an enormous nobody. They cannot even build a proper 3 litre diesel engine.

        The only competitive advantage they have is hybrid technology.

        Their business model is: spend as little RD as possible and sell the lowest bottom tech at a solid premium to those who still believe they purchase a second reliability coming.

      • 0 avatar
        CJinSD

        > – the low Euro

        “But the profits are reported back in USD, so this should not matter at all.”

        Public education is a waste of money.

    • 0 avatar
      Freddy M

      +1

      That would make a really interesting 3 part series. Imagine the discussion it would generate. Especially on the GM segment :)

    • 0 avatar
      th009

      Apart from the financial aspects (exchange rates, stock options) Volkswagen is, I think, the leader in leveraging common platforms over millions of units manufactured (see, volume matters, too): the ubiquitous PQ35 platform covers a dozen models (not counting wagon, convertible and crossover variants etc) from four brands, from the Golf to the Audi TT, and from Seat Altea to Skoda Superb.

      Common platforms allow for standardization of manufacturing and larger volume purchases from suppliers, all of which results in cost savings. The new MLB and MQB architectures take it a step further. Other manufacturers are working hard at catching up, but you need (1) the platform strategy/technology, (2) brand and model management, and (3) volume. Lose any one of the three and you won’t see the benefits.

      And then there is China, where VW (and other market leaders) are highly profitable …

    • 0 avatar
      Pch101

      “why there such a gulf in profits between the three companies who have similar volumes?”

      The difference between VW and GM is largely in the revenue. VAG sells its cars at higher prices — having luxury brands helps. Selling cars at a discount is not good for margin.

      In 2011, VAG actually had higher costs per unit than GM. But it was able to put those higher costs to good use.

      TMC really is getting crushed by the exchange rate. I would think that Toyota could solve a lot of problems if it headquartered in the US instead of Japan, just so that its accounting was oriented toward dollars instead of needing to convert everything back to yen.

  • avatar
    mike978

    It would be good widen this to other major companies like Ford and Honda. A year view would also be good, especially as we all know quarterly figures can be cooked (re: recent TTAC article).

  • avatar
    sunridge place

    I like whack-a-mole….I just took my niece to Chuck-E-Cheese and she really enjoyed it.

    It would also be intersting to layout profitability by global markets. For example, how much of Toyota’s profit (if any) comes from Japan where GM is non-existant and VW is a very small player.

    It would also be intersting to see what % of revenue the big players are putting into product development. What amount of profit comes from captive finance from the big players? These sorts of areas really tell the big picture.

    As far as volume vs profit:

    Real volume growth in only truly achieved by competing in new (non-niche) segments and in new global markets. VW in the US is a perfect example. Its not like they decided to have some sales meetings at the dealership level a couple years ago to rally the troops and increase sales 30+%. Nope, they added good product in new segments. Doing this also costs a boatload of money but VW is such a well-oiled machine globally that such costs are a blip in their profits. GM/Chrysler are playing catchup in investing in new products from their development blackout in 2007-2009.

    As another example, Cadillac will be showing some dramatic volume growth numbers by % volume increase in the US by Q4 and throughout next year. They will also show dramatic growth in China.

    This will be due to segment growth–competing in the luxury compact segment (highest volume luxury segment)for the first in a long time with the ATS. A lot of the $$ spent to develop that product has alredy been spent and the key will be to execute those sales/leases profitably to get a good return on that investment. XTS will help as well as it is a major improvement over STS/DTS.

    Lets take a look at a place where volume growth isn’t everything and drive by analysis can be misleading. Segment growth can be important too.

    US Cruze sales:
    July 2011= 24,648
    July 2012= 14,954

    Looks like a devastating drop. Well, Cruze had about 70 fleet sales in July 2012…and ~ 6500 fleet sales in July 2011. So, its really a drop of 4000 sales 2011/2012. But, look deeper, Sonic had 6278 sales in July 2012 vs 0 in July 2011. Spark added 1460 sales in July 2012 vs 0 in July 2011.

    Drive by analysis says Chevy small car sales tanking if you look at the Cruze. But, when you step back and look at the whole small car segment…not so much. Are they leading the world? No…are they raking in profits that lead the world? No. But, I’ll betcha they are far, far ahead of where they were in the past as these vehicles have higher transaction prices and lower incentives than many of their competitors and their past. Then look at Cruze growth in China. Is Cruze a better global car than Corolla….nope. Is Cruze the FIRST attempt at a global small car from GM…pretty much yes. But, dramatic growth from the Cruze will only happen when it enters new markets. Once its established you hope to maintain share and grab some small growth here and there with refreshed product etc.

    These are interesting debates. Its a bit disappointing to hear the editor of this webpage assume that some of us present ‘talking points’ as if we are politicians spinning versus stating facts.

    By some people’s thinking, there are two winners each month/year/quarter. The volume sales leader and the profit leader. Everyone else sucks.

    • 0 avatar
      CJinSD

      Chevrolet sold 127,472 leftover 2010 Chevrolet Cobalts in 2011, more than they sold during 2009 or 2010. How many were sold in July? What other car company so grossly overproduces cars that they sell more as clearance items than as current models? How many Aveos did Chevrolet dealers sell in July of 2011? You’re using some pretty selective ‘facts’ to make your argument.

      The T-car and J-cars are two earlier GM global small car attempts.

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