By on February 5, 2013

Here we go. Are you sitting down?

Presenting its Q3 financials in Tokyo today, Toyota delivered much higher profits and much higher sales while promising even higher profits at pretty much flat sales for the future. With a man on his left who looked like an accountant, and who had a big accountant’s briefcase on his knee, ready to pull whatever document his master needs, and a very quiet Shigeru Hayakawa on his right, Toyota Senior Managing Officer Takahiko Ijichi did forecast a net profit of 860 billion yen ($9.3 billion) for the fiscal year ending on March 31, 2013 up from the previously forecasted 780 billion yen. He also signaled a pause in Toyota’s rapid expansion:

“We were supposed to have learned a lesson from the Lehmann shock, but maybe, these lessons have not been fully taken into consideration. Volume increase is not tantamount to growth of the company.”

Takahiko Ijichi: Remember carmageddon

Basically, Ijichi announced that Toyota will not build any new factories within the next three years. Toyota will be on the hunt for “muda”, or waste, and will maximize the production capacity of existing plants. Toyota does not want to make the before-Lehmann mistake again, where rapid build-up in volume went hand-in-hand with a rapid build-up of plants and fixed costs. Projects that are planned will be finished, but there won’t be new plans.

The profit for the quarter would have been one billion dollar higher, would there not have been the “decrease as a result of “recording costs related to the settlement of the economic loss litigation in the United States.” A billion dollars, thrown to the lawyerly wolves, was stuck into “other.” The impact barely registered on the P&L.

Ijichi and his trusted side-kick

Reporters wanted to know how China affects Toyota’s bottom line. Ijichi remained vague. Due to different fiscal calendars, the reporting quarter from October to December 2012 reflects July through September in China, which were largely unaffected by the recent China Japan relations,” as Ijichi put it. He figures, the China affair may cost Toyota “200,000 units or less” in the second half of the current fiscal.

“Volume increase is not tantamount to growth.”

Toyota appears to be quite sanguine about the China matter. The company has its eyes and focus set on Southeast Asia, a market of more than 9 million units which grew 14 percent last year. Toyota sold 1.5 million cars in this region last year, and it wants to sell more. In China, Toyota wants to sell 900,000 units this year.

Speaking of sales, Toyota again confounded the reporters that were assembled in its basement meeting room. Those who cite the press release are either completely confused, or they don’t notice the confusion. Today, Toyota announced that from April 2012 to March 2013, it intends to sell 8.85 million units worldwide.

The fourth estate, JDM spec

A week ago, Toyotas said it sold 9.75 million for calendar 2012. Some reporters, who noticed the difference, wrote the 8.85 million are without Daihatsu and Hino. A Toyota spokesman told TTAC later that Daihatsu and Hino are included in the 8.85 million, China is not. Toyota sold 840,000 units in China last year. Close enough. For this year,Toyota wants to add maybe two percent to its sales and plans for flat production numbers.

My drop in the “goiken bako” the suggestion box of the Toyota Way: Avoid quarterly muri and muda by mentioning the Chinese units somewhere, so that the numbers reconcile. A separate handout would suffice.

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25 Comments on “Toyota Promises Higher Profits And Flat Sales...”

  • avatar

    They have certainly been helped by the fall in the value of the yen which has occurred since the new government came into office.

    I recall reading somewhere that for every 1 yen drop in value Toyota’s profits increase around $300 million. So even a small fall adds up quickly.

    • 0 avatar

      That was about time. Especially when you get paid in dollars.

      • 0 avatar

        Bertel- The deities know I have continued to read your blatantly biased editorials – hoping eventually you would manage to achieve a semblance of balance regarding your reportage of your particular “white whales”, e.g. GM, Ford and the other domestic OEM’s. Alas, this has not come to fruition. Good reporting is, by necessity, the function of neutral dissertation of naked data that allows the informed reader to do his own research and to draw his own conclusions. Please, man , leave your eastern european bias behind and allow your “betters” to report on the domestic industry without your obvious eastern european ethos of ” Europe good – American bad “editorial bias. I haven’t benn very clear, and for my lack of prowess, I apologize. You,sir, have no such excuse. Leave the raw data and its’ interpretation to the Crane family – they at least have a infrastructure to check and challenge their conclusions.

    • 0 avatar

      Both Toyoda and Carlos Ghosen have said 100 yen/dollar is neutral, the Keireidan (Japanese big business lobby) considers 105 yen/dollar neutral. So there seems to further room to fall.

      But for the Japanese manufacturers they’ve done some serious cost-cutting and purging since 2007 when the yen was 120 yen/dollar. Their current business model is designed to be profitable at 80 yen/dollar range. Anything weaker and profits soar.

      In many ways the strong yen was a blessing in disguise. It allowed the Japanese to offshore production much cheaper and build more factories closer to every market (Japanese production was a dead-end road). Then there were the recalls, earthquakes/tsunami, Thai floods, and Chinese riots. All lessons to diversify supply chain and manage risks through globalization. These hard choices were made easier as the strong yen lowered costs and increased impetus to tackled these difficult decisions.

      As it turns out, what doesn’t kill you makes you stronger.

      • 0 avatar

        Agreed, the current rate is 94 to 1 so they are well above the 80 figure you cite as break even.

        The business lobby is a vested interest so they have an interest in saying 100 to 105 is the “neutral” level level. It is a subjective term and it is in their own interests to inflate it a little because it does them no harm.

      • 0 avatar

        “The business lobby is a vested interest so they have an interest in saying 100 to 105 is the “neutral” level level.”

        No, on the contrary, that sounds like a realistic figure.

        When the currency strengthens substantially, that effectively means that foreign revenues are falling, while domestic costs remain the same. For the yen-dollar exchange rate to go from 100:1 to 75:1 was akin to a revenue cut on US import sales of 25%, with no corresponding decrease in costs. That revenue decrease should wipe out the profit margin.

        A 75 yen-dollar exchange rate is probably unsustainable. There’s no way to make up for the revenue loss that comes with that. The way around it is to produce the cars in the US or Mexico, since the revenue loss can be offset by the corresponding cost reduction.

      • 0 avatar

        “The business lobby is a vested interest so they have an interest in saying 100 to 105 is the “neutral” level level.”

        Of course they do. Living in Brazil where many of the large consumer product making companies are international behemoths, you see this all the time. They supply a lot reasonable arguments but it almost always in their interest to have a strong dollar and weak real. More profits to send home.

      • 0 avatar

        For Japanese business, an incredibly weak yen is no longer in their interest. Last year, Japanese companies spent $84 billion in outbound mergers and acquisitions in 2012, now, most of their factories are overseas. Costs are no longer denominated in yen.

        Japan Inc’s exposure to weak yen is significantly higher than before it was before the housing market crash in 2008.

        In reality, 100 yen/dollar is probably where the natural value of the yen should be. In reality, due to the recent monetary easing policies of the LDP (printing money), it actually may be a lot less.

        Right now, there is significant pressure on the Japanese yen as the US is in the midst of QE3 (and some call QE4), Its own monetary expansion. Furthermore, Europe too is in its current horrid state.

        Without the US and Europe in its slump, the Japanese yen in fact be worth a lot less. The fear is that when US/Europe recover this artificial strength in the yen would swing back and hurt Japan in the form of uncontrolled inflation.

    • 0 avatar

      “I recall reading somewhere that for every 1 yen drop in value Toyota’s profits increase around $300 million. So even a small fall adds up quickly.”

      1970, 1 USD = 360 Yen
      1980, 1 USD = 230 Yen
      1990, 1 USD = 145 Yen
      2000, 1 USD = 108 Yen
      2010, 1 USD = 88 Yen

      JPY simply keeps gaining against the USD. Toyota/Honda had been facing this headwind for the past 50 years (and losing trillions per year due to this) and still managed to beat GM on its home ground.

      • 0 avatar

        I don`t believe they have been losing trillions per year – otherwise they would have gone out of business. Exchange rates change over time to reflect economic strength. I recall it used to be 4 USD to 1 GBP. Now the rate (and the average of the past 20 years) is around 1.5 USD to 1 GBP. So the dollar has strengthened (actually the pound has weakened but it is all relative.

  • avatar
    Polar Bear

    Here in Malaysia, the new Camry is taking a beating online for increased prices and decreased content. They removed the stability control? Only two airbags? The Americans get ten! Still using the same old engine and gearbox? The car boys on the net are not pleased. They say Toyotas are stingy and out of date. Not that this stops the Camry from being the top seller in the D-segment, as always.

    Another thing is Toyota’s long term image. I don’t see Toyota on top of owner satisfaction or reliability surveys anymore. Not that they have fallen to the bottom, they are still doing OK, but they are not nr. 1. Other Japanese brands like Honda score higher. I would think this was dangerous for Toyota, since if you remove the quality and reliability argument, what reason is there to buy a Toyota?

    • 0 avatar

      Yes, Toyota no longer stands alone for top predicted reliability. Scion is the top brand this year, as it was last year. And the Toyota brand must share second place with Lexus.

      Meanwhile Honda has fallen to 6th place behind Mazda (4th) and Subaru (5th). (Consumer Reports, Oct 2012)

      But I must grant Polar Bear’s larger point — reliability has little to do with either brand image or owner satisfaction.

      • 0 avatar
        Polar Bear

        Three Toyota brands at the top? That’s their best ranking I have heard of in a while. The UK ranking which was fresh on my mind had Honda at the top.

        JD Power has Toyota at number 3 in February 2012, I noticed.

        JD Power had the following words of wisdom: “Consumer perceptions of vehicle quality and dependability are often based on historical experiences or anecdotes and may be out of line with the current reality. Consumers should gather as much information as they can on the latest models from a variety of sources to make an informed decision.”

        Anyway, I thought Toyota’s business model was to tower above everyone else on reliability, if need be at the expense of design, handling, features and coolness.

  • avatar

    Higher profits with flat sales? Ye-es. I kind of understand. But what I don’t understand: is anyone going to want to option out their Camry like it was a 911?

    • 0 avatar

      No I think it refers to the idea of instead of over building Camrys to keep the lead as the best selling car in the US and then discounting them heavily to move them. Just go to or and search for new 2012 (or 2011) Camrys and see just how many are still on lots.

    • 0 avatar

      Muri, mura, muda. The history of TPS and the rise of lean manufacturing are pretty interesting even in contexts other than the automotive world. The methodologies they developed are in widespread use in a variety of industries including things like software development (Kanban, influences in Agile, etc.). Toyota wouldn’t have gotten to where they are today without fully embracing these principles at a cultural level.

  • avatar

    Time to buy TM stock?

  • avatar

    A discussion of the value of the yen requires serious study. This is the required course:

    – Go on a trip to Japan. Enjoy buying the ticket, it will be the cheapest part of your trip.
    – On arrival, take a taxi. You will still be jetlagged and think that it was a bit expensive at $35. After a good day’s sleep, you will notice it was $350
    – Keep the phone number of your credit card company ready. You will be calling them a lot.
    – Resist the urge to visit one of the famous Ginza hostess bars. One drink would cost more than the taxi from the airport. They protect foreigners from heart attacks and bankruptcy by not letting them in.
    – Those ling-alound-the-losie sushi bars are all you can eat, but the price is per sushi piece, not for the meal
    – The bullet trains are called bullet trains because your budget will be shot
    – You will return bankrupt, but you will have visited a beautiful country with polite people.
    – Finally, you understand why the Japanese tourists are all over Manhattan. They think it’s a bargain, compared to Tokyo

    • 0 avatar

      Hahaha. Same thing is happening in Brazil, with some differences of course. On average, a meal in SPaulo now costs more than New York, taxi from the airport will cost around 100 dollars, you won’t buy anything cause you’ll think (correctly) that everything is cheaper “back home” etc. You’ll also have visited a beautiful country were the people as not as polite. This also the reason why Brazilians have invade New York and Miami like locusts, buying everything in their wakkke!

  • avatar

    “decrease as a result of recording costs related to the settlement of the economic loss litigation in the United States.”

    Yeah, Toyota fell asleep in regards to their quality control, but I am certain they will improve it.

  • avatar
    Big Al from Oz

    Bertel Schmitt has it correct. The Japanese don’t live like we do in Australia, US/Canada.

    Even with the greatly appreciated AUD Japan is an expensive place.

    Japan has brought this on itself, the economists and government officals have been talking about the Japanese economic woes for well over a decade now, the Japanese failed to act. Japan will be forced to make massive restructuring to survive or it will start currency wars and no-one will win.

    All of the Japanese auto manufacturers have offshored much of their production, that is the only reason they have survived.

    Japan, like the Euro/US have subsidised sectors in their respective markets with regulations and controls being used as trade barriers.

    Toyota will sell more Japanese made vehicles, but how will the rest of the OECD react to their currency devaluation.

    Most of the OECD is broke, how can we trade out of debt? Something has to give sooner or later. That means a reduction in the standard of living.

  • avatar
    Big Al from Oz

    Toyota is good at marketing outdated technology at a premium. It is the GM of Japan.

    • 0 avatar

      Perhaps. But here on TTAC, if a manufacturer uses higher tech, such as DSG transmissions, turbo charging small 4 cylinders, diesel, direct injection, etc., the gang starts complaining that you will soon be driving a VW, and then all that high tech is just an expensive break-down waiting to happen.

  • avatar

    Let’s talk about how the photo of the new LS shows the RIDICULOUSLY aggressive styling. With a Predator face.

    Quit ruining everything, Lexus.

    • 0 avatar
      Polar Bear

      Yes. Let us talk abut the LS. I used to desire an LS. It was a nice car as long as they just copied the S-class, ie the 400 and the 430. The outgoing 460 was borderline acceptable as a maxi-Camry.

      But that latest model gaping fish mouth thing? How will that play with the older, conservative folks who buy the LS? The S-class and the 7-series are much easier on the eye. German understated elegance in the case of the S-class, less understated but powerful masculinity in the 7.

      I enjoy talking about cars I can’t afford.

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