No Traffic Ahead for Toyota
02-06-06, 09:17 PM
#1
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No Traffic Ahead for Toyota
Autos
By Ian Rowley
No Traffic Ahead for Toyota
The Japanese juggernaut isn't just cruising -- it's picking up speed nearly everywhere it turns. About the only drag is its home market
When Katsuaki Watanabe succeeded Fujio Cho as the CEO of Toyota Motor (TM) in June, the 63-year-old made it clear that complacency was one of the main threats facing Japan's No 1 auto maker. That might have sounded overly cautious at the time, but eight months on, Watanabe can see the payoff of keeping the heat on. Tomorrow in Tokyo, Toyota is expected to announce another set of excellent quarterly results.
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Analysts say just about every factor -- including a favorable currency environment, a solid pipeline of new models, and a relative weak quarter a year earlier -- is in Toyota's favor right now. "We're expecting operating profits to increase by 20% [to $4.4 billion] for the quarter, aided by strong sales in the U.S. and Asia and the weaker yen," says Tsuyoshi Mochimaru, an auto analyst at Deutsche Securities in Tokyo, adding that he sees profits rising by a similar percentage to $3 billion. For the full year through March, he projects net earnings for the year will rise 5.4%, to $10.4 billion, and by a further 9.5% in 2007 -- dwarfing rivals's results. "Toyota doesn't face significant risks in the short term," adds Mochimaru. By contrast, struggling General Motors (GM) posted a $4.8 billion net loss for the final quarter of 2005 and $8.6 billion in red ink for the calendar year.
FAST-FALLING YEN. As GM and Ford (F) know to their cost, one reason for the growing profits at Japanese auto makers is a growing share of the U.S. market. Add in the yen's recent weakness against the dollar -- which boosts results reported in yen -- and Toyota's operating results look even stronger. Last week, better-than-expected results at Nissan (NSANY) and Honda (HMC), Japan's second- and third-largest automakers respectively, were in part due to the yen weakness. Honda increased sales by 15.8%, to just under $21 billion, for the quarter, but it said the increase would have been 7.3% if exchange rates had remained unchanged from the same period a year earlier. Analysts say Toyota's operating earnings -- over half of which are generated in the U.S. -- will also benefit from the yen's slide.
Less clear is the impact of the yen's depreciation on net earnings. Despite excellent operating results, Honda's profits actually fell once the costs of hedging was taken into account: The company hadn't expected the yen to fall so quickly. Analysts say something similar may arise at Toyota to affect net earnings. On the other hand, Toyota is expected to benefit from a one-off gain of as much as $1.2 billion relating to its stake in Mitsubishi UFJ Financial Group, a giant Japanese bank that was formed through a merger of Mitsubishi Tokyo Financial Group and UFJ Holdings in October.
What isn't in question, though, is that no carmaker can match Toyota right now when it comes to ramping up sales and production around the world. In December, Watanabe announced that it plans to increase global production by 10% in 2006, to more than 9 million vehicles. That boost increases the likelihood that Toyota will surpass GM as the world's largest auto maker in the next 12 to 24 months (see BW Online, 12/21/05, "Toyota: King of the Car World in '06?).
10% PUSH. To achieve that goal, Toyota will increase output at factories in France, Thailand, Indonesia, China, and Texas during 2006. The latter is a brand-new, $850 million factory opening later this year in San Antonio that will eventually churn out 200,000 Tundra pickups a year (see BW, 2/13/06, "Toyota Builds A Truck Even Bubba May Love"). In January, Toyota also announced it's spending $35 million to increase capacity at its Mexican plant.
In the U.S., where Toyota is targeting a 10% increase in sales this year, a remodeled version of the best-selling Camry will go on sale in March, while the Vitz compact, two new Lexus models, and the new Scion xB will all debut during 2006. Next year, a new Corolla is expected as well as two additions to the Lexus lineup -- a compact SUV and a crossover model. According to Kurt Sanger, an analyst at Macquarie Securities in Tokyo, Toyota will replace 60% of its existing model lineup in the next two years, not accounting for brand-new models like the FJ Cruiser SUV, which is slated for launch later this year. "The pipeline is overwhelming," Sanger says.
In China, where Toyota lags behind GM, the Japanese company aims to increase sales by 60%, to 290,000 vehicles in 2006. In Europe, Toyota is hoping for sales growth of 11%. Small wonder that analysts say Toyota's biggest challenge is managing both the rapid introduction of new vehicles and added output in numerous markets. "The biggest risk facing Toyota is executing their plans," says Andrew Phillips, an analyst at Nikko Citigroup in Tokyo.
That and eking out growth at home in Japan. Toyota's domestic marketplace shrank by 0.9% in 2005, according to the Japan Automobile Manufacturers Assn. Toyota's Japanese sales -- not including the Lexus brand, which it recently launched at home -- fell by even more. "Even for Toyota, Japan is a very difficult market," says Tatsuo Yoshida, an analyst at Merrill Lynch in Tokyo. This year, Toyota predicts 3% sales growth at home aided by the further rollout of the Lexus brand and new vehicles like the remodeled Camry. Japan may be the only place where Toyota shows any strain in 2006.
Rowley is a correspondent in BusinessWeek's Tokyo bureau
By Ian Rowley
No Traffic Ahead for Toyota
The Japanese juggernaut isn't just cruising -- it's picking up speed nearly everywhere it turns. About the only drag is its home market
When Katsuaki Watanabe succeeded Fujio Cho as the CEO of Toyota Motor (TM) in June, the 63-year-old made it clear that complacency was one of the main threats facing Japan's No 1 auto maker. That might have sounded overly cautious at the time, but eight months on, Watanabe can see the payoff of keeping the heat on. Tomorrow in Tokyo, Toyota is expected to announce another set of excellent quarterly results.
Advertisement
Analysts say just about every factor -- including a favorable currency environment, a solid pipeline of new models, and a relative weak quarter a year earlier -- is in Toyota's favor right now. "We're expecting operating profits to increase by 20% [to $4.4 billion] for the quarter, aided by strong sales in the U.S. and Asia and the weaker yen," says Tsuyoshi Mochimaru, an auto analyst at Deutsche Securities in Tokyo, adding that he sees profits rising by a similar percentage to $3 billion. For the full year through March, he projects net earnings for the year will rise 5.4%, to $10.4 billion, and by a further 9.5% in 2007 -- dwarfing rivals's results. "Toyota doesn't face significant risks in the short term," adds Mochimaru. By contrast, struggling General Motors (GM) posted a $4.8 billion net loss for the final quarter of 2005 and $8.6 billion in red ink for the calendar year.
FAST-FALLING YEN. As GM and Ford (F) know to their cost, one reason for the growing profits at Japanese auto makers is a growing share of the U.S. market. Add in the yen's recent weakness against the dollar -- which boosts results reported in yen -- and Toyota's operating results look even stronger. Last week, better-than-expected results at Nissan (NSANY) and Honda (HMC), Japan's second- and third-largest automakers respectively, were in part due to the yen weakness. Honda increased sales by 15.8%, to just under $21 billion, for the quarter, but it said the increase would have been 7.3% if exchange rates had remained unchanged from the same period a year earlier. Analysts say Toyota's operating earnings -- over half of which are generated in the U.S. -- will also benefit from the yen's slide.
Less clear is the impact of the yen's depreciation on net earnings. Despite excellent operating results, Honda's profits actually fell once the costs of hedging was taken into account: The company hadn't expected the yen to fall so quickly. Analysts say something similar may arise at Toyota to affect net earnings. On the other hand, Toyota is expected to benefit from a one-off gain of as much as $1.2 billion relating to its stake in Mitsubishi UFJ Financial Group, a giant Japanese bank that was formed through a merger of Mitsubishi Tokyo Financial Group and UFJ Holdings in October.
What isn't in question, though, is that no carmaker can match Toyota right now when it comes to ramping up sales and production around the world. In December, Watanabe announced that it plans to increase global production by 10% in 2006, to more than 9 million vehicles. That boost increases the likelihood that Toyota will surpass GM as the world's largest auto maker in the next 12 to 24 months (see BW Online, 12/21/05, "Toyota: King of the Car World in '06?).
10% PUSH. To achieve that goal, Toyota will increase output at factories in France, Thailand, Indonesia, China, and Texas during 2006. The latter is a brand-new, $850 million factory opening later this year in San Antonio that will eventually churn out 200,000 Tundra pickups a year (see BW, 2/13/06, "Toyota Builds A Truck Even Bubba May Love"). In January, Toyota also announced it's spending $35 million to increase capacity at its Mexican plant.
In the U.S., where Toyota is targeting a 10% increase in sales this year, a remodeled version of the best-selling Camry will go on sale in March, while the Vitz compact, two new Lexus models, and the new Scion xB will all debut during 2006. Next year, a new Corolla is expected as well as two additions to the Lexus lineup -- a compact SUV and a crossover model. According to Kurt Sanger, an analyst at Macquarie Securities in Tokyo, Toyota will replace 60% of its existing model lineup in the next two years, not accounting for brand-new models like the FJ Cruiser SUV, which is slated for launch later this year. "The pipeline is overwhelming," Sanger says.
In China, where Toyota lags behind GM, the Japanese company aims to increase sales by 60%, to 290,000 vehicles in 2006. In Europe, Toyota is hoping for sales growth of 11%. Small wonder that analysts say Toyota's biggest challenge is managing both the rapid introduction of new vehicles and added output in numerous markets. "The biggest risk facing Toyota is executing their plans," says Andrew Phillips, an analyst at Nikko Citigroup in Tokyo.
That and eking out growth at home in Japan. Toyota's domestic marketplace shrank by 0.9% in 2005, according to the Japan Automobile Manufacturers Assn. Toyota's Japanese sales -- not including the Lexus brand, which it recently launched at home -- fell by even more. "Even for Toyota, Japan is a very difficult market," says Tatsuo Yoshida, an analyst at Merrill Lynch in Tokyo. This year, Toyota predicts 3% sales growth at home aided by the further rollout of the Lexus brand and new vehicles like the remodeled Camry. Japan may be the only place where Toyota shows any strain in 2006.
Rowley is a correspondent in BusinessWeek's Tokyo bureau
02-06-06, 10:12 PM
#2
Speaks French in Russian
Originally Posted by 1SICKLEX
as well as two additions to the Lexus lineup -- a compact SUV and a crossover model.
I would like to see more 2 doors first honestly.
02-06-06, 10:18 PM
#3
Super Moderator
Originally Posted by magneto112
Oh no a SUV smaller than the RX. I can't believe it. I would like to see more 2 doors first honestly.
I would like to see more 2 doors first honestly.
Yes I want to see more coupes too
02-06-06, 10:51 PM
#6
Originally Posted by foofighter
I can see a reskinned sienna on an AWD platform...a lot of the reviews written about the Sienna is that it's so luxurious inside that it could very well be Lexus.
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02-07-06, 06:44 AM
#8
Lexus Fanatic
Originally Posted by magneto112
Oh no a SUV smaller than the RX. I can't believe it. I would like to see more 2 doors first honestly.
I would like to see more 2 doors first honestly.
Well....now that Toyota owns part of Subaru ( Fuji Heavy Industries ) maybe they plan to redo the Forester and sell an upscale Lexus version of it.
02-07-06, 08:10 AM
#9
Lexus Test Driver
Please no!!! Forget the dressed up Rav4, give us performance coupes!!! How about IS-coupes even with a special-order-only 6-speed manual... thats all I ask for.
02-07-06, 10:41 AM
#11
Originally Posted by 1SICKLEX
Lexus sells 110,000 mostly 38k-50k RXs. If they HAd the capacity and reallly wanted to chase sales, imaging a Lexus Rav-4, selling at 28-35k.
They would sell 200,000 of them alone. And in the process destry the Lexus brand.
DO NOT CHASE SALES
They would sell 200,000 of them alone. And in the process destry the Lexus brand.
DO NOT CHASE SALES
02-07-06, 10:41 AM
#12
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Originally Posted by 1SICKLEX
Lexus sells 110,000 mostly 38k-50k RXs. If they HAd the capacity and reallly wanted to chase sales, imaging a Lexus Rav-4, selling at 28-35k.
They would sell 200,000 of them alone. And in the process destry the Lexus brand.
DO NOT CHASE SALES
They would sell 200,000 of them alone. And in the process destry the Lexus brand.
DO NOT CHASE SALES
Also, a small SUV/CUV would REALLY detract from the Lexus brand image.
I could see a 7 passenger crossover *possibly* working, but even that may step on the toes of the RX. I really hope this is all just rumours.
02-07-06, 11:00 AM
#13
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Originally Posted by 1SICKLEX
Lexus sells 110,000 mostly 38k-50k RXs. If they HAd the capacity and reallly wanted to chase sales, imaging a Lexus Rav-4, selling at 28-35k.
They would sell 200,000 of them alone. And in the process destry the Lexus brand.
DO NOT CHASE SALES
They would sell 200,000 of them alone. And in the process destry the Lexus brand.
DO NOT CHASE SALES
Agreed.
I doubt Lexus would make this mistake. Let's just hope they don't make a $30k SUV.
That would make this "Lexus" and average SUV.
Lexus technically has no regular coupes. The SC430 is a hardtop convertible.
They NEED to build REAL sports cars.
02-07-06, 11:49 AM
#14
Originally Posted by JLSC4
Agreed.
I doubt Lexus would make this mistake. Let's just hope they don't make a $30k SUV.
That would make this "Lexus" and average SUV.
Lexus technically has no regular coupes. The SC430 is a hardtop convertible.
They NEED to build REAL sports cars.
I doubt Lexus would make this mistake. Let's just hope they don't make a $30k SUV.
That would make this "Lexus" and average SUV.
Lexus technically has no regular coupes. The SC430 is a hardtop convertible.
They NEED to build REAL sports cars.
and mike, very well said. lexus wants to sell more for sure, but please don't make it the sole goal
02-07-06, 11:57 AM
#15
Super Moderator
Originally Posted by rominl
well we know the IS coupes are coming, but still i think we need more coupes
Originally Posted by rominl
and mike, very well said. lexus wants to sell more for sure, but please don't make it the sole goal