When I launched Google News this morning my eyes were immediately drawn to the headline “Toyota Posts First Profit Drop in Three Years.”
To summarize the article:
Net income fell 28 percent to 316.8 billion yen ($3 billion) in the three months ended March from 440 billion yen a year earlier, Toyota said in Tokyo today. That was lower than the 375.2 billion yen median of six analyst estimates compiled by Bloomberg. Sales rose 3.8 percent to 6.57 trillion yen.
The article went on to say that slowing sales in America and a stronger Japanese currency have largely contributed to Toyota’s challenges.
While this news is not great for Toyota, it could be much worse.
GM reported a first-quarter loss of $3.25 billion last month because of deteriorating performance in North America.
With this said, there was one aspect of the article that did catch my eye with particular interest.
Toyota plans to raise prices for models including the FJ Cruiser sport-utility vehicle, Yaris compact and Prius hybrid by as much as 2.1 percent in North America later this month to help offset rising materials costs.
Much is made of the fact that lean producers should focus their efforts on reducing costs since the market sets the price. As I mentioned in a previous article, some lean practitioners seem to slightly misinterpret Taiichi Ohno’s famous formula: Profit = Price – Cost.
While I’m not sure you can classify these models as “luxury” vehicles as Ohno calls them in his explanation of this formula, one could argue hybrid cars are in such great demand Toyota, in fact, can set the price a little higher and get away with it.
What do you make of all this? Is Toyota in trouble? Or are they in the best position to come through these tough times better than their competition?
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They are in great shape. They are going to earn something like $10 billion? in this “bad year” – hardly a bad sign in my opinion http://management.curiouscatblog.net/2007/11/05/2007-has-been-a-difficult-year-for-toyota/>I wrote on Toyota’s “difficult” 2007 earlier. I am very happy to be a stockholder.
I think you’ve got a typo in Ohno’s formula. Profit = Price – Cost
Thanks Mike! I’ve fixed it… thanks for catching this.
Ultimately, I’d suspect (like other companies) that they’re raising prices because they can. “Rising costs” is a politically correct excuse to customers… why not use that excuse if everyone else does?
Oh, and seriously… they earned THREE BILLION DOLLARS. Please don’t overreact to any one quarter like the news media does. GM is “turning around” according to the media after one good quarter and then floundering again after the next quarter is bad. Think long-term, don’t worry about one quarter’s performance.
It’s a better question to ask about Toyota’s recalls and increasing quality problems… that’s a better indicator of how their system is working (or not working) than one quarter’s financial statement.
Mark,
I think you have caught Ron buying in to the quarterly state of mind. Or were you just testing us Ron?
Lester, actually I am surprised an experienced blogger like Mark fell into my little trap! Ha! Just messing with you, Mark. I love your passion, man.
In all seriousness… of course Toyota continues to kill the market – even in these turbulent times. Any company upset with $3B net income has lost their mind!
And while I didn’t take a definitive stance in this article (I actually did in the first draft but decided to remove it since I figured more comments would come this way and comments are what makes for a good blog if you ask me) I see this little bearish blip as nothing more than common cause variation.
Now then, it only takes a few data points to develop a statistical trend so let’s all keep our eyes peeled for next quarters results. I’m betting things will once again head north for the Big T in the near future.
Thanks for all the comments everyone.
Hey, its all about what the customer values and what they’re willing to pay for. If they value these models for their higher mpg, lower total cost of ownership, etc., then they’ll pay the extra 2.1%. If they don’t, Toyota will see this and will adjust production to meet demand, lower the cost, cut the price, or perhaps all of the above.
That’s why they make $10 billion and Detroit burns through cash faster than a Gamblers Anonymous drop out at a Greektown casino.
Tom, you win the prize for the most creative comment (so far)!