If you’ve been paying attention to automotive news in the last week, you’ve undoubtedly heard that Toyota lost an obscene amount of money in the first quarter - $7.7 billion to be exact. Toyota was quick to point out that this loss is against a $3.3 billion profit in the previous three quarters, resulting in a $4.4 billion loss for the 2008 financial year. (NOTE: Toyota’s financial year ends after the first quarter.) Worst still, Toyota anticipates losing about $5.5 billion for the coming year.
However, before anyone starts worrying about “Toyota being the next GM,” here’s some perspective:
1) Toyota needs more balanced international production - too many vehicles are made in Japan. Did you know that the biggest single source of Toyota’s loss last year was the devaluation of the American dollar? Because many Toyota models are manufactured in Japan, there value is based on the value of the Yen.
The solution? Build more vehicles in the USA.
2) A Loss Is Inevitable. New vehicle sales in North America are down 36% industry wide YTD, and the best estimates are that sales will be down more than 30% in North America for 2009 when compared to 2008. Toyota is the largest automaker in the world - when auto sales drop this much, they’re bound to see a drop in profits.
3) Toyota’s horizon is long term - Toyota will never be the “next GM.” In 1998, GM attempted to address their labor cost issues with the UAW. The result? The UAW went on strike for 53 days until GM backed off of their demands for lower labor costs. GM failed to address their labor cost issues (again), ultimately setting the stage for a government bailout in 2008 (and a probable bankruptcy in 2009).
Yet in that same year, GM’s share price before and after the strike was nearly unchanged. GM President Rick Wagoner received a half million dollar bonus following the strike, despite the fact GM lost as much as $5 billion for the year.
Toyota leadership, on the other hand, is completely focused on the future. When Toyota determined they were looking at a loss for 2008, they canceled all executive bonuses. Toyota is following that action up by firing half their management team - do either of those moves sound like something GM would have done in 1998?
Until Toyota starts rewarding execs and unions for multi-billion dollar loses, the comparison to GM is completely unfounded.
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