Putting Toyota's Recent Big Loss In Perspective

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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zairnaim - 5/18/2009 12:27:58 PM

+4 Boost

They have some valid points but this has to be takes with a grain of salt considering it comes from a toyota fan site.

zairnaim - 5/19/2009 4:19:18 PM

+1 Boost

I said that the some of the points are valid. I didn't say that there was no bias did I?

tundrahq - 5/20/2009 9:56:09 AM

+1 Boost

I think that we probably are a little biased in favor of Toyota, except of course when we lambast them for rust issues, bed bounce, worst warranty in a half-ton, etc. All those times we're biased against them.

thstone - 5/18/2009 1:43:40 PM

+1 Boost

Perspective? This is a BIG deal. Its HUGE! Losing ~$5B a year is not a sustainable business model. Ask GM. Executive bonus's are irrelevant. The key is cutting costs through reduced production (which cuts material and labor costs).

The real question is whether Toyota is going to cut global production OR are they going to keep building vehicles (like GM did) at nearly the same rate assuming that the sales slump is short term?

GM took this bet and lost big. So big that it may cost them the entire company. Toyota can easily be in the same position as GM in 18 months (and $10B+ in add'l losses) if they bet wrong.

tundrahq - 5/20/2009 9:46:26 AM

+1 Boost

That question has been answered - Toyota cut back on production tremendously for the year. Down from almost 10 million vehicles to a little less than 7 million.

komododave - 5/18/2009 2:02:06 PM

+2 Boost

You can't prove Toyota's vision is long term by showing how bad GM's union problems are.

Joe_Limon - 5/18/2009 3:53:24 PM

+2 Boost

1. There are already many Toyota plants throughout North America
2. As long as you are still selling cars it is possible to still be making a profit, if you cut back your production quotas you spend less money. You don't need to build millions of vehicles a year to make money.
3. Toyota in the long term is risky, with the vast numbers of recalls for suspension pieces rusting off, their reliability took a huge dive, the only things that would be left for toyota is styling, but as it is they aren't attractive with their sack bulge's on the front of most models... so the only real thing left for them is the fact that they have a saturated market, they can still sell some cars because people buy what they are familiar with.

tundrahq - 5/20/2009 9:54:50 AM

+1 Boost

1. You are correct, but there could be many more. Toyota has been slowly addressing this issue over the years, but then they suspended construction in Mississippi of a plant that would have only made Highlanders.
2. Absolutely - Porsche is a prime example.
3. Can you honestly say that the Camry isn't one of the best offerings in a mid-size? Camry, Accord, and Fusion are all pretty close. Same goes for Corolla, Civic, and Focus (I like the Ford cars a lot in both cases, btw). The Yaris is selling like crazy - great little car. What about the Tacoma? Best selling small truck by a large margin, great looks, young buyers. 4Runner and Highlander? Great product. The knock on Toyota is that they're vanilla, and in a lot of ways I agree. The Camry is boring as hell, the Avalon is a snooze fest, and they don't have a sports car. Still, when you look at why they're successful it's more than "people just buy what they're comfortable with." It's about product too, and Toyota's products are generally quite good.

BigShow50 - 5/19/2009 1:01:24 PM

+2 Boost

Hey UAW, what American money are you talking about?!?!? When the the supposed American money originated from China, which us Americans owe Billions, upon Billions to China for bailing our asses out for god knows how long, which they will probably never see a penny in return in their life cycle. So that being said "what goes around, comes around!"...the only successor out of the Big 3 for the long term is Ford...As for GM and Chrysler, they are done & done!!!!.....LMAFO!!!

BigShow50 - 5/19/2009 1:05:30 PM

+1 Boost

U.S. is the definition of "Failure"...it seems that everything and anything we do in U.S., that going BANKO has proven to be "OKAY!"....That's really too bad.

tundrahq - 5/20/2009 9:57:18 AM

+1 Boost

Word. How is it OK that GM and Chrysler needed a government bailout? No excuses.