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Toyota's 'War Chest' Keeps It Gunning for GM

Tuesday, 7 Aug 2007 | 8:56 AM ET

Amid the headlines this weekend about Cerberus closing the Chrysler deal and shaking up management at the automaker, one piece of news came out that blew me away.

In the second quarter, Toyota posted a record profit of $4.13 billion dollars. Sounds staggering by itself until you look at it this way: every day last quarter Toyota made more than 44 million dollars. Almost 2 million dollars a day!

Granted, a big reason behind the record profits was the sliding yen which fueled greater returns for the Japanese automaker. It's a huge advantage Toyota enjoys over the Big 3. Whether it's fair or not, the fact remains a weak yen has put Toyota in a position where it has the profits and cash to squeeze the competition.

For example, Toyota can afford raising incentives on its new Tundra pick-up. Those incentives are boosting sales, while forcing the Big 3 to match with their own deals. This cuts into the profit margins of GM , Ford , and Dodge trucks.

Then there's the squeeze Toyota is putting on the competition when it comes to research and development. The Japanese automaker has the cash to invest on long range projects that may or may not pay off. Developing a plug-in hybrid for example.

Finally, there's the squeeze Toyota's $44 million puts on GM in the race to win sales overseas. Yes, the U.S. is still the number one market in the world, but GM's future growth is very much tied to winning the global auto war. Toyota's profits give it the war chest it needs to catch up to GM in China (where GM is number one), Europe (where Toyota has come on strong), and Latin America (where GM has been a leader for decades).

The point is this: When Toyota makes roughly $44 million a day compared to GM earning just under $10 million the numbers say it all. As long as Toyota enjoys that kind of 4-1 advantage, it will be tough for GM to hold them off in the battle to be #1.

Questions? Comments? BehindTheWheel@cnbc.com

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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