Toyota Swings to a Profit, Despite Recall Crisis
Let's see if this makes sense.
In the fiscal year that ended in March of 2009, Toyota lost $4.4 billion.
A year later, after what was arguably the worst crisis in the company's history, Toyota swung to a profit of just over $2.2 billion.
How did that happen?
A big reason for the improvement is Toyota's ability to control costs in the middle and towards the end of last year.
The company shrunk production aggressively around the world.
That went a long ways towards the improvement. So did the fact that Toyota lowered its breakeven mark for global sales of 7 million vehicles, down from 8 million. Throw in better than expected sales in certain markets, like China, and you have a company that provided investors with a mild earnings surprise.
No wonder Toyota CEO Akio Toyoda said, "There's no change in the fact we are in stormy waters. But now I feel that even in the storm, we can see a ray of sunlight in the distance."
Why only a ray of sunlight, and not a full burst? It's because Toyota's future is filled with so much uncertainty. Will its exposure to lawsuits from the recalls be $5 billion? $10 billion? Maybe $15 billion? Nobody knows. Nor is it clear exactly when Toyota's sales will stabilize. Sure, massive incentives have helped the company bring in customers in the U.S., but that can't last forever. Add in rising raw material costs, the strength of the yen, and the fragile global economic recovery and you see why Toyota's $3 billion profit forecast for 2011 is less than what many analysts were expecting.
Bottom line, Toyota’s financial performance in the next year will be hard to predict for many of the same reasons that impacted the last year. Can Toyota control costs as well in the next year as it did in the last 12 months? I think it will. Akio Toyota is intent on reducing excess capacity. Has the Japanese automaker truly seen the worst of the recall mess? My gut says yes, but you never know. Will Toyota need to spend as much on incentives to keep buyers coming into the showroom? I think so, at least in the next few months.
The last 12 months have been a wild ride for Toyota. While the headlines may be tamer, the next twelve months will have plenty of challenges for Akio Toyoda and his leaders
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