Thursday, 22 February 2018

Toyota isn't sweating North America slump


Kobayashi: Tax benefits continue

Just how serious are Toyota’s problems in North America?

Big enough to undercut the parent company’s latest quarterly results, but not enough to dim the outlook for the fiscal year or to make Toyota an outlier among its competitors.

Traditionally Toyota Motor Corp.’s cash cow, the North American arm saw its operating profit plunge by more than half to ¥33.1 billion ($293.8 million) in the fiscal third quarter ended Dec. 31, thanks to falling sales, rising incentives and slower production. Regional wholesale volume in North America shrank 1.3 percent to 735,000 vehicles.

Toyota Motor Sales U.S.A., which includes Lexus, struggled with a flood of vehicles coming off lease and the continuing migration of consumers from cars to crossovers, SUVs and pickups, a fast-moving trend that has Toyota scrambling to keep pace.

It took a $2.59 billion windfall from the new U.S. tax law to make the overall results look respectable: Thanks to the tax break, Toyota’s net income for the quarter nearly doubled to $8.36 billion.

The tax change was a one-time gain, Executive Vice President Koji Kobayashi said last week. But the advantages will continue to accrue.

“The lower corporate tax and also the immediate depreciation of company investments as well as the tax credit on research and development expenses will continue in and after next year as well,” Kobayashi said. “We intend to leverage those benefits.”

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Toyota lifted its outlook, predicting record net income of $21.3 billion in the fiscal year ending March 31.

As for Toyota’s unfavorable car-truck mix in the U.S., it is working to realign demand by increasing its supply of light trucks and rolling out more updated cars, such as the redesigned Camry and Avalon sedans.

“Competitiveness should be enhanced,” Senior Managing Officer Masayoshi Shirayanagi said. “That’s our first priority.”

Indeed, Toyota lifted its wholesale volume forecast for North America to 2.81 million vehicles for the fiscal year ending March 31. That’s up from an earlier outlook of 2.79 million vehicles, though it represents a 1 percent decline from the previous fiscal year.

Eric Lyman, vice president of industry insights at TrueCar, said market metrics for Toyota and Lexus have held up pretty well given an increasingly competitive U.S. market that favors domestic automakers and their storied truck brands.

“Toyota has been doing OK when we compare the Toyota brand against the mainstream automakers and Lexus against luxury,” Lyman told Automotive News. “A lot of the headwinds that Toyota is facing are the same headwinds that the industry is facing overall.”

Those include rising incentive spending as sales dip from historic highs and brands fight for share.

The Toyota brand’s incentives in January were 7 percent higher than a year earlier, at $2,248 per vehicle, Lyman said, citing figures from Motor Intelligence. That’s the third lowest in the industry behind Subaru and Honda. Mainstream brands as a whole were up 4 percent.

Lexus’ incentives rose 65 percent in the same period to $5,135, about $150 less than the luxury average, which rose 28 percent.

Lower spiffs on some nameplates, such as the redesigned Camry sedan, are helping Toyota control incentive spending.

In 2017, Toyota Motor Sales U.S.A.’s average incentive outlays were $2,614 per vehicle, below the industry average of $3,672, according to Motor Intelligence.

Toyota’s fleet sales averaged around 7 percent of its total sales over the last 12 months, below the 10 percent average for mainstream automakers, and Lexus has no fleet sales, according to Polk. And the Toyota and Lexus used-car supply is expected to fall over the next three years as the industry’s rises.

“They’re not playing the fleet game as much as FCA or Nissan or Hyundai, so they’re probably more shielded from those fluctuations that can result from high rentals,” said Tim Fleming, an analyst at Kelley Blue Book.

At the same time, Toyota has been adjusting its car-heavy mix to light trucks, boosting production capacity for RAV4s and Tacomas and adding a subcompact crossover, the C-HR.

Fleming said Toyota’s 60-40 split between light trucks and cars is getting pretty close to the industry average of about 65-35. “Toyota’s SUVs and trucks have phenomenal resale value, and that hasn’t really changed over the years.”

Said Lyman: “Their metrics aren’t too far out of line with what we see in the industry overall.”



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