Toyota Trips Up: Posts Bigger Loss than GM in Q1

I just read two interesting articles regarding Toyota's financial performance in Q1, 2009. The first was published in the Wall Street Journal on 5/9 and the other in the New York Times on 5/13.

Toyota posted a loss of $7.7 billion in Q1, 2009. This exceeded the loss by GM in the same period. Luckily Toyota has the cash to survive, unlike GM which will probably file for bankruptcy by the end of this month.

There are many factors for the miscues which caused Toyota to incur it's first annual loss in 59 years:

• Toyota failed to recognize and exploit the growth of the small car market in China. GM is the dominant auto company in the Chinese market where it has partnered with two local OEM's.
• A mistaken belief that demand would continue to increase in the US car market. Toyota chose to increase it's presence in the light truck market just as the market collapsed. This has led the company to idle lines at several plants and place construction of a new plant in Mississippi on hold. Sales for the Toyota Tundra are down by 55% compared to the same period last year.
• The price of gasoline, which was up to $4 per gallon last year, has decreased to $2 per gallon, based on the latest prices in Michigan. This has meant that US consumers have lost interest in paying the extra premium for hybrids or in buying smaller vehicles. As an example, the Toyota Prius is now selling at a discount whereas last year it sold for full sticker price. Sales of Toyota's Yaris small car are also down by 50% compared to the same period last year.
• Toyota was not as aggressive as the big three in offering incentives to sell vehicles. Consequently the company slipped to third place, behind Ford, in US new vehicle sales for Q1.

Toyota management has taken several steps in attempting to remedy this situation. Vehicle inventory, which had increased to 100 days on hand is being reduced to 60 days. Toyota accomplished this by closing its plants in late 2008 and early 2009. This is in line with similar inventory levels at the big three. Toyota is also offering more sales incentives to boost sales. A new model of the Prius hybrid is also being launched and this is expected to increase customer traffic at sales rooms. Toyota's assembly plants are also engaged in cost cutting to help boost its bottom line.

The fact that Toyota, which is experienced in small vehicle and hybrid manufacture, should stumble in today's eco friendly atmosphere is a somber reminder to the big three on how big their task really is. Since gas prices continue to fluctuate, US consumers feel no real compulsion to buy hybrids or small vehicles. The big three must build small vehicles that are attractive and competitively priced if they are to take market share from the transplant OEM's.