With $12 Billion in Profit, Toyota Has G.M. in Sig

[ellives]

http://www.nytimes.com/2006/05/11/business...lace.html?fta=y

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May 11, 2006

Market Place

With $12 Billion in Profit, Toyota Has G.M. in Sight

By MARTIN FACKLER

TOKYO

DETROIT'S ailing automakers may be struggling to get out of reverse, but Toyota showed yesterday that it was just shifting into high gear.

Toyota, Japan's largest carmaker, posted a 17.2 percent jump in net profit, to a record 1.37 trillion yen ($12.1 billion) in the fiscal year ended March 31. It was its sixth consecutive year of record profit, enough to make it one of the world's most profitable manufacturers.

Toyota also released a sales forecast that analysts said showed it was on track to dethrone the floundering General Motors as the world's largest carmaker, possibly as soon as this year. Toyota said its entire group, including Daihatsu Motor and the truckmaker Hino, would sell 8.45 million vehicles this fiscal year, 476,000 more than last year.

While G.M. has not released a forecast, many analysts expect it to drop below last year's 9.17 million vehicles. G.M., which has held the top position for 75 years, is struggling to recover from a $10.6 billion loss amid labor tension and soaring gasoline prices. Its first quarter was profitable, but if its sales drop 8 percent and Toyota exceeds its projections, then Toyota could become the world's largest carmaker.

In a sign of the two auto giants' diverging fortunes, Toyota's current share price values the company around $218 billion, nearly 15 times the valuation of G.M.

"I don't know when we'll pass G.M.," Toyota's chief executive, Katsuaki Watanabe, told reporters. "We're not thinking about other companies. We're just trying to meet our own growth goals." In fact, Toyota disclosed that in the coming year, it expected profits to dip.

Still, the company showed no signs of any letup in its aggressive expansion. Mr. Watanabe said Toyota planned to spend 1.55 trillion yen ($14.1 billion) on new factories and production lines this year, matching last year's record investment. He said it would put 920 billion yen ($8.35 billion) into research and development of new models and technology, including its popular hybrid gasoline-and-electric engines.

Mr. Watanabe said Toyota planned to open six factories in the next three years, at a time when G.M. and Ford are closing plants. The new factories include two in China, the company's first in Russia, one in Canada and one in Texas that will start producing Tundra pickup trucks in October. Executives are considering four Southern states for the site of a new assembly plant, and they may also build an engine plant in Michigan, Kentucky or Indiana.

"To take advantage of the opportunity we have now, we have to have enough supplying power," Mr. Watanabe said. "We are fortunate that global customers have embraced our products."

Revenue last year rose 13.4 percent from the year before, to 21 trillion yen ($185.8 billion), close behind G.M.'s revenue of $192.6 billion. Despite rising prices of steel, aluminum and other raw material, Toyota was able to increase operating margins and profit, Mr. Watanabe said, by cutting costs elsewhere and significantly increasing factory efficiency.

In the United States, its largest single market, the company said operating profit rose 10.7 percent, to about $4.4 billion, making it easily the most successful car seller.

Vehicle sales rose 12.5 percent last year, to 2.56 million units, and Toyota forecast a further increase this year, to 2.8 million vehicles.

Mr. Watanabe departed from his upbeat presentation only once, when he pledged to prevent race and sex discrimination in his company. He was responding to a $190 million sexual-harassment suit filed last week in the United States by a former female employee. He refused to comment further, saying only that he did not expect the case to hurt sales.

The official involved in the case, Hideaki Otaka, stepped down Monday as chief executive of Toyota Motor North America, and will not take up a new assignment in Japan until the case is resolved.

Asian automakers like Toyota have gained competitive advantage from soaring oil prices because their vehicle lineups have more light and fuel-efficient cars and trucks than the Detroit makers. Toyota, analysts said, has managed to pull ahead of even its Asian rivals with its knack for building the right combination of models to attract buyers.

They said another source of the company's strength was its ability to keep factory output slightly below consumer appetite for its vehicles. This approach has created a constant state of mild scarcity that helped prop up prices and avoid the large inventories of unsold vehicles that has proved costly for G.M. and Ford.

Analysts also said Toyota continued to invest in new vehicles and technology, which helps it stay competitive. One example is hybrid engines, a popular fuel-efficient technology in which Toyota invested early, seizing a lead with its Prius hybrid sedan. Yesterday, Toyota said it sold 263,000 hybrid vehicles last year, a big source of growth. It reiterated that it aimed to sell a million a year by 2010.

Koji Endo, an analyst in Tokyo with Credit Suisse First Boston, said, "Toyota has been smart about investing heavily in R&D while keeping up profits." Analysts said another secret of the company's success was the efficiency and flexibility of its production lines, which allowed it to offer vehicles tailored to individual markets. On Camry sedans, for instance, Toyota makes a common engine and frame globally, changing the interiors and upper bodies to meet local consumer preferences.

"Toyota is skilled at supplying the right car to the right market," Mr. Endo said.

Micheline Maynard contributed reporting from Detroit for this article.

[Sixty8panther]

"Toyota is skilled at supplying the right car to the right market," Mr. Endo said.

And having the American Media do backflips everytime

a new trim level is added to a Scion or Camry.

[91z4me]

We have heard for how many years that Toyota is going to overtake GM? With GM doing really well in China, GME doing better and better thanks to Daewoo, I don't expect that to change anytime soon.