Market Overview

Toyota's New Strategy for Success


Toyota (NYSE: TM) revealed on Monday that it has a new framework for vehicle development that is aimed at making its vehicles more appealing, simultaneously cutting costs by 30% through shared parts.

CEO Akio Toyoda took over at TM three years ago, and since that time he has set about attempting to guide TM towards better products, blaming unchecked sales growth for popular for uninspiring cars.

"The feeling at the time was, 'If we build it, they will come,'" Toyoda said today. "Instead of developing what customers would want next, we were making cars that would rake in sales."

He has a point too. The Toyota Corolla, for example, is almost seen the same way as Volvos once were - safe, reliable and they stay alive for many years. There's nothing spectacular abot a Toyota anymore. They are a good family car.

The new strategy, tagged Toyota New Global Architecture, will see TM develop multiple models at the same time to boost the number of common parts.

Chief designer Tokuo Fukuichi said "Toyota's problem was that it had too many filters. When you have that many people weighing in, you end up developing cars by eliminating the negatives, not by creating something positive, by taking risks."

On Monday, Deutsche Bank published a research report stating that its expected return of Toyota's OP to over ¥1tr feels like an achievement as the company is now four years removed from its historical profit levels. It has struggled with the yen, warranty costs, and aging models. The latter two are fading as factors, but the former is still likely to keep returns well below past levels on a running basis.

"We have increased our OP outlook to ¥1.1tr (from ¥915bn). The two key changes were an additional 130k units in N. America and a three-yen change in our ¥/US$ assumption to ¥82/US$. In the key US market we expect Toyota to recover from an earthquake-impacted 12.9% market share to 14.3% helped by continued strong sales of the new Camry and the addition of a new Avalon, RAV4 and Lexus sedans. Continued cost reduction should help get the parent company close to breakeven with the help of a bit of volume."

Deutsche also said that it expects Toyota to ship 13% more vehicles in FY3/13 (8.4m wholesales) with total global sales of 9.55m units.

Posted-In: Deutsche BankEarnings News Global Best of Benzinga


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