The recipe for Toyota, the most profitable automaker in the world

The recipe for Toyota, the most profitable automaker in the world

Finally, he sees himself caught up in the crisis and the confinement in China. Toyota saw its net profit fall by 18% in its first fiscal quarter (April-June 2022 to 737 billion yen, 5.4 billion euros). And its operating profit collapsed by 42% (to 576 billion yen, 4.2 billion euros). With a margin of 6.8%, much lower than that of Stellantis (14.1% in the first half) or Volkswagen (9.7%). But, for the current fiscal year, which will end on March 31, 2023, Toyota expects annual net profit of 2.36 trillion yen (17.4 billion euros), higher than initially expected, even if it would be down 17% over one year, an operating profit of 2,400 billion (17.6 billion euros, down 20% over 2020-21) and a margin bordering on 7%, against 9.5 % the previous year.

Turnover would be up almost 10% compared to the previous year. And the Toyoda City group expects 10.7 million vehicles sold (with small cars from Daihatsu and heavy trucks from Hino), or 300,000 more than in 2021-22. Last year, Toyota was the world champion in vehicle sales, ahead of Volkswagen, but also the champion in all categories of profits (in billions of euros). From far away. It is only on the margins (as a percentage of turnover) that Toyota was left behind. The Japanese has never been characterized by huge margins, but these have always remained more or less constant (8% in 2020-21, 8.2% in 2017-18). What counts for Toyota is regularity. Despite a weak first fiscal quarter due to production restrictions, Toyota expects ultimately on a very honorable year 2022-23.

A locked internal market

What are the historical recipes that allow the Japanese, despite winds and tides, to display an insolent success over time? Several answers to this. First of all, the Japanese group is locking its domestic market, where it holds a dominant position with a market share corresponding to almost half of vehicle sales in Japan! Better: by taking stakes in his compatriots Isuzu (utilities and pick-ups), Suzuki (mini-vehicles and small SUVs), Mazda or Subaru, he even indirectly controls nearly 70% of the Japanese automobile market. Japan accounted for 55% of its operating profit in the first quarter, with a margin of 8.8%, above its average. The rest of Asia (with China) weighed 35% of its quarterly operating profit, with a margin of 11.8%. The other regions were not very profitable. North America accounted for just 2% of Toyota’s operating profit, an exceptionally low level at the start of the year. Europe weighed 3%, according to the tables published this Thursday, August 4 by the group. Toyota is defending its market share in the United States and Europe, even if it means reducing its margins there (4.3% across the Atlantic, 2% on the Old Continent over the quarter).

Toyota is therefore still taking advantage of its dominance in the archipelago, sheltered from imports, but also in the rest of Asia, to garner the cash that can fuel expansion elsewhere. Toyota had started industrially in the United States by joining forces in 1984 with General Motors in its Californian factory in Fremont. Toyota then quickly emancipated itself from its mentor, founding its first factory in the United States in 1986 and today becoming the second American manufacturer behind GM, overtaking Ford and Chrysler. Established industrially in Great Britain since 1992, Toyota took up the a priori impossible bet for a foreign manufacturer to establish a car factory in Francein Valenciennes (North). To produce small cars there, which Renault and PSA have for their part relocated outside France for cost reasons. Valenciennes now employs 5,000 people and produces the Yaris and Yaris Cross.

The keys to Toyota’s success are to be found fundamentally in Toyotism. The Toyota method (Toyota Way) is in fact a separate managerial model, studied universally. No other manufacturer has given its name to such a method. This shows to what extent the first Japanese car group served as a reference for a long time, to the point that the famous Toyotism was dissected and taught by MIT (Massachusetts Institute of Technology) in the 1980s. A mixture of consensual pragmatism, frugality, humility in the constant effort to continuously improve processes and quality, Toyota Way always succeeds in this group, whose boss Akio Toyoda is the grandson of the founder of Toyota’s automotive business, Kiichiro Toyoda. Toyota is also proud to be very often ranked at the top of consumer satisfaction surveys. The reliability of its cars has become legendary, as underlined by the extraordinary breakthrough of the firm with Parisian taxis, but also its monopoly on pick-ups with the armies or the various rebel movements in Africa or the Middle East.

The successful bet of the hybrid

But process control does not explain everything. Toyota, whose range is the most extensive among all the manufacturers in the world, has also made, since 1997, the hybrid bet (gasoline engines with electric backup). At the time, competitors sneered, laughing at this complex technology that would never generate profits. The start was slow. But, Toyota now enjoys an enviable green image thanks to this technology. Even if this fame results in particular from an excellent lobby led by Toyota for decades. The ban on diesel at the initiative of the European public authorities only favors… the hybrid, which has now become the only way for internal combustion engines to reduce their CO2 emissions.2.

The hybrid illustrates this very long-term strategy at Toyota. The manufacturer sold 3.1 million electrified vehicles in the 2021-2022 fiscal year, including 2.85 million hybrids. It expects to sell 8 million in 2030. Also ahead of fuel cell vehicles, Toyota has also delivered 5,000 hydrogen vehicles last year. It plans to launch a mid-range model in less than ten years, at a running cost equal to or lower than that of a battery-electric model. Toyota, on the other hand, is more reluctant about pure electrics, which it only sees the logic for traveling on short journeys… Even if it gets started. Toyota is suddenly the champion of automotive market capitalization. This, constant since the beginning of the year, reached 250 billion euros. Against 90 billion for Volkswagen, 64 billion for Mercedes, 45 billion for Stellantis. Only Tesla, in the automobile, is far beyond Toyota, at 960 billion dollars!

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