Quick Thoughts on Toyota's Recent Profitability Issues

Some quick thoughts on Toyota and their recent profitability issues:

Toyota's profitability issues seem to be a classic case of "money hiding a multitude of sins", as their success caused them to abandon some of the company's key values with respect to efficiency, keeping things simple, etc. A WSJ article I blogged about a few months ago covered some of these issues, especially with regards to various aspects of the manufacturing process that were really instances of "engineers at play", more so than adding value and efficiency. All of this leads me to believe that the economic downturn will actually benefit Toyota in the long-run, as it's forcing them to confront various internal issues before they become even bigger problems down the road.

Overall Toyota's problems seem to be more of a case of needing to remove some bad apples from the system, as opposed to widespread systemic problems that require a re-visioning of how they company does business. In short: I view Toyota's problems as nothing more than short-term hiccups, which will probably benefit the company by forcing them to adopt a more disciplined decision making process moving forward. As a result I think that they should be able to return to profitability relatively quickly.

Toyota may very well be a classic case of a company's short-term problems allowing investors to pick-up their stock on the cheap.

Disclosure: While the author didn't own a position in any of the companies mentioned in this article at the time of publishing, he is considering investing in the companies or sectors mentioned in this article. In keeping with the typical rules around investment timing and disclosure, any potential investments would occur 10 trading days after the original publishing date and the position would be disclosed in future articles discussing the relevant companies. The ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[rajsekar:]

The opening of a new plant for making Tundra full-size pickup was a colossal mistake. Even before the first Tundra rolled out of San Antonio plant in 2008, the pickup truck sales numbers went south. Toyota is now saddled with this huge investment which was planned and opened in a hurry under Watanabe's rule. After this blunder, Toyota broke ground for two new plants in US and Canada each. I won't be surprised if all three plants will end up being closed or sold to other auto makers. San Antonio plant will be a nail in the coffin for Toyota's US operations. Toyota can make a slow come back in US, but their sales of mid-end models (Corolla, Camry and RAV4) are slowing in China, India and Europe. Can sales in US and Japan save Toyota? I doubt. Nissan and Honda are in a stronger position worldwide, as compared to Toyota. Their sales slide in Japan and US are compensated well in Europe, India and China. Nissan's Canton plant in Mississippi can make 5 models under one roof (Altima, Titan, Quest, Armada, X-Terra) and no other manufacturer has such great flexible plant in the world. The plant can be retooled very quickly to assemble a new line of SUV or Sedan.

May 26 09:43 PM