Seeking Alpha
Research analyst, long/short equity, ETF investing, foreign companies
Profile| Send Message|
( followers)  
There is some confusion over an Asahi Shimbun report and statements by Toyota (NYSE:TM) regarding its planned production capacity at its new pickup truck manufacturing plant in Texas scheduled to launch this November.

The Asahi report said Toyota is reconsidering its North America strategy and will cut initial production of full-size Tundra pickups at its Texas facility due to concerns over higher gas prices and a slowing U.S. economy, and instead boost capacity of the Camry via its alliance with Fuji Heavy Industries (OTCPK:FUJHY).

Initial annual production capacity through 2007 at the Texas facility was expected to be 200,000 units but according to the Asahi article it will be cut to 150,000. The Asahi article also said Camry production at a Fuji Heavy factory in Indiana will begin with annual capacity of 100,000 units in February 2007 and will increase to 200,000 by October. A Camry production plant in Aichi, Japan, will reportedly switch to manufacturing the hybrid Prius for export to the U.S. See Marketwatch.com's summary.

A follow-up article by Marketwatch.com reports that a Toyota spokeswoman said, "We have no plan to revise our plan in North America." And she reportedly said Toyota doesn't plan to ask Fuji Heavy to help with Camry production.

The Asahi article mentions that sales in the U.S. auto market fell 4% between January and August compared to the year prior. Although gas prices have fallen as of late they are still considerably higher than what they were even a couple of years ago. Also, given the volatility of crude oil prices and the potential for supply interruptions I think Toyota is wisely assuming that gas prices will stay on the high side, thus affecting consumer attitudes towards larger vehicles including its popular pickup trucks.

One item of concern for investors is something Toyota itself and analysts noted when Toyota reported record Q1 earnings early last month. Toyota's profit margins are gradually being pinched because it is selling more smaller-sized autos.

The good news is Toyota is still achieving record levels of sales including strong sales in its larger sized vehicles. The bad news is its profit margin will incrementally decline as long as sales of smaller-sized cars continue to grow. It is unknown how much cost-cutting Toyota can do to boost profitability. A positive note is the weak yen exchange rate against the dollar and euro. This alone should account for a sizable upward push in earnings.


Reuters.com reports
that Toyota's VP of external affairs told Reuters yesterday that it "can envision" a 3% to 5% sales increase in 2007, adding:

"I don't believe that anyone in our organization believes it's going to be in the 10 to 12 percent range that it has been in the last couple of years."

Year-to-date Toyota's sales in the U.S. have risen 11% with a 13% gain in cars and 8.5% in truck sales.

Regarding the next generation Tundra the VP said:

"Maybe [it is] even more critical than when we launched the Lexus division. It's a critical product for us and one our dealers are really looking forward to."

"Our sales growth will depend a lot on the acceptance of the truck."

Toyota's ordinary shares (Tokyo: 7203) gained 0.98% in Wednesday trading to close at 6,200 yen ($105.40 ADR equivalent). In intra-day trading Toyota's ADRs are flat at about $106 even.

Also in today's auto news: Ford's Aggressive Plan to Cut Costs

Toyota Motor Corp (TM) 1-year chart [09/13/06 intraday]:

Source: Toyota Comments on U.S. Sales Outlook, Denies Tundra Production Cut