Daily Management Review

Toyota Records Third Straight Q1 Profit Record Even as it Loses Top Position to Volkswagen


Toyota Records Third Straight Q1 Profit Record Even as it Loses Top Position to Volkswagen
Even as the sale went down slightly, Japanese car giant Toyota managed to beat analyst estimates to record a third straight year of record first-quarter net profit. This was possible due to the costs cuts employed by the company and the currency gains made by the company.

The company recorded a 10 percent April-June profit which touched 646.39 billion yen or $5.22 billion compared to 607.5 billion yen average estimate of 11 analysts polled by Thomson Reuters.

The operating profit of the company rose 9.1 percent to reach 756 billion yen on revenue that grew by 9.3 percent.

A self-imposed halt on increasing production capacity aimed at preventing quality problems was considered to be the primary reason for the reduction in sale growth of Toyota. The three year freeze was lifted on April and the Japanese auto company plans ot set up plants in Mexico and China.

The intensifying price competition, especially for the RAV4 sport utility vehicle (SUV) which has seen a significant rise in demand, affected Toyota’s sales in China, the world's biggest auto market. There was a reduction of 0.1 percent in sale when compared jointly with the company’s joint ventures in January-March. This reduction was reflected in the latest results announced by the company on 4th August as the company has a norm to report its China income one quarter later and books them at net level under U.S. accounting rules.

There was a 0.4 percent decline in the global retail sales of the company in April-June. The company sold 2.502 million vehicles worldwide during this period.

The company has however not altered its net profit forecast for the year ending March at 2.25 trillion yen while the higher than expected currency gains made the company raise its revenue guidance. Even as Toyota announced increased profits and better than expected results, the Japanese car manufacturer lost its crown of being the largest car manufacturer of the world to Volkswagen.

In the first half of the year, Volkswagen sold more vehicle globally than Toyota to become the largest car company in the world. The company had set a target of here years later to achieve this target but was probably helped by a three year production enhancement freeze by Toyota to reach the target much sooner.

However it is a big challenge for Volkswagen to maintain the top position as the deliveries are falling in China. One third of the company’s global sales come from the China orders and this reduction in deliveries has increased the importance of the relatively stagnant western European demand.

Volkswagen reported 5.04 million deliveries in the first half year on July 17, just ahead of the 5.02 million vehicle sale figure of Toyota.

Volkswagen’s performance however does not reflect the underperformance of the company in the key markets of United States and Brazil. According to analysts, the company has been slow to upgrade models and adjust its offerings to market trends, analysts say.

The size of the company could become a problem however, says analysts as the company now possess over 310 models and nearly 120 factories worldwide.

(Source:www.economictimes.indiatimes.com, http://in.reuters.com & www.businessinsider.com)