Toyota Motor Corp.’s new Prius hybrid won more than 80,000 orders before even going on sale, prompting outgoing President Katsuaki Watanabe to call it the “savior” for Japan’s most unprofitable carmaker. Investors don’t share his faith.
“Toyota shouldn’t be happy just because Prius orders are going up,” said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. “What should worry it now is Lexus and high-end customers may shift to driving a Prius.”
Japan’s biggest automaker slashed production costs for the Prius by 30 percent in response to dwindling sales of bigger, more-lucrative models. Lexus sales in the U.S., the world’s biggest auto market, have fallen 37 percent this year through May, mirroring an overall plunge in demand caused by falling wages and rising unemployment.
Toyota earns between 100,000 yen ($1,042) to 200,000 yen in operating profit on the sale of one Prius or about 7 to 12 percent of the profit it makes on the sale of a Lexus LS sedan or Tundra pickup trucks in the U.S., according to an estimate by Credit Suisse Securities (Japan) Ltd.
Even with lower Prius production costs, Toyota fell short of its goal of cutting costs of the vehicle by 50 percent, according to Executive Vice President Masatami Takimoto.
‘Some Profit’
“There is some profit” from the Prius, said Akio Toyoda, who will become president later this month. “We are trying hard to cut costs and at the same time, it’s important to make the customers want to buy the car.”
In early April, when Toyota started taking orders from customers, Toyoda slashed the price of the entry-level Prius by 12 percent to 2.05 million yen to compete with Honda Motor Co.’s redesigned Insight Hybrid priced from 1.89 million yen.
As a result, Prius became the most popular vehicle in Japan in May topping the Insight, which had been the first hybrid vehicle to top Japan’s monthly regular auto sales.
Toyota has increased domestic orders for the new Prius by 75 percent since it went on sale May 18 after receiving 80,000 orders. The company introduced the latest Prius just 10 days after posting its first annual loss in 59 years. It expects the loss to widen to 550 billion yen this fiscal year, from 437 billion yen in the previous year.
The third-generation Prius, priced between 2.05 million yen and 3.27 million yen, has a fuel economy of 38 kilometers per liter, according to Toyota, compared with the Insight’s 30 kilometers per liter. Toyota has a goal of selling 1 million hybrids annually in the 2010s and offering hybrid versions of all of its vehicles in the 2020s.
Toyota gained 1 percent to 3,880 yen as of 12:50 p.m. in Tokyo. The stock has risen 34 percent so far this year.
‘Cash Cow’
Toyota’s sales of Toyota and Lexus brand vehicles in the U.S. have plunged 39 percent this year through May to 638,795 units.
“Toyota needs the cash cow models in the U.S., like the Lexus and the Tundra to do well,” said Masayuki Kubota, who oversees about $1.9 billion at Daiwa SB Investments Ltd. “Toyota is probably expecting a return from the Prius for the long-term.”
For now, Toyota’s push into the U.S. market for large pickup trucks is compounding its financial problems.
The company opened a $1.3 billion plant in San Antonio in late 2006 solely to build Tundras and spent an equal or greater amount to revamp the truck and develop V8 engines to power it.
Tundra Target
In 2007, the first full year for the redesigned Tundra, Toyota fell short of its initial 200,000-unit U.S. sales goal and last year plunging demand for pickups amid record high gasoline prices led Toyota to suspend production work in San Antonio for three months.
Toyota’s U.S. rivals, which relied on selling large pickup trucks and sport-utility vehicles, have also suffered. Chrysler LLC filed for Chapter 11 bankruptcy protection on April 30 and will sell most of its business to Italy’s Fiat SpA, while General Motors Corp., the largest U.S. automaker, filed for bankruptcy protection on June 1.
Once Akio Toyoda, the grandson of the founder of Toyota, becomes president, he may further slash costs, including cutting Japan capacity and workforce by at least 10 percent, reducing 20 platforms and 70 model types by 10 percent, and consolidating the carmaker’s rural-dealer network in Japan, said Koji Endo, an analyst at Credit Suisse. This may help trim Toyota’s fixed costs of 6 trillion yen by 10 percent.
The automaker expects vehicle sales to drop 14 percent to 6.5 million units this fiscal year. That would leave Toyota with costs related to about 3 million units’ worth of unused capacity, Endo said.
“It’s good to see demand is gradually coming back with surging Prius sales, but it’s not good enough,” said Yoshihiro Okumura, who helps oversee the equivalent of $365 million at Tokyo-based Chiba-gin Asset Management Co.
Source: Bloomberg
“Toyota shouldn’t be happy just because Prius orders are going up,” said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. “What should worry it now is Lexus and high-end customers may shift to driving a Prius.”
Japan’s biggest automaker slashed production costs for the Prius by 30 percent in response to dwindling sales of bigger, more-lucrative models. Lexus sales in the U.S., the world’s biggest auto market, have fallen 37 percent this year through May, mirroring an overall plunge in demand caused by falling wages and rising unemployment.
Toyota earns between 100,000 yen ($1,042) to 200,000 yen in operating profit on the sale of one Prius or about 7 to 12 percent of the profit it makes on the sale of a Lexus LS sedan or Tundra pickup trucks in the U.S., according to an estimate by Credit Suisse Securities (Japan) Ltd.
Even with lower Prius production costs, Toyota fell short of its goal of cutting costs of the vehicle by 50 percent, according to Executive Vice President Masatami Takimoto.
‘Some Profit’
“There is some profit” from the Prius, said Akio Toyoda, who will become president later this month. “We are trying hard to cut costs and at the same time, it’s important to make the customers want to buy the car.”
In early April, when Toyota started taking orders from customers, Toyoda slashed the price of the entry-level Prius by 12 percent to 2.05 million yen to compete with Honda Motor Co.’s redesigned Insight Hybrid priced from 1.89 million yen.
As a result, Prius became the most popular vehicle in Japan in May topping the Insight, which had been the first hybrid vehicle to top Japan’s monthly regular auto sales.
Toyota has increased domestic orders for the new Prius by 75 percent since it went on sale May 18 after receiving 80,000 orders. The company introduced the latest Prius just 10 days after posting its first annual loss in 59 years. It expects the loss to widen to 550 billion yen this fiscal year, from 437 billion yen in the previous year.
The third-generation Prius, priced between 2.05 million yen and 3.27 million yen, has a fuel economy of 38 kilometers per liter, according to Toyota, compared with the Insight’s 30 kilometers per liter. Toyota has a goal of selling 1 million hybrids annually in the 2010s and offering hybrid versions of all of its vehicles in the 2020s.
Toyota gained 1 percent to 3,880 yen as of 12:50 p.m. in Tokyo. The stock has risen 34 percent so far this year.
‘Cash Cow’
Toyota’s sales of Toyota and Lexus brand vehicles in the U.S. have plunged 39 percent this year through May to 638,795 units.
“Toyota needs the cash cow models in the U.S., like the Lexus and the Tundra to do well,” said Masayuki Kubota, who oversees about $1.9 billion at Daiwa SB Investments Ltd. “Toyota is probably expecting a return from the Prius for the long-term.”
For now, Toyota’s push into the U.S. market for large pickup trucks is compounding its financial problems.
The company opened a $1.3 billion plant in San Antonio in late 2006 solely to build Tundras and spent an equal or greater amount to revamp the truck and develop V8 engines to power it.
Tundra Target
In 2007, the first full year for the redesigned Tundra, Toyota fell short of its initial 200,000-unit U.S. sales goal and last year plunging demand for pickups amid record high gasoline prices led Toyota to suspend production work in San Antonio for three months.
Toyota’s U.S. rivals, which relied on selling large pickup trucks and sport-utility vehicles, have also suffered. Chrysler LLC filed for Chapter 11 bankruptcy protection on April 30 and will sell most of its business to Italy’s Fiat SpA, while General Motors Corp., the largest U.S. automaker, filed for bankruptcy protection on June 1.
Once Akio Toyoda, the grandson of the founder of Toyota, becomes president, he may further slash costs, including cutting Japan capacity and workforce by at least 10 percent, reducing 20 platforms and 70 model types by 10 percent, and consolidating the carmaker’s rural-dealer network in Japan, said Koji Endo, an analyst at Credit Suisse. This may help trim Toyota’s fixed costs of 6 trillion yen by 10 percent.
The automaker expects vehicle sales to drop 14 percent to 6.5 million units this fiscal year. That would leave Toyota with costs related to about 3 million units’ worth of unused capacity, Endo said.
“It’s good to see demand is gradually coming back with surging Prius sales, but it’s not good enough,” said Yoshihiro Okumura, who helps oversee the equivalent of $365 million at Tokyo-based Chiba-gin Asset Management Co.
Source: Bloomberg
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