is rebounding with a vengeance, according to “Taking Off the Gloves,” a new study by CLSA Asia/Pacific Markets.
The bad years of sticky pedals in the U.S.; earthquake, tsunami and nuclear disasters in Japan; and flooding in Thailand; are history. Although operating profits will be down about 20% in the fiscal year that ended March 31 to ¥370 billion ($4.4 billion), better times are coming soon.
“We expect operating profit forto rise by 215% year-on-year to ¥1.2 trillion ($14 billion) in (the fiscal year ending in 2013), the first time Toyota has earned an operating profit in excess of a trillion yen in five years,” says study author Christopher Richter, CLSA Deputy Head-Japanese Research.
This “would catapult the company from a 2% operating margin in the current fiscal year to a 5.6% operating margin in 2013, the highest result Toyota has seen since the financial crisis.”
About half the study’s robust projections are based on CLSA’s revised foreign-exchange assumptions that the Japanese yen will weaken to ¥80:$1 and ¥105:€1, compared with earlier forecasts of ¥75:$1 and ¥100:€1. The other half comes from more aggressive forecasts for Toyota’s performance in the North American and Japanese markets.
The restoration of subsidies by the Japanese government is expected to lift domestic sales to 5.1 million units in the current fiscal year, up from 4.6 million in fiscal 2011 and an estimated 4.7 million in fiscal 2012. This, given Toyota’s 46.7% market share, will pull the auto maker’s Japanese operations back in the black for the first time in five years.
However, Richter cautions that the roller-coaster Japanese market will sink again in coming years, with annual vehicle deliveries ranging from 3.9 million to 4.2 million units.
Toyota’s recovery in the vital North American market is seen as steady, to 14 million units in fiscal 2013 and market share improving to 15% from 12.7% in the last fiscal year. The increase will be fueled largely by a full supply of product following last year’s temporary crimp in output from Japan and Thailand, and rising to 16.2 million in fiscal 2015.
“Toyota’s market share is already touching the pre-quake disaster levels,” Richter says. “If this trend continues, the company can win back some of the market share lost in the 2010 unintended-acceleration recall crisis. It certainly has the ammunition, since 2012 is a big new-product year.”
The CLSA study notes the ’12 Camry, Toyota’s mainstay sedan, has been enjoying double-digit year-on-year sales increases since its launch in late 2011, while deliveries of the new Lexus GS were up nearly 600% in the first month after launch. Two more ’12 Lexus models, the volume-leader ES and IS, join the product lineup later this year.
Toyota is launching three variants of the Prius hybrid in 2012. Nearly 22,000 low-priced Prius C models were sold in February, representing about 14% of Toyota’s total Japan demand, while high fuel prices pushed U.S. deliveries of the original Prius up 52% in February. Still to come are the Prius V wagon and Prius PHV plug-in hybrid.
Three more new Toyota models are due this year in the U.S. The successful European subcompact iQ has been launched as a Scion brand. Next will be the F-86 sports car co-developed with Subaru and a new Avalon, the most-expensive Toyota-branded sedan.
“If new products do not help Toyota’s U.S. share, then a healing brand reputation might,” Richter says.
The analyst cites the latest J.D. Power Dependability Survey in which Lexus ranked first and all three Toyota brands were among the top five brands. Toyota models are included in half of Consumer Reports’ recommended-vehicle list for 2012.
The CLSA study foresees global sales for Toyota of 7.33 million units in fiscal 2012, up only 20,000 from year-earlier but climbing to 7.97 million in fiscal 2013 and 8.11 million in fiscal 2014.
The report projects an increase in operating profits, year by year, to ¥1.6 trillion ($19.2 billion) in fiscal 2017 but does not expect margins to reach the peak of 9.6% in fiscal 2004. Even so, the recovery of lost ground and return to “near-normal” global sales, profits and margins is impressive.
“There is only so much Toyota can do with (an exchange rate of) ¥80:$1 short of a major realignment of the company’s global production footprint,” Richter says.