Leave aside whether the US government, majority owner of General Motors, is fit to pass judgment on Toyota. Yesterday’s disclosure that the Japanese carmaker will face an investigation into a five-year-old recall of faulty truck steering relay rods – until the sticky pedals, its biggest-ever product liability problem – signals that its extraordinary efforts to protect US market share will probably have to continue. That is one good reason for management’s subdued outlook as it posted a full-year return to profit.
The incentives – zero interest loans, discounted leases, two years of free maintenance – are already costing Toyota dear. There is no doubt they are working: sales in March were up 41 per cent, better than GM, Ford or Hyundai. But they are destroying margins. The group operating margin in the year to March was just 0.78 per cent – light years away from Toyota’s average of 7.2 per cent during the past decade, and less than a fifth of the global peer group’s 4.2 per cent. Sales momentum elsewhere cannot offset weak margins in North America, which generated 29 per cent of unit sales last year. In Japan, which raised its share from 26 per cent to 30 per cent, subsidies for eco-friendly vehicles come off in September.
After a sluggish start, Akio Toyoda, president, has done well to prevent a drama – recalls of 9m vehicles worldwide, more than a year’s production – turning into a crisis. Underperforming the global car sector by about 12 per cent since the end of January is far from catastrophic. But recovering pricing power is another matter. This year’s forecast operating margin of 1.5 per cent will almost certainly earn further censure from Moody’s, which has docked Toyota twice, from triple A last February. But it looks about right, given the circumstances.
