Toyota isn't the only one in the soup

By Henry Hilton

The recently announced losses for Toyota serve to underline the perilous state of the global car industry and the wider economy.

The world's largest automobile company has just reported its first ever drive into the red in nearly three quarters of a century. Proud Toyota -- originally a prewar manufacturer of textile machinery for the Osaka mills -- is now admitting that it is in a mess and that things may well get even nastier next year.

None of this news from Toyota City accords with all the excited talk of the beginnings of a new international bull market sparked by Wall Street. Analysts who have been urging their clients to charge back into burgeoning stock markets may have egg on their face pretty soon if investors suddenly decide that their exuberance has been based on flimsy hopes rather than solid economic data.

To non-investors, the dreary figures of mammoth losses from Toyota ought surely to be a warning sign that the global recession still has a long way to run. After all, Toyota President Katsuaki Watanabe has admitted that sales are down and costs are up, while noting that vital markets in North America and Europe have deteriorated substantially.

The fact that Toyota has not got it right in the vital China market is an additional embarrassment for a corporation that for years has seen itself as better than its rivals in Japan and around the globe.

Toyota's delight earlier this year that it appeared to have overtaken its long-time rival General Motors to claim the gold medal in the international car production stakes now looks a largely empty boast. Billions of yen in losses and sales of well over a million fewer cars in the past financial year have totally overshadowed this accomplishment.

Yet industry analysts are being careful not to even hint that Toyota is past its prime. The corporation is clearly going through hard times and further cost-cutting is certain but its financial position is infinitely stronger than its U.S. and European competitors.

GM has until this summer to cut deals with its union workers and financial backers if it wants to stave off bankruptcy, while Chrysler's position is even more perilous. Likewise, in Euroland and Britain, the political pressures are intense for national governments to step in and "save" jobs.

Yet the days when politicians had no choice but to take note of such overt pressures may be ending. Car manufacturing is certainly an important sector of the industrial economies but cabinets know now that to give in to demands from this group is to leave it open to repeated bids from others who may well have greater claims on the state.

For the moment, the focus is on Toyota and its employees, its hard-pressed sub-contractors and those who live in the Nagoya area but Toyota will come back. Its competitive drive, employee loyalties and its underlying financial strength more or less guarantee this, but other corporations in Japan and abroad cannot expect to be so fortunate.

There has to be a shake-out in the global auto industry in the light of over-production and competition from the likes of China, India and Brazil. After years and years of warnings that there are simply too many car manufacturers producing similar products, it is clear that one result of the global downturn is going to be a massive shake-out in the industry.

The likelihood is that there will only be a handful of mega-automakers within the next decade and that these will be cross-border tie-ups in an increasingly borderless industrial sector.

Toyota will survive but there will inevitably be a slimming down in Japan and elsewhere. The present glut of unsold cars is sounding the death knell to the now out of date idea that each and every industrialized nation had to possess and if possible protect its own domestic automakers. The world has moved on and the industry's once sacred position in national economies is over.

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I am not surprised that there are no comments on this article - saying I was gullable is not an easy thing. For a while now I have called the Toyota balance sheet a major concern. The one thing that has Toyota in serious trouble is the cost cutting MO. The cat was let out of the bag two years ago. Surprised though that the world hasn't picked it up yet - the pension debacle. For the past few years the auto industry had been switching workers (without the workers knowledge) from full time to part time. The payroll savings accounted for a large share of the sudden profits the industry began to make. They didn't stop there, they also started to double book CKDs. But then came the US slowdown. It's too scary to go on. I certainly believe that the Hitachi losses are nothing compared to what Toyota is eventually going to declare.

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Toyota shows first scratches in its shiny paintwork.

The inability to act quickly on dramatic changes in the customer environment (ships full of vehicles had long still be sent to US, despite visible market collapse), is one if the companies biggest weaknesses of this powerhouse.

Additionally it is questionable why the company has such good reputation in Japan as the constant tremendous pressure on employees and suppliers can barley be an argument for a healthy and responsible operation in society.

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Costs are up on everything. Dang, even a single hard boiled egg at a convenience store is now 68 yen on average. With prices like that, how are you suppose to save enough money for a down payment on a new Toyota.

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TOYOTA will prevail !!!!

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As daily Yomiuri wrote in this morning issue, the problem is that Toyota was trying to INCREASE production the last years, to strive to become number one worldwide. They reached this target, and now they have 30% over-capacity. This is called a Pyrrhic victory. And now Toyota has to suffer from their bad decisions they made the last years before. No surprise, just management mistakes.

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Ofcourse Toyota is the only one in the japanese soup !

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The cars on a boat arguement doesn't float - the J-auto makers only build vehicles that are ordered and paid for by non-revokeable letter of credit. No J-car maker sends vehicles to any market - domestic included, that are not paid for before they're built. In other words all vehicles leaving the factory have been sold! The dealer sitting with cars that are not selling on his lot is on his own. Toyota has no connection to those cars. Toyota has operated this way for the past two decades and has laughed at the US makers for providing their dealers with vehicles to sell on the manufacturers behalf. As far as Toyota has seen it, the distributor must buy in full from the maker before the dealer gets a single unit. The arrangement between the dealer and distributor is of no concern to Toyota. So the views being expressed by the press are simply mind boggling.

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