By Mike Colias and Chester Dawson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 7, 2018).
General Motors Co. and Toyota Motor Corp. are on divergent paths
in the world's most-profitable car market, North America, where GM
is posting lofty profit margins while Toyota's bottom line has been
battered.
GM on Tuesday posted fourth-quarter operating profit of $2.9
billion in North America -- a record for the period -- while the
region's pretax profit margin for the full year hit 10.7%, the
highest since the company's bankruptcy nearly a decade ago.
Toyota, meanwhile, said its North American operating profit for
the most recent quarter sank 73% from a year earlier to Yen27
billion ($247 million), because of a short-term factory shutdown
but also heavy discounting to boost sluggish sales. Its
operating-profit margins in North America, excluding gains from
interest-rate swaps, dropped to just 1% compared with its overall
global margin of 8.9%.
To be sure, earnings at Toyota bested GM globally in the latest
quarter, with Toyota reporting a 54% rise in operating profit to
Yen673.6 billion, its best performance in two years, as GM's rose
19% to $3.1 billion.
But Toyota said most of that increase came from
foreign-exchange-related gains and that without such a boost its
operating profit in its fiscal year through March would likely
decline instead of rising 10% as forecast.
Toyota Chief Financial Officer Koji Kobayashi called that
unacceptable. "I give us an F" on that measure, he said at a news
conference in Tokyo.
The diverging results for the two auto giants in North America
is partly explained by the changing shopping patterns of American
car buyers. GM's strength lies in pickup trucks and sport-utility
vehicles, categories that are booming amid lower gas prices and an
emerging preference for more-versatile rides. More than
three-quarters of GM's U.S. sales last year were trucks and SUVs,
vs. 63% for the broader industry.
Meanwhile, Toyota has also experienced an uptick in sales of
crossovers, SUVs and pickups, but it has been loath to shift
production away from mainstay passenger cars, which accounted for
just 42% of U.S. sales in 2017. It has much riding on the success
of models such as an all-new Camry to halt a steep rise in
incentives needed to clear out inventory from its showrooms.
Toyota officials have said they plan to remain competitive in
the shrinking U.S. sedan market, while also increasing output of
vehicles such as its popular RAV4 crossover, Highlander SUV and
midsize Tacoma pickup. The company's spending on incentives, while
low by industry standards, will likely continue to rise and eat
into profit margins.
The Japanese auto maker expects incentives to increase by an
average of $600 per vehicle, with total spending on discounts
costing Toyota about $1.28 billion this year, Masayoshi
Shirayanagi, a senior managing officer in charge of accounting,
told financial analysts on a conference call.
GM's incentives in the U.S. also trended higher last year. But,
with fully loaded SUVs routinely leaving dealer lots at prices of
$70,000, GM has a significant price edge over Toyota even when
discounts are factored in. GM's average transaction price last year
was about $36,600, compared with Toyota's $29,800, according to
data from research firm J.D. Power.
The recent fortunes of the two auto makers in North America
stand in contrast to a decade ago. In 2008, Toyota reported record
profit and revenue while GM was stumbling toward bankruptcy.
GM faced criticism for making too many vehicles that sold with
steep discounts or were dumped at a loss into rental lots. Today,
it is Toyota that is seeing incentives spike and increasing sales
to fleet customers such as rental-car companies -- which accounted
for 14% of its North American sales in January. Rental-fleet
business tends to be less profitable than retail showroom sales,
and can weigh on prices when vehicles are resold as used cars just
a few months after purchase.
Beyond strength in trucks, GM has made other moves in four years
under Chief Executive Mary Barra to lift profitability, often at
the expense of market share.
The most striking example was GM's August sale of its
unprofitable Opel business, which left GM the only major car
company with virtually no presence in Europe and took it out of the
running in the race to be the world's largest auto maker by sales.
GM also has given up on India, Russia and other emerging markets,
while doubling down on areas of strength such as the U.S. and
China.
GM also has squeezed about $6.5 billion in costs over the past
four years, a move finance chief Chuck Stevens said will help GM
sustain a strong bottom line even as sales in the crucial U.S.
market edge down after a seven-year growth spurt.
"Certainly pricing has been a benefit," he said. "But I would
say what has really driven the strong and resilient business
results in North America has been our focus on cost."
GM has slashed passenger-car output in the past year, laying off
thousands of workers at U.S. factories as the drop in sedan sales
deepened.
Toyota has taken steps in recent months to adjust to a more
competitive environment. Chief Executive Akio Toyoda issued a
mandate last year to improve operations after the company reported
that net profit fell by one-fifth for the year ended March 2017. He
ordered management to figure out how to trim costs and increase
profit this year without the aid of the yen.
The overhaul included a new CFO, Mr. Kobayashi, who came from
Toyota supplier Denso Corp. and succeeded a CFO who resigned after
only eight months. Mr. Toyoda also installed right-hand man Shigeki
Tomoyama as head of a new organization to trim costs in areas
including new-car development and sales.
The auto maker also has adjusted its production footprint in
North America to meet demand for more light trucks.
Last year, Toyota said it would retool a plant in Indiana to
boost output of its Highlander SUV by an additional 40,000 vehicles
annually. It also is expanding production of its Tacoma model at a
factory in Mexico and plans to further increase output of the
pickup at a new Mexican plant.
--Sean McLain in Tokyo contributed to this article.
Write to Mike Colias at mike.colias@wsj.com and Chester Dawson
at chester.dawson@wsj.com
Write to Mike Colias at Mike.Colias@wsj.com and Chester Dawson
at chester.dawson@wsj.com
(END) Dow Jones Newswires
February 07, 2018 02:47 ET (07:47 GMT)
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