There was a time not so very long ago when Toyota's financial results were pretty predictable. The word 'record' figured prominently, as in record revenues and record operating profits. Toyota had the air of a company that could do no wrong as it logged ever higher sales based on a constantly broadening global manufacturing footprint. The firm introduced revolutionary lean manufacturing techniques that brought industry leading quality and customer satisfaction ratings. Domestic market stuck in a slump? Rising yen? No problem, make and sell more overseas.
The sunny blue skies for Toyota seemed endless, along with the accompanying asymmetry of others' long-term decline.
Did Toyota make dull cars? It was an accusation frequently levelled by rivals but Toyota just kept on making bigger profits. The Toyota Corolla was never an exciting car, but it was a hugely successful mass-market proposition that appealed to many. And the Toyota product philosophy allowed for regional demand differences to be met by locally oriented products (eg pick-ups in North America, Auris in Europe). And, in the background, there has been the steady rise of the Toyota hybrids, the Lexus brand and, oh, did we mention that Daihatsu is a Toyota Group company with much potential and expertise in small cars...(okay, it hasn't ever realised much of that potential, but that's another story).
But the industry narrative of Toyota inexorably growing at the expense of others has been abruptly ended. Toyota's reversal of fortunes in recent years is partly of its own making. Underneath the surface there were growing pains and they became evident in the stuck throttles of 'throttlegate'. The same troublesome part was fitted in Toyota model lines across the world. When it went wrong, the problems quickly went global. The Toyota aura of quality invincibility was punctured in the recalls and public relations fallout that followed.
If 'throttlegate' had its roots in Toyota, there have also been significant external headwinds for the company. A strong yen on its own would perhaps be liveable with, but coming on top of the recalls and damaged brand image, it has not been possible to flex operations and make/sell more abroad. Market share has been lost. The strong Japanese currency has battered the bottom line. And the Japanese economy has continued to flatline, not much opportunity for volume growth at home (strong incentive-led Prius sales excepted).
Global Toyota sales have nevertheless benefited from rising volumes in emerging markets. Costs have been cut. Toyota responded to the challenges. But a bolt from the blue has intervened. Just as there were signs of real recovery for the company (Toyota boosted operating profit in fiscal 2010/11) coming through, there's the aftermath of the March 11 earthquake and tsunami to contend with. Toyota has been particularly badly hit. Domestic output plunged by 62.7% during March compared to the previous year to just 129,491 vehicles, which was the company’s lowest monthly production total since records began in 1976. Component shortages have forced Toyota to halt production at plants all over the world. Toyota factories in the US are operating at 30% capacity.
This crisis will take some time to work through. Net income was JPY25.4bn (US$314m) for the final three months of the fiscal year to 31 March on sales off 12% to JPY4.64 trillion. The weakest operating profit in seven quarters was, Toyota said, due to the earthquake and tsunami that is expected to disrupt Japanese auto industry production and sales for most of this calendar year.
And the competitive landscape has not been static. Some of Toyota's biggest competitors – especially in the US which has been a major source of profit for Toyota for many years – are revitalised. The Detroit brands have come out of the 'great recession' in pretty good shape, at least relative to how they were in the mid-2000s.
The headwinds for Toyota remain considerable but all is not exactly lost. Toyota is effectively dealing with the quality problems it has had; it is well-placed with hybrid technology; it has an industry leading global sales and manufacturing footprint; and a damaged brand is on its way to being repaired. Sales have been rising in emerging markets. Bad times now in Europe and North America may well give way to much better sales in 2012, helped by recovering markets.
But 2011 is shaping up to be another very tough year for Toyota. And further out, that effortless progress and apparent invincibility of yesteryear is likely to remain elusive.