Despite the gloomy Japanese economy, Toyota has released results that tower above those of its US rivals. Some of this is down to the favourable yen/dollar exchange rate - but the top Japanese carmakers are also genuinely more efficient than the Americans. Ford, GM and Chrysler must find an end to the incentive battle and improve their margins.

Toyota Motor has announced record H1 results that show consolidated net profits jumped 90% to $4.5 billion. If the Japanese carmaker continues to strengthen its position it could top the $7.2 billion profit record for a car maker excluding one-off gains set by Ford in 1999.

Toyota's performance is in stark contrast to that of its US rivals. While Toyota is the world's third largest car maker, in the six months to September its profits exceeded that of the combined total of its US rivals, General Motors, Ford and the Chrysler arm of DaimlerChryler.

The significant factor behind Toyota's success is that it commands an average operating margin of 10.1%, more than five times the average of the US manufacturers, which have seen their margins decline due to the ongoing incentive battle.

A number of Japanese manufacturers have made record profits thanks in part to the popularity of their cars in the US, where sales have seen strong growth. Toyota and its domestic rivals Honda and Nissan have benefited from the weakness of the yen against the dollar, while the US carmakers are struggling with restructuring plans to reduce costs and improve margins.

Japan's carmakers have also implemented cost reduction initiatives, but they have also been able to increase sales in exports markets, especially in the US without replying on discounts and incentives.

Toyota is in a winning position: it is reducing costs and improving sales.
The challenge for US carmakers is to maintain their sales volume without the need to offer heavy incentives. By cutting costs and removing incentives, the manufacturers will finally see margins heading in the right direction.

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