Is Toyota in Trouble?

When I launched Google News this morning my eyes were immediately drawn to the headline “Toyota Posts First Profit Drop in Three Years.”

To summarize the article:

Net income fell 28 percent to 316.8 billion yen ($3 billion) in the three months ended March from 440 billion yen a year earlier, Toyota said in Tokyo today. That was lower than the 375.2 billion yen median of six analyst estimates compiled by Bloomberg. Sales rose 3.8 percent to 6.57 trillion yen.

The article went on to say that slowing sales in America and a stronger Japanese currency have largely contributed to Toyota’s challenges.

While this news is not great for Toyota, it could be much worse.

GM reported a first-quarter loss of $3.25 billion last month because of deteriorating performance in North America.

With this said, there was one aspect of the article that did catch my eye with particular interest.

Toyota plans to raise prices for models including the FJ Cruiser sport-utility vehicle, Yaris compact and Prius hybrid by as much as 2.1 percent in North America later this month to help offset rising materials costs.

Much is made of the fact that lean producers should focus their efforts on reducing costs since the market sets the price. As I mentioned in a previous article, some lean practitioners seem to slightly misinterpret Taiichi Ohno’s famous formula: Profit = Price – Cost.

While I’m not sure you can classify these models as “luxury” vehicles as Ohno calls them in his explanation of this formula, one could argue hybrid cars are in such great demand Toyota, in fact, can set the price a little higher and get away with it.

What do you make of all this? Is Toyota in trouble? Or are they in the best position to come through these tough times better than their competition?

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