Financial Management

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Credit Analysis of Toyota Car Industry

Literature Review
Toyota Motor Corporation was founded in 1936 by Kiichir Toyoda in Japan, originally under the name Toyoda. For superstitious reasons, in 1937 the name was changed to Toyota. The company produced small cars and light trucks for consumption in Japan and for exports to other countries. In 1980 a heavy United States import tax on vehicles forced Toyota to open a plant in America in order to remain competitive. In 1982 the production and sales divisions of Toyota merged to form Toyota Motor Corporation.

Literature Review (Cont.)

In 1990 Toyota started to produce new types of vehicles, such as luxury cars, full sized pick-up trucks, and sports utility vehicles, in an effort to broaden the product mix farther beyond.
Toyota went public in 1999. Since then, the company has created a broad range of new products, delved into robotics, had two vehicles named car of the year by Motor Trend, and suffered setbacks from natural disasters and product recalls.

TOYOTA TODAY
Today, Toyota has 7 factories in the United States, 15 in Japan (12 of which are in Toyota City), and factories in 13 other countries around the world. Toyota is well known for its small cars and SUVs but it is an industry leader in manufacturing techniques and has been a pioneer since its inception. The Toyota Production System (TPS) is a benchmark for all manufacturing companies.

Major Car Labels

Toyota has three major car labels under which it produces vehicles:

1. Lexus. 2. Scion 3. Toyota

1. Lexus
The luxury division of TM, founded in 1989. The cars design directly targets the highend customers with large disposable income. Leather interiors, touch screen navigation, cutting edge technological innovations, and strict quality control are significant components of the Lexus line of vehicles.

2. Scion
Introduced in 2002 it was designed to target a young audience, mid 20s to early 30s. Three primary models xA, xB, xD, tC, iQ. They are all small cars with MSRPs of around $20,000. Designed to appeal to younger generations with a few customization options, trendy features, and viral advertising campaigns.

3. Toyota
It contains approximately 70 different models, which include SUVs, sedans, coupes, hybrids, and pickup trucks. Two models in particular have been very popular through the years, the Toyota Camry and Toyota Corolla. Several models, such as the Tundra and Camry, have been named cars of the year by various American automotive magazines.

Toyota Main Competitor (Honda)

Honda is one of a main competitors of Toyota Motors. Honda is a Japanese automotive manufacturer similar to Toyota. It produces similar cars and has a luxury line under the name Acura. A segment unique to Honda is motorcycles. 15% of Hondas sales come from motorcycles and Toyota does not have a presence in that market to compete.

Toyota Main Competitor (Honda) (Cont.)

Hondas base models Although similar to that of Toyotas but the Acura luxury brand is not as highly regarded as Lexus. Honda also produces a variety of other vehicles and motors, such as ATVs, jet skis, lawn mower engines, and generators. Honda has the edge in variety and has a presence in markets that Toyota does not.

Toyota Main Competitor (Honda) (Cont.)

However Toyota has the edge in production and a more developed brand image in the luxury car market. Honda produces about 20% of its vehicles in Japan where as Toyota produces about 50% in Japan.

Toyota Main Competitor (Volkswagen)

Volkswagen is Europes most prolific automobile manufacturer with several high end labels. Volkswagen vehicles are typically more expensive than Toyotas equivalent models and their high end brands are some of the most expensive in the industry.

Toyota Main Competitor (Volkswagen)(Cont.)

Toyotas base models are cheaper and more popular than most of Volkswagen models and over-all have been more popular through the years. The European automaker hasnt been affected by the natural disasters that damaged Honda and Toyota production. Even though VWs facilities are located in a more physically stable region, the current European economic situation could prove to be just as horrible.

Major Problems Facing By Toyota Car Industry

March 11, 2011 a magnitude 9.0 earthquake occurred 40 miles east of the Oshika Peninsula. The ensuing tsunami, the earth quake itself, and the accidents at the reactors at the Fukushima power plant are referred to as the Great East Japan Earth Quake

Major Problems Facing By Toyota Car Industry (Cont.)

Toyota shutdown production at all domestic facilities. By April 18th the facilities were functioning again. The damaged national infrastructure and nuclear power plant crisis severely affected Toyotas ability to acquire parts and transport the vehicles.

Minor Problems Facing By Toyota Car Industry

Size:
Due to its large size, heavy market share, and high rate of Japanese production, Toyota is the automanufacturing company most affected by the natural disaster and its devastating impact on Japanese manufacturing.

Minor Problems Facing By Toyota Car Industry (Cont.)

Decreasing Market Share:
In the first quarter of 2011, GM outsold Toyota globally by a wide margin2.2 million units versus 1.8 million vehicles. Volkswagen also beat Toyota, with sales of 2.0 million vehicles.

Recalls:
In the first quarter of 2010, Toyota recalled more than 8 million trucks globally due to the quality issues.

Dependence of Toyota Car Industry

1. Risks relating to the Great East Japan Earthquake: Toyota hardly depend on the economy of Japan. It is badly affected by the continuing effects of the Great East Japan Earthquake and ensuing events.

Dependence of Toyota Car Industry (Cont.)

2. Industry and Business Risks: Toyotas future success depends on its ability to offer new innovative competitively priced products that meet customer demand on a timely basis. The worldwide automotive market is highly competitive

Dependence of Toyota Car Industry (Cont.)

Toyotas success is significantly impacted by its ability to maintain and develop its brand image.

Toyota relies on suppliers for the provision of certain supplies including parts, components and raw materials.

Dependence of Toyota Car Industry (Cont.)

3. Financial Market and Economic Risks: High prices of raw materials and strong pressure on Toyotas suppliers could negatively impact Toyotas profitability. The downturn in the financial markets could adversely affect Toyotas ability to raise capital.

Dependence of Toyota Car Industry (Cont.)

4. Political, Regulatory, Legal and Other Risks: The automotive industry is subject to various governmental regulations. Toyota may be adversely affected by natural calamities, political and economic instability, fuel shortages or interruptions in social infrastructure, wars, terrorism and labor strikes.

Government Incentives
Toyota Motor Corp Asia`s biggest carmaker, raised its global sales forecast because of Japanese government incentives on fuel-efficient vehicles and demand for its new gas-electric Prius compact.

Government Grants for Toyota Hybrid Cars

Governments around the globe are investing money into the research and development of hybrid car technology. Financial grants have been issued to citizens with incentives to purchase hybrid cars, research and development grants to universities, and product development grants to specific companies. Australia has given large grants to Toyota since 2008 for its development of the Camry Hybrid.

Australia and the Toyota Camry

In 2008 the Australian government provided Toyota with a $35 million grant to develop the Camry Hybrid for sale to Australian consumers. In 2011, an additional $63 million in funds for the Toyota Camry Hybrid were provided from the Green Innovation Fund by the Australian government.

U.S. Consumer Incentives for the Toyota Camry

In September 2006, the United States Department of Energy offered grants, in the form of tax incentives, for consumers who purchased the Toyota Camry Hybrid and a variety of other vehicles. These grants were developed to boost sales and provide benefits directly to the consumer rather than only through the vehicle manufacturer. The tax credits were provided only to the early adopters of the hybrid technology. Consumers who purchased a Toyota Camry hybrid after October 2007 were not able to claim the tax credit.

U.S. Consumer Incentives for the Toyota Car

Toyota Motor Corp said on Friday Nov 30, 2012, it is offering retirement incentives to about 2,000 U.S. workers, or 10 percent of its employees in the country, in an effort to manage attrition of its aging work force.

Incentive Scheme by IMC In Pakistan

Indus Motor Company (IMC) is introducing a partial payment scheme for all of its Toyota variants in an effort to boost sales which have dropped to a record low because of lethargic demand in Ramazan and huge influx of imported used cars in the local market.

Incentive given by Pakistan Government

The federal industries ministry has stepped up its efforts to lobby with other ministries to reduce the age limit for import of used cars from five-year to three years in a bid to provide protection to local manufacturers.

Credit Analysis
Procedure to determine the likelihood a customer will pay its bills. OR Financial ratios can be calculated to help determine a customers ability to pay its bills.

Credit Analysis (2010)

EBIT 0.0096 total assets sales 0.584 total assets market equity 0.02044 book debt

retained earnings 0.3812 total assets working capital 0.0787 total assets

Credit Analysis (2010)

Firm' s Z Score (3.3x0.0096 ) (1.0 x0.584 ) (. 6 x0.02044 ) (1.4 x0.3812 ) (1.2 x0.0787 ) 1.25636

Hence the answer is less then 2.7. so we cannot select this client.

Credit Analysis (2011)

EBIT 0.1799 total assets sales 0.5976 total assets

retained earnings 0.397 total assets

working capital 0.03484 market equity total assets 0.012606

book debt

Credit Analysis (2011)

Firm' s Z Score (3.3x0.1799 ) (1.0 x0.5976 ) (. 6 x0.012606 ) (1.4 x0.397 ) (1.2 x0.03484 ) 1.8

Hence value is again less than 1.8 so we cannot accept this client.

Thank You