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Running ahead of GM in earning power. Toyota aiming at world's top place

12, 03. 2007

   Toyota Motor Corp. and General Motors Corp. of the United States are racing neck and neck to the top place of the world in terms of the sales in the number of cars. As far as the financial condition is concerned, however, it is clear which is winning. In its consolidated midterm settlement of account made public in September 2007, Toyota reported renewed all-time highs for sales and final (current term) profit, while GM reported a final loss of 38,900 million dollars (about 4,300 billion) for its July-September term. These reports made it clear to many observers that the two companies are fighting a fierce competition in terms of sales, but the game is over as far as their earning power is concerned.

GM directly hit by subprime mortgage crisis

Does Toyota overtake GM?
Does Toyota overtake GM?

   The sales in the Toyota's midterm account settlement announced in September showed a 13.4% increase on year to 13,012,200 million yen. The final profit also went up by 21.3% to 942,400 million yen. GM's sales during the April-September period reached only 90,600 million dollars (about 9,970 billion yen). Toyota thus became the largest carmaker in the world in terms of sales in the same period. The possibility has become stronger that Toyota will be ranked first in the world in terms of sales for the full 12-mont period ending in March 2008.

   Pushing Toyota's good business performance is the brisk sales in China and other newly developing countries and the Middle East countries that are rich with oil money and other countries abundant with natural resources. The sales of cars in the April-September period decreased 6.2% to 1 million units in Japan but went up 3.8% to 4.3 million units worldwide. Mitsuo Kinoshita, Vice-President of Toyota, said that the company's sales were centered on the Unites States and European countries in the past. "But now, a well-balanced favorable earning structure is being formed," he said. The reason for the enormous red figure GM incurred, meanwhile, was that the company was directly hit by the subprime mortgage problems. Anticipating earning recovery, GM appropriated deferred tax asset. As a result of expanded losses at its affiliated financial companies because of the bad subprime housing loans, however, it became necessary for GM to appropriate 38.6 billion dollars to break into the asset.

GM's down may put Toyota under stronger criticism

   Because of the sales slowdown in North America, GM reported the red figure of 10 billion dollars for 2005. Subsequent large-scale personnel cuts and other restructuring measures, the company maintained black figures in its settlement of accounts for 3 consecutive quarters up until the April-June period of 2007. It was then hit by the subprime mortgage crisis.

   GM Chairman and CEO G. Richard Wagoner stressed that the there was a steady progress in the reconstruction of the auto business. The Wall Street Journal, however, noted that the reconstruction did not seem to be on a track. The soaring crude oil prices is also a minus factor for GM whose production center on large fuel-inefficient cars.

   It is possible that a major decline in GM's earning overshadows the management strategy of Toyota. Also, the subprime mortgage issue might put water on the U.S. consumer spending, affecting Toyota's sales in the United States. If GM's business recovery does not show a smooth progress, Toyota may come under strong criticism from the Democratic Party, which is inclined to trade protectionism, while the Democratic Party is in a stronger position toward the presidential election next year.

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