Toyota Hybrid Investment Gamble Paying Off April 2005

Don't be fooled by Toyota Motor Chairman Hiroshi Okuda's recent comments about raising prices on vehicles sold in the U.S. in order to give ailing American automakers "time and room to catch a breath."

As reported in the Japanese press, Okuda expressed concern about the plight of U.S. car manufacturers generally and General Motors in particular. Price increases could be a step toward "creating a condition where Japanese and U.S. auto makers can compete," he suggested.

The company later disavowed Okuda's generosity, and more importantly, Toyota's actions display little altruism toward competitors. At issue is whether Toyota's preeminence in a notoriously challenging industry makes its stock a good investment.

Toyota recorded record sales months in February and March, and it is expected to report $1.64 a share in fiscal fourth-quarter earnings, a 28% increase over the same period last year.

On Wednesday, Toyota announced that it expects to sell 8.3 million vehicles in 2005, exceeding its previous target of 8 million. In 2006, it expects the figure to grow to 8.5 million. In contrast, Ford and GM have experienced significant erosion in their domestic and global market shares and have repeatedly disappointed Wall Street this year.

From an execution standpoint, Toyota stands unmatched. Its operating margins lead the industry. It leads in the coveted and rapidly emerging Chinese car market. It dominates the hybrid market with the Prius.

Although hybrids accounted for fewer than 1% of the 17 million new vehicles sold in 2004, the market grew about 81% last year, according to new vehicle registration data released by R.L. Polk & Co. The hybrid market has grown by an estimated 960% since 2000.

The results vindicate Toyota's hybrid technology investments in the late 1990s, when U.S. manufacturers feasted on gas-guzzling trucks and SUVs. Those vehicles now appear to be losing luster as oil prices rise. And with its vindication, Toyota looks emboldened.

SOURCE: The Street

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