Toyota Motor Corporation - Case Study Example

Toyota Motor Corporation I. Business Analysis Internal Factors General Motors Corporation is involved in the design, manufacture, and marketing of cars and light trucks worldwide. The company was founded in 1908 and is headquartered in Detroit, Michigan. GM also has partnerships with Fiat Auto SpA of Italy; DaimlerChrysler AG of Germany; and Fuji Heavy Industries, Ltd., Isuzu Motors, Ltd., and Suzuki Motor Corp. of Japan. The company has a wide array of product line under the brands Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn, and HUMMER. The company's marketing arm is supported by retail dealers and distributors in the United States, Canada, and Mexico as well as dealers overseas. GM is recognized as the largest vehicle manufacturer selling 8.5 billion cars in 2001 while its sales in 2002 accounts for 15% of the trucks and vehicles sold globally (Yahoo Finance 2006). Traditionally, GM's approach in marketing its products is targeting a specific market segment for a specific brand so that the company's products do not compete with each other. These was profitable for the automotive firm as the brand's shared components and common corporate management gave way to a substantial economies of scale while the distinctions between the brands created an "orderly upgrade path." Before 1995, the company has a full range of products ranging from Chevrolet which is offered to an entry level buyer who is more concerned on a more practical and economical vehicle to the upscale Cadillac which is targeted to the elite market as it is regarded as the "standard of luxury (General Motors 2006)." Nevertheless, this strategy did not persist as the GM started to implement a gradual blurring of its divisions during 1995. This strategy leads to cannibalization in the market share of GM as each division competes with each other (General Motors 2006). During 2004, the company has announced a new strategy for its product lines which is apart from the traditional marketing and positioning it employs. This shift in brand strategy is targeted in "building sales, cutting costs, and bolstering brand identity (Garsten 2005)." For Chevrolet and Cadillac, GM is planning to maintain its present strategy of making them high volume brands that offers vehicle in every major segment by having a broad product line up. Buick, Pontiac and GMC will be combined into a single sales channel which offers trucks, premium and near-luxury vehicles and performance models. In addition, these product lines will be trimmed as GM plans to drop some models in this category. Saab is seen to offer exclusive European styled and engineered sedans, crossover and SUV models. HUMMER will continue to manufacture exclusive, premium SUVs and trucks. Lastly, Saturn will be upgraded as this division will offer more upscale models which are styled and engineered to European standards. This product line will be slotted between Chevrolet and Buick (Garsten 2005). Complementing these marketing strategies are three global technology strategies: offering technology which has a real impact and is valued by customer; technology which meets basic objectives of cutting costs to offer competitive prices; and sustainable technology which improves vehicle emissions and fuel economy (GM Global Technology Strategy 2004). Armed with these strategies, GM is geared to conquer the global market in the next decade. External Factors Currently, General Motors Corporation (GM) leads the automotive industry with total revenue of US$192.60 billion during 2005. This is amidst the US$2.6 billion loses incurred during the same year which is due to the weak demand in the North America. Following GM is Ford Motor Corporation (US$178.10 billion), Daimler Chrysler AG (US$177.37billion), and Toyota Motor Corporation (US$162.92 billion). Even though smaller in terms of revenue, it is notable that Toyota recorded the largest net income at US$10.61 billion during 2005 (Yahoo Finance 2006). It is apparent that there is an intense competition between the four largest players in the industry. Toyota was able to dislodge the Ford during 2003 and is widely regarded to as having the aspirations to become the future industry leader next to GM. Japanese magazine Nihon Keizai forecasted that Toyota will manufacture around 9.2 million automobile starting next year, over and above the production of the car manufacturing giant, General Motors. From here, we can see a struggle between the companies as they are both challenged to devise winning strategies. For GM, the challenge is to craft and implement an efficient strategy to maintain its position in the global market, while for Toyota a strategy to battle head-on with GM and increasing its market share. As with other business organization, the company is also beset by threats. One of these is the more intense competition in the global automotive market. Currently, the entry of car manufacturers from China, South Korea, and Eastern Europe posts rivalry as well as threatens the strategic position General Motors. The company is also affected by the continuous rise of input costs such as rubber, steel, and fuel. II. Combined Income and Cash Flow Statement The equity account of General Motors shows a balance of $14, 597 million at the end of December 31, 2005. It should be noted that the equity account fully reflect the transactions in other accounts like the issuances of shares over and above its book value, net losses, other comprehensive income1, stock options, and cash dividends. The combined income statement and cash flow of General Motors from the fiscal year 2003-2005 shows that the company's net income from continuing operations are accurately reflected in the statement of cash flow. General Motors, however, adjusts the amount of cash carried over to the cash flow statement. It should be noted that the company eliminates the non-recurring items in the statement of income before finally posting in the cash flow. For example, the company incurred $109 million losses due to changes in accounting policies in 2005. This resulted to a net loss of $10, 567 million. The amount posted on the statement of cash flow is only the $10,458 million because the effect in accounting changes did not require any transaction which involved cash. The 10-K filed by the firm in the SEC shows the transparency of the General Motors as the difference between the net loss from the income statement and the one posted in the statement of cash flow is reasonable. A company should not report a cash flow which is different from what it records in its income statement as it will be presenting inaccurate data for its stakeholders. Situations like this are now avoided through the presence of sophisticated software which aids company's in preparing their financial statements. These, together with the accessibility and wide exposure of financial reports through the internet technology hamper the possible under and overstatement of cash and other important accounts. III. Trend Analysis Financial ratio analysis is a very essential tool in assessing the financial health of a business entity. Specifically, it enables a financial analyst to spot trends in a business and to compare it with the performance of similar business enterprises within the same industry. It should be noted that the use of benchmark in assessing the financial stability is imperative. Due to this, this report will not only utilize accounts from General Motors but looks at the possibility of including competitors and industry average. The main competitors of General Motors are Daimler Chrysler, Ford, and Toyota. GM leads in terms of revenue followed by Daimler Chrysler, Toyota, and Ford, respectively. Toyota leads in terms of quarterly revenue growth rate recording 14.8%. GM follows closely at 14.1% far above the 3.2% industry average. However, investor's confidence in GM is extremely low compared to the industry's average of $57.36 billion the company registered only $12.93 billion. Of all the top players considered, Toyota posted the highest level of market capitalization surpassing the industry average at $190.49 billion. It should also be noted that GM presented the lowest gross margin among the top players. It is worth mentioning that while Daimler Chrysler, Ford, and Toyota made profit in the past fiscal year, the company incurred a huge loss of $10.56 billion. Looking at the income statement of GM, the decline in sales revenue, coupled with the increase in cost of sales and other expenses explains the net loss incurred by the company. GM explains that the decline in revenue is due to the drop in market share and poor product mix in the North American region. The company further explains that "vehicle production declined 7% in 2005 to 4.9 million units due in part in GM's effort to reduce high dealer inventory levels, and its market share decreased by 1.2 percentage points." The company's lower gross margin is traced to the fewer sales of higher margin large trucks and large cars. Also, the company largely attributes the loss it incurred from the bankruptcy of its major supplier, Delphi Corporation. The computed financial ratios for GM are attached. References Garsten, D. 2005. GM shifts strategy for brands. Retrieved 24 February 2006, from http://www.detnews.com/2005/autosinsider/0505/19/A01-187008.htm General Motors Company. 2006. Retrieved 24 February 2006, from http://en.wikipedia.org/wiki/General_Motors GM Global Technology Strategy. 2004. Retrieved 24 February 2006, from http://www.gm.com/company/gmability/sustainability/reports/05/400_products/1_ ten/410.html Yahoo Finance. 2006. General Motors. Retrieved 24 February 2006, from http://finance.yahoo.com/q/cos=GM References Read More