“Some customers are willing to pay more”
This article is a follow up of the article “Uncertain outlook for Japanese OEMs”
This triggering statement comes from Toyota’s Jun Nagata, Toyota's chief communication officer, and was recorded at the company’s yearly earnings announcement. Japanese leading manufacturer announced record net income of 2.85 trillion yen for the fiscal year ended March, up 26.9% from a year ago. FY 2023 projections however are entirely different, at a net income of 17.6 billion USD, down 20.7% compared to FY2022.
Unprecedented
The company explained itself. The production cost increase in FY 2022 was 640 billion JPY – the highest surge in Toyota’s long history. The record will be topped in FY2023, as a cost increase of 1280 billion JPY is expected.
Contributing to this year’s success, a weak yen has had a positive impact on Toyota’s operating profit; the company has stated before that every yen’s drop boosts the operating income with 45 billion yen (source: Nikkei Asia). Toyota has made its FY2022 projections based on an exchange rate of 115 yen to the dollar; the current rate sits around 130 yen to the dollar. Do the math.
Call to action
Kenta Kon, Toyota's executive vice president reached out to the ecosystem: “The present condition of material inflation is not so much about the automakers and suppliers, but rather about how we all need to work together as one to implement ways to deal with the situation.” He adds: “We need to work on reducing the amount of materials used and changing to less expensive ones." In other words, material inflation, i.e., scarceness of raw materials and logistic challenges, is a good reason for the cost surge, but not an excuse.
Statements such as the above one, especially coming from Toyota, announce major changes in car manufacturing. Toyota’s operations, the supply chain and the way cars are built are the result of decades of finetuning, delivering a rigid but successful process. Toyota does not change anything lightly – and a fundamental comment as the one coming from its EVP reveals major change.
Pay more? Message to the Fleet Manager
Back to Jun Nagata. Obviously, he’s not stating that everyone is ready to pay more for their Toyota. Instead, he refers to changes in raw material prices. Toyota is conservative in its assumptions and will eventually calculate the price increases into its MSRPs.
But that’s not the only reason. Further to the material inflation – and consequent shut downs of 14 production lines in 8 Japanese plants – Toyota has announced that it will be producing 10% less cars in FY2023.
In other words, Toyota’s will be scarcer when everyone wants to buy new vehicles and more expensive when everyone tries to keep cost creep under control.
This will not come as a surprise to Fleet Managers, who have been dealing with scarcity and price increases for a while now. Nothing new under the (rising) sun, unfortunately. Add Toyota to the long list of tough discount and bonus negotiations.
