finance (credit analysis of toyota car industry)

7/30/2019 Finance (Credit Analysis of Toyota Car Industry)

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Financial Management


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Group Members


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Credit Analysis of

Toyota Car Industry


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Literature Review Toyota Motor Corporation was founded in 1936 by

Kiichir Toyoda in Japan, originally under thename Toyoda. For superstitious reasons, in 1937the name was changed to Toyota. The company

produced small cars and light trucks forconsumption in Japan and for exports to othercountries.

In 1980 a heavy United States import tax on

vehicles forced Toyota to open a plant in Americain order to remain competitive. In 1982 theproduction and sales divisions of Toyota mergedto form Toyota Motor Corporation.


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Literature Review (Cont.) In 1990 Toyota started to produce new types of

vehicles, such as luxury cars, full sized pick-uptrucks, and sports utility vehicles, in an effort tobroaden the product mix farther beyond.

Toyota went public in 1999. Since then, thecompany has created a broad range of newproducts, delved into robotics, had two vehicles

named car of the year by Motor Trend, andsuffered setbacks from natural disasters andproduct recalls.


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TOYOTA TODAY Today, Toyota has 7 factories in the United

States, 15 in Japan (12 of which are inToyota 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 inmanufacturing techniques and has been a

pioneer since its inception. The ToyotaProduction System (TPS) is a benchmark forall manufacturing companies.


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Major Car Labels Toyota has three major car labels under

which it produces vehicles:

1. Lexus.2. Scion3. Toyota


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1. Lexus The luxury division of TM, founded in

1989.

The cars design directly targets the high-end customers with large disposableincome.

Leather interiors, touch screen navigation,cutting edge technological innovations,and strict quality control are significant

components of the Lexus line of vehicles.


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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 generationswith a few customization options, trendyfeatures, and viral advertising campaigns.


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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 Camryand Toyota Corolla.

Several models, such as the Tundra andCamry, have been named cars of the year byvarious American automotive magazines.


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Toyota Main Competitor(Honda) Honda is one of a main competitors of Toyota

Motors.

Honda is a Japanese automotive

manufacturer similar to Toyota. It producessimilar cars and has a luxury line under thename Acura.

A segment unique to Honda is motorcycles.

15% of Hondas sales come frommotorcycles and Toyota does not have apresence in that market to compete.


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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 othervehicles and motors, such as ATVs, jetskis, lawn mower engines, and generators.

Honda has the edge in variety and has apresence in markets that Toyota does not.


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Toyota Main Competitor (Honda)(Cont.) However Toyota has the edge in

production and a more developed brandimage in the luxury car market. Honda

produces about 20% of its vehicles inJapan where as Toyota produces about50% in Japan.


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Toyota Main Competitor(Volkswagen) Volkswagen is Europes most prolific

automobile manufacturer with several highend labels.

Volkswagen vehicles are typically moreexpensive than Toyotas equivalent

models and their high end brands are

some of the most expensive in theindustry.


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Toyota Main Competitor(Volkswagen)(Cont.) Toyotas base models are cheaper and more

popular than most of Volkswagen models andover-all have been more popular through theyears.

The European automaker hasnt beenaffected by the natural disasters thatdamaged Honda and Toyota production.Even though VWs facilities are located in a

more physically stable region, the currentEuropean economic situation could prove tobe just as horrible.


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Major Problems Facing By Toyota CarIndustry March 11, 2011 a magnitude 9.0

earthquake occurred 40 miles east of theOshika Peninsula.

The ensuing tsunami, the earth quakeitself, and the accidents at the reactors atthe Fukushima power plant are referred to

as the Great East Japan Earth Quake


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Major Problems Facing By Toyota CarIndustry (Cont.) Toyota shutdown production at all

domestic facilities. By April 18th thefacilities were functioning again.

The damaged national infrastructure andnuclear power plant crisis severelyaffected Toyotas ability to acquire parts

and transport the vehicles.


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Minor Problems Facing ByToyota Car Industry Size:

Due to its large size, heavy market

share, and high rate of Japaneseproduction, Toyota is the auto-manufacturing company most affected bythe natural disaster and its devastating

impact on Japanese manufacturing.


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Minor Problems Facing ByToyota Car Industry (Cont.)Decreasing Market Share:

In the first quarter of 2011, GM outsoldToyota globally by a wide margin2.2 million

units versus 1.8 million vehicles. Volkswagenalso beat Toyota, with sales of 2.0 millionvehicles.

Recalls:In the first quarter of 2010, Toyotarecalled more than 8 million trucks globally

due to the quality issues.


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Dependence of ToyotaCar Industry1. Risks relating to the Great East Japan

Earthquake:-

Toyota hardly depend on the economy of

Japan. It is badly affected by the continuingeffects of the Great East Japan Earthquakeand ensuing events.


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Dependence of Toyota CarIndustry (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 atimely basis.

The worldwide automotive market is highly

competitive


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Dependence of Toyota CarIndustry (Cont.) Toyotas success is significantly impacted

by its ability to maintain and develop itsbrand image.

Toyota relies on suppliers for the provisionof certain supplies including parts,

components and raw materials.


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Dependence of Toyota CarIndustry (Cont.)3. Financial Market and Economic

Risks:-

High prices of raw materials and strong

pressure on Toyotas suppliers couldnegatively impact Toyotas profitability.

The downturn in the financial markets could

adversely affect Toyotas ability to raisecapital.


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Dependence of Toyota CarIndustry (Cont.)4. Political, Regulatory, Legal and Other

Risks:-

The automotive industry is subject tovarious governmental regulations.

Toyota may be adversely affected bynatural calamities, political and economic

instability, fuel shortages or interruptions insocial infrastructure, wars, terrorism andlabor strikes.


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Government Incentives Toyota Motor Corp Asia`s biggest

carmaker, raised its global sales forecastbecause of Japanese government

incentives on fuel-efficient vehicles anddemand for its new gas-electric Priuscompact.


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Government Grants forToyota Hybrid Cars Governments around the globe are investing

money into the research and development ofhybrid car technology. Financial grants have

been issued to citizens with incentives topurchase hybrid cars, research anddevelopment grants to universities, andproduct development grants to specific

companies. Australia has given large grantsto Toyota since 2008 for its development ofthe Camry Hybrid.


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Australia and the Toyota Camry In 2008 the Australian government

provided Toyota with a $35 million grant todevelop the Camry Hybrid for sale to

Australian consumers. In 2011, anadditional $63 million in funds for theToyota Camry Hybrid were provided from

the Green Innovation Fund by theAustralian government.


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U.S. Consumer Incentives for the ToyotaCamry In September 2006, the United States Department

of Energy offered grants, in the form of taxincentives, for consumers who purchased theToyota Camry Hybrid and a variety of other

vehicles. These grants were developed to boostsales and provide benefits directly to theconsumer rather than only through the vehiclemanufacturer. The tax credits were provided onlyto the early adopters of the hybrid technology.

Consumers who purchased a Toyota Camryhybrid after October 2007 were not able to claimthe tax credit.


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U.S. Consumer Incentives for theToyota Car Toyota Motor Corp said on Friday Nov 30,

2012, it is offering retirement incentives toabout 2,000 U.S. workers, or 10 percent of

its employees in the country, in an effort tomanage attrition of its aging work force.


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Incentive Scheme by IMCIn Pakistan Indus Motor Company (IMC) is

introducing a partial payment scheme forall of its Toyota variants in an effort to

boost sales which have dropped to arecord low because of lethargic demand inRamazan and huge influx of imported

used cars in the local market.


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Incentive given byPakistan Government The federal industries ministry has

stepped up its efforts to lobby with otherministries to reduce the age limit for import

of used cars from five-year to three yearsin a bid to provide protection to localmanufacturers.


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Credit Analysis Procedure to determine the likelihood a

customer will pay its bills.

OR

Financial ratios can be calculated to helpdetermine a customers ability to pay its

bills.


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Credit Analysis (2010)

02044.0debtbookequitymarket

584.0assetstotal

sales

0096.0assetstotal

EBIT

0787.0assetstotal

capitalworking

3812.0assetstotal

earningsretained


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25636.1)0787.02.1()3812.04.1()02044.06(.)584.00.1()0096.03.3(

ScoreZsFirm'

xxxxx

Hence the answer is less then 2.7. so wecannot select this client.


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012606.0debtbookequitymarket

5976.0assetstotal

sales

1799.0assetstotal

EBIT

03484.0

assetstotal

capitalworking

397.0assetstotal

earningsretained


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Hence value is again less than 1.8 so wecannot accept this client.

8.1)03484.02.1()397.04.1()012606.06(.)5976.00.1()1799.03.3(

ScoreZsFirm'

xxxxx


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finance (credit analysis of toyota car industry)

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