) has been in the news recently for the wrong reasons. The
automaker faced litigation charges back in 2009, when its vehicles
were reported to experience 'unintended acceleration'. The
settlement was reached in March this year and would require Toyota
to pay a massive $1.2 billion to the U.S. Justice Department.
In these four to five years, the automaker has done well to
restore the confidence of the general public since the vehicles
were recalled. Thus, damages related to the lawsuit will be solely
restricted to reductions in cash & cash equivalents. Future
cash flows are not likely to get affected by the outcome of this
lawsuit. Moreover, the timing of the settlement comes in at a
favorable time for Toyota since the company is cash rich
See our complete analysis for Toyota
Toyota's shares are down almost 10% this year despite the
company posting record profits during the third quarter. Concerns
over weaknesses in emerging markets, combined with a slow start to
the year in the U.S. have been a drag on the company's shares.
Toyota's U.S. sales through February are down 5.7%, compared to a
1.4% decline for the entire industry. North America is one of
the biggest markets for Toyota and accounts for more than 25% of
the company's sales. Therefore, it isn't surprising to see any
weakness in the region affecting the company's overall
Not All Negative
Even though Toyota's overall sales are in red, the automaker's
light truck sales are up 4.9% in the same period vs 4.1% industry
wide gains. The light truck category consists of pickup trucks,
SUVs and crossovers. Toyota's sales in this category are being
boosted by the RAV4, whose sales are up 33% through February. The
refreshed model is helping the company attract more customers.
Another vehicle that continues to do well is the Tundra, with
sales up 8.4% in February. In 2013, the vehicle's sales were up
7.2%. The refreshed model, introduced last year, is more
muscular and spacious giving it a distinct American look. Grabbing
more market share of the pickup segment, currently dominated by the
Detroit Three, remains a long-term agenda for Toyota. The recent
results highlight that the automaker is on the right track.
In the car category, there is an opportunity for Toyota to
reverse to trend with the help of the revamped Corolla, which
debuted last year. Corolla's sales accelerated after the refreshed
vehicle was introduced during the second half of 2013. In 2014,
Toyota plans to sell 330,000 Corolla vehicles, 10% more than the
amount sold last year, as the new model will now be available for
the entire year.
In addition, the Camry is another model which could see some
growth, especially during the second half of 2014, when its
revamped version will go on sale. There was a time when there
were pretty much only two options in this category - the Accord or
the Camry. However, others have joined the fray now and with plenty
of good cars in this segment, the Camry's position is under threat.
In fact, through February, Nissan's Altima has outsold the Camry.
Therefore, a model upgrade becomes all the more necessary. The 2015
version of the Camry will be displayed at the upcoming New York
Auto Show. The Corolla and the Camry together account for about 30%
of Toyota's sales in the U.S.
Other Factors That Could Help Toyota
Major automakers in the U.S., including Toyota, could also gain
from GM's recent negative publicity, which could affect its future
sales. GM has recalled more than 3.1 million in the last two to
three months on the back of safety concerns due to faulty
ignitions. This can potentially tarnish the reputational gains made
by the automaker since its bankruptcy.
The exchange rate is also working in Toyota's favor. The yen has
continued to remain weak, with the exchange rate persistently below
100. Toyota's recent series of profit beats have been, to a large
extent, aided by a weaker than expected yen. Toyota has
benefited strongly from a deteriorating yen since the automaker
produces almost 40% of its vehicles in Japan. The overseas profits
translate back to more yen when repatriated. Overall, the picture
for Toyota doesn't look as bad as the decline in the share price
a $128 price estimate for Toyota
, which is about 15% higher than the current market price.
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