Detroit’s Plans Face Harsh Reality As Toyota (TM) Makes Huge Cut Forecast

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Toyota (TM) is the most successful car company in the world based on any important measurement. It is No.1 in global sales, profits, and has an impressive balance sheet especially in contrast to any of The Big Three.

Toyota began to admit it has severe problems two months ago as it cut production and forecasts for sales in it home market and the US. Then the firm’s board replaced the car company’s CEO.

The latest and most significant news out of the large Japanese company is that it is targeting production and sales worldwide for this year at a level 20% below 2008. According to Reuters, "It would be the carmaker’s lowest production volume since 2003 and 2004." But, the number may be misleading. Toyota had a smaller share of worldwide sales four years ago. That magnifies the bad news about its cuts in manufacturing

The news should send shudders up and down the spins of Congress and the management at US car companies. The recovery of Detroit is based on three simply assumptions. The first is that The Big Three can cut costs so that they can break even at 12 million domestic vehicle sales. The second is that the US market can support 12 million US vehicle sales in 2009. And, the third is that the profitable businesses American car companies have in places like Latin America and Asia can maintain their operating incomes. It turns out that the Toyota plans may mean that sales assumption for both the US region and those overseas are much too optimistic.

If Toyota plans a 20% cut in production this year, the American car company turnaround is in more trouble than Congress or the firms themselves are admitting.

Douglas A. McIntyre