Toyota's Small Miracle

Toyota Motor Corp. (NYSE: TM) made a lot of money last quarter, at about the same time that Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) were battered by problems in Europe. For the three months ended June, the Japanese car manufacturer posted a net profit of 290.35 billion yen ($3.71 billion). Toyota is so sanguine about its future that it revised its projected estimates for the year to 9.76 million vehicles, which is more than 20% higher than actual numbers in 2011.

Europe does not appear to have battered Toyota as much as it has other car companies, perhaps because its exposure is modest there compared to other giants GM and Volkswagen. Perhaps it is because Toyota’s home market is in a period of recovery. Perhaps it is because Toyota is in the midst of taking back market share in the United States. Some combination of these marries a level of luck with good management. It is a sign that in business being lucky is sometimes better than being good. And being in the right markets with the right products is even better.

Toyota lost its position as the largest car company in the world to GM two years ago. One reason was production shutdowns due to the earthquake in Japan. Another was probably a series of recalls that eventually affected more than 8 million cars and light trucks. Toyota has revamped its quality control, and that seems to have worked. Toyota also had brand equity around the world because of decades of being perceived as the maker of the best quality cars. The reputation probably helped it get over rough spots.

Toyota has several advantages over its rivals GM and VW during the next decade. In VW’s case, it has a tiny portion of the world’s second largest market — the United States. Toyota once had 18% of the market, and its has begun to drive back in that direction. VW also has significant exposure in its home market of Europe, where the economy may not recover for years.

Toyota has several advantages over GM too. Among them is that GM sells very few cars in Japan, the third-largest car market in the world. GM would claim that is because Japan kept its cars out of the country three decades ago to help Toyota. The reasons do not matter so much now. GM has a claim in China, where it and VW have the largest market shares. But the Chinese car market is not white hot any more. As a matter of fact, its is barely growing. In addition, some car industry experts say that GM has made poor product decisions that have left it with a line of cars and light trucks that have less appeal to consumers than some of the products of its competitors.

Toyota, nearly broken in 2008, has returned as the global car company to beat.

Douglas A. McIntyre