Toyota Motor (TM)

Toyota issued its second major recall on 1/22, its second in four months. The newest recall is for faulty accelerator pedals, and applies to 2.3 million vehicles. These liabilities have become a debilitating factor to TM's overall profitability, and will cause some detriment to its image.

Toyota’s profits are denominated in yen, which has been appreciating steadily, meaning that when Toyota sells a car abroad and exchanges this foreign currency for yen, it receives less yen than before for each sale thereby hurting profitability. Congress is also pressuring Japan to adjust its exchange rates.

The next frontier in the automotive industry are India and China, but studies from these markets show that smaller cars prevail. Although Toyota has two main small cars in its product line, Aygo and Yaris, these cars have not been introduced yet in the countries. This lack of demanded vehicles allows other competitors to gain an advantage to steal first mover's market share.

While automakers General Motors Corp. (GM) and Chrysler LLC have been emasculated by rising unemployment and slumping confidence in the United States, Japanese carmakers are faring little better. Japan’s auto exports, which account for 20% of all the country’s exports, plunged 66% from last year.

Toyota, the world’s biggest automaker, said earlier in February 2009 that it would likely post a $4.9 billion (450 billion yen) operating loss for the year ending March. The company has never before posted an annual loss.

Toyota said earlier this month that it would cut pay for factory executives and eliminate bonuses for all salaried production unit staff. The company has also created an optional program for assembly workers who wish to leave voluntarily and offer voluntary buyouts to plant workers in North America.

Competition should heat up in most markets, from the United States to China, so profits may be threatened if Toyota has to lower its costs. In 2006, for the first time ever, Toyota offered incentives on the Prius, despite its popularity, a sure sign of increasing competition.