Dealership Economics, Part III: Toyota

Toyota-logoIn the first two installments of Dealership Economics, we talked about why the car sales process is so vague and about the importance of the service department to the dealership's business.  In this post, we'll look at what the dealership company's financial statements say about Toyota's position in the auto industry.  

With the financial crisis at GM, Ford, and Chrysler (more on this in an upcoming post) making front-page news every day, you might wonder about the implications for Toyota in this economic downturn.  Toyota has definitely been hurt by the recent slump (see here and here), although it is not in the disastrous financial shape that Detroit's automakers are in.

So how will Toyota fare relative to the industry?  We can learn a lot when we go back to the dealership company we looked at in our other posts.

When we look at the numbers, two things jump out right away.  The first is that the Big 3 automakers' share — in both number of cars and dollar amounts — has eroded dramatically in just one year.  In just one year, the Big 3 has shrunk from over 35% of this company's car sales to under 30%.  Even if the economy were stable (which it obviously is not), such loss in share indicates that Detroit isn't making cars that people want.

The second number which jumps out is Toyota's share.  Even as the economy is deteriorating and car sales are slumping, Toyota grew its share of sales to 21%.  So, while the industry is getting weaker in a weak economy, Toyota's position within the industry is getting stronger…

So, what does this mean for the long term?  When the economy recovers, Toyota is in the best position to lead the automotive industry.  In addition, the long-term bets that Toyota made years ago (hybrids, flexible manufacturing, etc.) have helped sustain it through these difficult times.  In the end, Toyota will emerge as the dominant player in the auto industry.

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