Toyota Recall Financing Dilemma
Touro University International
Dr. Herbert Weinraub
Module 5 ' Case Analysis
Monday, March 19, 2007
Toyota Recall Financing Dilemma
"Toyota Motor Corporation is a Japanese multinational corporation and the world's second largest automaker making automobiles, trucks, buses and robots and providing financial services. Based in Toyota, Aichi, Japan, the company boasted a total vehicle production of 9.018 million vehicles in 2006. It is also the world's eighth largest company with revenue of $179 billion as of 2006. Toyota is the world's most profitable automaker Toyota sells ...view middle of the document...
During the 1970â€™s their North American product line focused mainly on economy cars and pickup trucks. Today they are present in practically every key American automotive demographic with competing products. They also entered what was once the domain of the European luxury sedan manufacturers by introducing its line of luxury â€œLexusâ€ automobiles. Although American and European car manufacturers have improved their product reliability and they still have not managed to catch up with Toyota.
Japanese and European automobile manufacturers benefit from a higher degree of degree of intra-governmental cooperation than their American counterparts. Many of the worker benefits provided by US auto manufacturers are provided to European and Japanese auto workers by their respective governments. Furthermore, Japanese and European corporations are more heavily subsidized than in North America. This allows them to operate at a higher rate of return and gives them access to more expansion and contingency capital which in situation like the aforementioned Toyota recall can come in quite handy.
The costs of Japanese government subsidies to Toyota are passed onto Japanese and European citizens via higher income and sales taxes. This diminishes their purchasing power and negatively affects the size of their automobile markets. Despite some of its drawbacks, this system has given Toyota a significant competitive advantage abroad which it has been slowly building upon over the course of the past 50 years.
Although borrowing against future earnings is the most financially sound option available to solve the recall dilemma, Toyota can avail of other options. Toyota could repeal some if its sales incentive programs thereby raising the price on some of their automobiles in an attempt to generate cash in the short-term. This would have a negative effect on overall sales in the long term substantially reducing market-share.
"In the United States, Toyota Motor Corporation's stock is offered in the form of American Depositary Receipts (ADRs) on the New York Stock Exchange (NYSE). The ADRs are traded under the symbol TM on the NYSE and are based on Toyota shares traded in Japan. Each ADR represents two shares of Toyota common stockâ€ (Toyota)
Toyota could increase its capitalization by selling some of its stock off of any of the international markets. The drawback of such a strategy would be reduced leveraged control over any of its international subdivisions. Toyota could also request, however unlikely, that the Japanese government...