Analysts : Toyota Sits Proud in Splendid Isolation

Published May 22nd, 2000 - 02:00 GMT

At least one Japanese auto company has the clout to ignore the global motoring merger race as it vies for the industry pole position, analysts say. 

The record-breaking financial year reported last week by Toyota Motor Corp. came despite an exchange-rate headache which has prompted speculation that Japan's biggest automaker may woo a European partner. 

Toyota's 14.2-percent rise in net profit to 406.8 billion yen (3.7 billion dollars, 4.12 billion euros) came on unprecedented worldwide sales of more than five million vehicles, and left its struggling rival Nissan Motor Co. Ltd. in the shade. 

Nissan, which is undergoing a painful overhaul under the guidance of French controlling shareholder Renault SA, headed faster in the wrong direction. 

It posted a huge group net loss of 684.4 billion yen, but vowed to get back on track this year after seeing Honda Motor Co. Ltd. overtake it in terms of sales to seize runner-up position in Japan. 

All three companies blamed exchange-rate fluctuations for eroding earnings. For Toyota, the crippling weakness of the euro marred an otherwise impressive copybook as its European operations sank into the red. 

One short-cut to European expansion put forward for Toyota is a takeover bid for either Germany's BMW or Peugeot of France. 

All of Toyota's major global rivals such as General Motors, Ford and the merged DaimlerChrysler group -- not to mention Nissan-Renault -- have decided that consolidation is essential to survive competition and overcapacity. 

"Toyota is actually quite reluctant to pursue mergers and acquisitions overseas. They've got a lot of internal resources for growth," said ING Barings auto analyst Howard Smith. 

Toyota was pulling truckmaker Hino Motors Ltd. and small-car maker Daihatsu Motor Co. Ltd. tighter into its group embrace to plug gaps in its market, he said.  

"What they really need to do is get more local production and reduce exports from Japan, which they'll get next spring with the plant in northern France." 

The Toyota plant being built at Valenciennes will have one crucial advantage over the Japanese company's existing British factories in central England and Wales. It will be in the euro zone.  

Nissan and Honda, both with facilities in England, also complained that the strength of the pound and Japanese yen against the euro in the past year had blown a hole in their earnings. 

All the Japanese automakers have urged the British government to make a prompt commitment to joining the euro. 

Nissan chief operating officer Carlos Ghosn said Friday the company would decide by the end of the year whether to shift part of its European car production away from Britain to ease the pain caused by the strong pound. 

This month's sale of British carmaker Rover by BMW showed the inherent danger of exchange-rate volatility for foreign manufacturers, said Goldman Sachs auto analyst Kunihiko Shiohara. 

"No one can generate profits from the pound's strength," he said, noting that 80 percent of Toyota's parts purchasing for its British production came from local suppliers. 

"Toyota may have to switch purchase of parts to the continent, and this would have a great impact on the UK economy," Shiohara said. 

But he too ruled out the other option for Toyota to boost falling continental sales, a European acquisition. 

"They've become one of the world's strongest companies through having unique production methods and it would be very difficult to integrate a foreign firm's methods into these," he said.  

"As we've seen at DaimlerChrysler, it's taking a lot of time to create synergy effects. So Toyota is instead reinforcing its group management by further integrating Daihatsu and Hino Motors."  

Neither of the oft-touted acquisition targets had much to offer to Toyota, Smith added. 

Peugeot had a limited presence outside western Europe "and Toyota has big ambitions for its own brand, including the Lexus brand, which competes head on with BMW," he said. 

"They're going for a five-percent market share in Europe, and they're well on the way to achieving it with production volume growing as it is." 

It would be a different scenario if either Peugeot or BMW were offered to Toyota "on a plate," Smith said, adding that it was highly unlikely -- TOKYO (AFP). 

© 2000 Al Bawaba (

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