toyota jidosha kabushiki kaisha toyota motor corporation - Big Three ...

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Table of Contents ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 5.A OPERATING RESULTS All financial information discussed in this section is derived from Toyota’s consolidated financial statements that appear elsewhere in this annual report on Form 20-F. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Overview The business segments of Toyota include automotive operations, financial services operations and all other operations. Automotive operations is Toyota’s most significant business segment, accounting for 89% of Toyota’s total revenues before the elimination of intersegment revenues and 95% of Toyota’s total operating income before the elimination of intersegment revenues and costs for fiscal 2008. The operating income from automotive operations as a percentage of total operating income increased by 4% compared with fiscal 2007 due to an increase in operating income from automotive operations. Toyota’s primary markets based on vehicle unit sales for fiscal 2008 were: Japan (25%), North America (33%), Europe (14%) and Asia (11%). Automotive Market Environment The worldwide automotive market is highly competitive and volatile. The demand for automobiles is affected by a number of factors including social, political and general economic conditions; introduction of new vehicles and technologies; and costs incurred by customers to purchase and operate vehicles. These factors can cause consumer demand to vary substantially from year to year in different geographic markets and for different types of automobiles. The following table sets forth Toyota’s consolidated vehicle unit sales by geographic market based on location of customers for the past three fiscal years. (Thousands of Units) Year Ended March 31, 2006 2007 2008 Japan 2,364 2,273 2,188 North America 2,556 2,942 2,958 Europe 1,023 1,224 1,284 Asia 880 789 956 Other* 1,151 1,296 1,527 Overseas total 5,610 6,251 6,725 Total 7,974 8,524 8,913 * “Other” consists of Central and South America, Oceania, Africa and the Middle East, etc. Toyota’s consolidated unit sales in Japan decreased during fiscal 2007 and 2008 as compared to each of the respective prior years reflecting a decline in the overall domestic market. During fiscal 2008, however, Toyota’s market share (including Daihatsu and Hino) including mini-vehicles representing a record high, and Toyota and Lexus’ market share excluding mini-vehicles remained at a high level close to prior fiscal year reflecting the sales efforts of domestic dealers. Overseas vehicle unit sales increased during fiscal 2007 and 2008. During fiscal 2007, vehicle unit sales increased in North America and Europe due to extensive product offerings that catered to regional needs but decreased in Asia due to a decline in certain countries’ markets, such as Indonesia and Taiwan. During fiscal 2008, vehicle unit sales increased in North America, Europe, Asia, and Other reflecting the expansion of production sites, the introduction of vehicle models that effectively meet customer needs and the implementation of various sales measures. 45
Table of Contents Toyota’s share of total vehicle unit sales in each market is influenced by the quality, price, design, performance, safety, reliability, economy and utility of Toyota’s vehicles compared with those offered by other manufacturers. The timely introduction of new or redesigned vehicles is also an important factor in satisfying customer demand. Toyota’s ability to satisfy changing customer preferences can affect its revenues and earnings significantly. The profitability of Toyota’s automotive operations is affected by many factors. These factors include: • vehicle unit sales volumes, • the mix of vehicle models and options sold, • the level of parts and service sales, • the levels of price discounts and other sales incentives and marketing costs, • the cost of customer warranty claims and other customer satisfaction actions, • the cost of research and development and other fixed costs, • high prices of raw materials, • the ability to control costs, • the efficient use of production capacity, and • changes in the value of the Japanese yen and other currencies in which Toyota does business. Changes in laws, regulations, policies and other governmental actions can also materially impact the profitability of Toyota’s automotive operations. These laws, regulations and policies include those attributed to environmental matters and vehicle safety, fuel economy and emissions that can add significantly to the cost of vehicles. The European Union has enforced a directive that requires manufacturers to be financially responsible for taking back end-of-life vehicles and to take measures to ensure that adequate used vehicle disposal facilities are established and those hazardous materials and recyclable parts are removed from vehicles prior to scrapping. Please see “— Legislation Regarding End-of-Life Vehicles,” “Information on the Company — Business Overview — Governmental Regulation, Environmental and Safety Standards” and note 23 to the consolidated financial statements for a more detailed discussion of these laws, regulations and policies. Many governments also regulate local content, impose tariffs and other trade barriers, and enact price or exchange controls that can limit an automaker’s operations and can make the repatriation of profits unpredictable. Changes in these laws, regulations, policies and other governmental actions may affect the production, licensing, distribution or sale of Toyota’s products, cost of products or applicable tax rates. Toyota is currently one of the defendants in purported national class actions alleging violations of the U.S. Sherman Antitrust Act. Toyota believes that its actions have been lawful. In the interest of quickly resolving these legal actions, however, Toyota entered into a settlement agreement with the plaintiffs at the end of February 2006. The settlement agreement is pending the approval of the federal district court, and immediately upon approval the plaintiffs will, in accordance with the terms of the settlement agreement, withdraw all pending actions against Toyota in the federal district court as well as all state courts and all related actions will be closed. For a more detailed description of these proceedings, see note 23 to the consolidated financial statements. The worldwide automotive industry is in a period of globalization, which may continue for the foreseeable future, and in general the competitive environment in which Toyota operates is likely to intensify. Toyota believes it has the resources, strategies and technologies in place to compete effectively in the industry as an independent company for the foreseeable future. 46
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Page 3 and 4: Table of Contents TABLE OF CONTENTS
Page 5 and 6: Table of Contents As used in this a
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Page 11 and 12: Table of Contents Toyota believes t
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