What Factors Hurt Toyota’s Margins in 2017?



Toyota Motor Corporation

Previously in this series, we discussed how Toyota Motor (TM) reported lower revenues in fiscal 2017. Recent strength in the Japanese yen against the US dollar hurt the company’s revenues from North America, which negatively affected its total revenues. Toyota has a good reputation of having industry-leading margins among its peers. However, its fiscal 2017 margins weren’t really impressive. In this part, we’ll take a closer look at the company’s margins in the fiscal year ended March 2017.

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Toyota’s fiscal 2017 margins

In 2017, Toyota reported a lower gross margin of 17.6% as compared to 20.4% in the previous fiscal year. Despite higher sales of heavyweight vehicles in North America, its margins fell due to currency headwinds that Toyota faced in the last fiscal year. Also, higher overall expenses hurt the company’s fiscal 2017 margins.

Despite the recent drop in Toyota’s margins, it still has higher margins than other mainstream automakers (FXD) such as General Motors (GM), Ford (F), and Fiat Chrysler (FCAU). This difference in margins is due to Toyota’s strong presence in the luxury vehicles segment, as luxury vehicles tend to have higher margins compared to mass-targeted vehicles.

Similarly, the company’s EBITDA (earnings before interest, tax, depreciation, and amortization) margins also dropped to 13.1% in fiscal 2017 compared to 15.8% in fiscal 2016. The company’s net profit margins also stood lower at 6.6% in fiscal 2017 compared to 8.1% in the previous fiscal year.

Other key factors

In recent years, Toyota has been trying to adjust its pricing strategy to protect its margins in different geographical markets. Improved pricing as a result of these efforts helped the company to expand its margins in fiscal 2016. However, increased expenses and unfavorable foreign exchange overshadowed its improved pricing strategy in fiscal 2017 ended March 2017.

Continue to the next article to know how Toyota’s financial services arm performed in fiscal 2017.


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