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How Toyota’s Cost-Reduction Efforts Paid Off in Fiscal 2018

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Weak yen boosted revenues

Previously in this series, we learned that Toyota Motor (TM) reported a rise in revenue in fiscal 2018. Weakness in the Japanese yen against the US dollar boosted the company’s revenues in North America and Europe, which drove its total revenue up.

TM has a good reputation of having industry-leading profit margins among its peers. Its fiscal 2018 margins continued to impress. In this article, we’ll take a closer look at the company’s margins in fiscal 2018.

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Toyota’s fiscal 2018 margins

In fiscal 2018, Toyota reported a gross margin of 23.1%, higher than its gross margin of 17.6% in the previous fiscal year. Similarly, the company’s operating margin rose to 8.2% in fiscal 2018 compared to 7.2% in fiscal 2017. The company’s net profit margin also expanded to 8.5% in fiscal 2018 compared to 6.6% in the previous fiscal year.

Note that Toyota has higher margins than other mainstream automakers (FXD) such as General Motors (GM), Ford Motor Company (F), and Fiat Chrysler Automobiles (FCAU). In their most recently reported quarters, GM, Ford, and FCAU reported adjusted net profit margins of 3.8%, 4.4%, and ~5.0%, respectively. Toyota’s strong presence in the luxury vehicles segment also plays an important role in driving its profits higher.

Key drivers of expansion

In recent years, Toyota has been trying to reduce its costs to protect its margins in different geographical markets. Cost-reduction efforts along with a decrease in research and development expenses helped the company to expand its margins in fiscal 2018.

Stronger demand for trucks and SUVs (sport-utility vehicle) in North America and currency tailwinds also helped Toyota post higher profit margins in fiscal 2018.

Read on to the next article to know how Toyota’s financial services arm performed in fiscal 2018.

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