Vehicle Sales, Financial Services and More

To hear American car makers and the United Auto Workers tell it, government assistance is non-negotiable. Cash infusions courtesy of the taxpayer are necessary to protect a vital industry, keep people employed, and maintain Detroit’s place as one of commerce’s “shining beacons.” Yet the world’s largest car company manages to not only survive without help but generate $272 billion in revenue for FY2019. Toyota Motor Corp. (TM) generates revenue through three primary operations: automotive, financial services, and other business, including the manufacturing of non-automotive machines and various other activities.

Headquartered in Japan, Toyota began in the 1920s as a loom manufacturer. After developing and selling the patent for an automated loom, founder Sakichi Toyoda entered into the automobile business. The first Toyota vehicles were built in the early 1930s, while the Toyota Motor Company was established in 1937. First focusing on compact cars, Toyota eventually expanded to produce pickups, SUVs, trucks, sports cars, and other vehicles as well. Along the way, the company developed into one of the largest automotive manufacturers in the world; indeed, as of 2017 Toyota is the largest manufacturer globally.

Toyota produces 10 million vehicles annually, 2.8 million of those in North America. And that latter number is expected to grow thanks to economies of scale. The Japanese automaker consolidated its United States operations in Plano, Texas, where it will move the production capacity of 11 manufacturing outlets and three distribution networks, along with the company’s North American sales, marketing, and financing headquarters.

For FY2019, ending on March 31, 2019, Toyota reported net revenues of nearly 30,226 billion yen, or about $272 billion. This marked a 2.9% increase over FY2018 revenues. As of July 17, 2019, Toyota’s market capitalization is $185.4 billion.

Toyota generates the large majority of its revenue from its automotive business, which can be further divided into separate subsegments based on brand and geographic focus. In total, the company sold just under nine million vehicles in FY2019. The company also earns revenue from its financial services branch and through a third, much smaller wing that focuses on miscellaneous business.

Toyota’s automotive business has multiple distinct business units, each a paean to streamlined Japanese efficiency. The first and most profitable of those is Lexus, the automaker’s renowned luxury brand. The company feels strongly enough about Lexus that the unit is under the direct supervision of the company president.

Last year, Lexus celebrated its 10 millionth vehicle sold throughout its history, including both coupes and sport-utility vehicles. Despite being a Japanese brand, one that technically sells worldwide, Lexus sells a hugely disproportionate share of its vehicles in the United States, with North American Lexus sales figures typically in the area of 300,000 per year.

The Lexus brand originated in the early 1990s as a competitor to other mass-market Japanese automakers’ new luxury brands, such as Honda’s Acura and Nissan’s Infiniti. A generation later, Lexus has surpassed those brands to compete directly with the heavyweights of the luxury division, including BMW and Mercedes-Benz. So far, success for Lexus at the next level has been less than forthcoming.

The corporation’s also has divisions relating to the sale of vehicles by geographic region. Toyota Motor North America, for instance, is a Texas-based holding company that engineers, produces, and sells certain Toyota vehicles throughout North America. Stateside, Toyota is the proud manufacturer of the Camry, America’s best-selling car, with the Corolla, Highlander, Tundra, and RAV4 following respectively.

The majority of Toyota’s vehicle sales take place in Japan and North America, though a smaller portion of sales occur in Europe and other parts of Asia as well.

Unlike some other major car makers, Toyota derives a relatively small portion of its revenue from its financial operations. While Toyota’s financial services division is growing faster than automotive sales are, the company is still a manufacturer first and a lender second. Automotive activities accounted for almost 90% of worldwide revenue last year, while financial services barely generated 6%.

Toyota Financial Services is the subsidiary that focuses on automotive sales financing, credit cards, and other related services. It operates in roughly 30 countries, covering about 90% of Toyota Motor Corporation markets.

Besides vehicle sales and financing, Toyota generates revenue from other business operations and investments as well. The company holds stakes in other automotive companies like Subaru, Isuzu, and Mazda. It also has interests in biotechnology, robotics, aerospace, and other industries as well. In the last decade, Toyota has been particularly focused on the development of hybrid electric vehicles and related technology.

Since its founding, Toyota has followed what it refers to as the “Five Main Principles of Toyota,” a set of values and guidelines which inform all company decisions. According to its 2019 Corporate Governance Report, the company has decided to focus in the short term on fostering innovation, particularly in the areas of robotics and artificial intelligence (AI), and on growing its business. Among other goals, the company seeks to enhance the “connected” capability of its vehicles and to create new mobility services going forward. The company is also focused on sustainability and the environment: Toyota has set as a goal the elimination of carbon dioxide emissions from its vehicles as of 2050.

Although Toyota is a dominant automotive company, it nonetheless faces a wide variety of challenges. One of the biggest of these is competition, particularly from other well-established vehicle makers around the globe. Because Toyota now competes in all classes of vehicles, it faces threats to its sales from several rivals.

In order to remain successful, the company must also continue to adapt. Although Toyota enjoys tremendous name recognition and customer loyalty, changing tastes, new technologies, and an invigorated sense of environmental responsibility on the part of customers require that Toyota invest large amounts of money in developing new products and tools. If Toyota does not anticipate how the automotive industry will change and react accordingly, it may lose business.