COMPARATIVE ANALYSIS: FORD MOTOR COMPANY TOYOTA MOTOR CORP

dr Agata Kociabased on presentation by:

PAWEŁ ORZECHOWSKI, MACIEJ OŚWIT & ANDRZEJ BENCZEK

FORD: the beginning Henry Ford designed his first moving assembly

line in 1913 “Wheels for the world”-the motto behind

popularization of cars Each section of the production process was

divided into component parts Combination of precision, continuity, and fast-

paced brought the world – mass production In Highland Park, Model T production reached

record levels, every day a car came of the assembly line every ten seconds

TOYOTA: the beginning Toyota's history began at the end of XIX century Sakichi Toyoda invented Japan's first power

loom which revolutionized the country’s textile industry

Two years later, he founded the company Toyoda Automatic Loom Works

Toyody Sakichi’s son, Kiichiro Toyoda invested 100,000 pounds in the creation of Toyota Motor Corporation in 1937 (TMC)

Sakichi Toyoda received this money for selling the patent rights to an automatic loom

FORD The fourth-largest automotive company in the world in terms of

sales Sells cars on 6 continents Car Brands: Ford, Mercury, Lincoln and Volvo

in March of 2010 confirmation of sale of Geely Automobile Holdings Ltd) Since the mid-90’s Ford continually loses significance in the

American market Over the same period steadily increases its share in the European

market Reasons for the gap between the development of the brand in the

U.S. and Europe: high labor costs in the U.S. high expenditure on healthcare in the U.S. strong trade unions in the U.S. (high pension commitments) strong economic growth in lower combustion cars

TOYOTA

The biggest carmaker in the world in 2009 (more than 7.5 million cars)

Main markets are Japan and North America, but recently we can see a strong growth in Asian and South America markets

Toyota has three brands: Toyota, Lexus and Scion

FORD: more economic Dominance of large cars: SUVs, Pick ups Rapid fluctuations in oil prices and legislators

striving to reduce consumption of materials led to reorganization

Restructuring of the three production lines for production of more economic models in Europe (Mondeo, Focus etc.)

in short-run minimization of costs Ultimately, Ford intends to make engines in all

their models to be more economical In 2009 to market were introduced four hybrid

models based on technology leased from Toyota

FORD: hybrid technology Currently, Ford has four hybrid models

Ford Focus Hybrid is a direct threat to so far the most popular Prius (hybrid line of Toyota)

In 2010, the company plans to spend an additional $450 million to develop electric motors

By 2012, Ford wants to produce own hybrid technology and plug-ins

Ford has invested more than $550 million in restructuring its manufacturing facility in Michigan

What if the market chooses a different path?

TOYOTA: hybrid technology Toyota as one of the first ones started a hybrid

cars production line (including leasing its technology to Ford)

At present, hybrid Toyota - Prius line, represents approximately 73% of all hybrid vehicles sold in the U.S.

So far in the U.S. Toyota sold the 1,000,000+ hybrid cars

In addition, Toyota announced its intention to manufacture electric cars with lithium-ion batteries “Toyota Plug-HV”

FORD: ONE FORD Despite the very large amount

of cars produced, so far Ford has derives small economies of scale by applying a separate, independent technologies and models for European, US and developing markets

“One Ford” – changed approach

Ford moves the emphasis to universal models for use in different regions of the world (the first "world car"-new Ford Fiesta)

FORD: wrong sales model From the 90s Ford has created demand

sales on installments without interest charged discounts promotions combined with a loan

Ford exceptionally strong suffered from a crisis on a real estate market

in recent years, sales in the U.S. were strongly associated with the property market

it is estimated that in California, 30% of car purchases has been financed with a mortgage

Feeling the effects of this approach, Ford began to change strategy

less emphasis on creating demand emphasis on quality and safety

FORD: developing markets Ford is mainly engaged in the American market,

which slowly begins to lose its attractiveness Ford’s task now is to develop a universal line for

use in every country (European Ford Fiesta in the U.S., Ford Transit Van in Asia)

Whether european car models will be appealing to clients in India or Brazil depends the future of Ford in the long term.

TOTOTA: withdrawal of models Several serious flaws in the models has significantly hurt

Toyota’s image in 2009, the company had to withdraw from the market 3.8

million vehicles due to the acceleration system flaw In the short term:

it is estimated that due to defects and withdrawals Toyota models suffered losses of $ 3 billion in 2010

over the past year, throughout the world over 9 million vehicles have been withdrawn

for consideration more than 30 lawsuits are waiting In the long term:

current crisis has significantly hurt the reputation of the company competition has used well (Chrystler, Ford and Honda

hasorganized the promotions, giving discount on a new car for customers who got rid of the old Toyota)

TOYOTA: the future Car Sales in highly developed countries will fall and

remain at low levels majority of consumers’ demand is already satisfied relatively low economic growth

The biggest outlays directed on emerging marketsmainly Brazil, Russia, India, China (BRIC) countries

Toyota earlier than other companies in the sector began to invest in the development of appropriate infrastructure and brand awareness in the above countries

in 2009 Toyota announced the beginning of motor vehicle production in India (the company Toyota Kirloskar)

in 2010 Toyota plans to produce 100,000 cars in the new factory opened in India

TOYOTA: trends and expectations (1)

Japan investing in luxury brands (Lexus)

• in 1990 10% of Japan's population was over 65 years, in 2006, the number suppose to double

• older society saves more and raises the demand for more luxury goods USA

collapse of the real estate market• strength of real estate market has always been related to car market

because consumers often fund the purchase of car with a mortgage owed • stagnation in credit market will reduce demand for new cars

demand for green technologies• oil prices are rising, resulting in increased demand for cars Hybrid (Prius

model)• in December of 2007. U.S. government passed a law requiring the car

manufacturers to reduce the combustion of up to 35 mpg for cars, trucks and SUVs – Toyota,typically produces small, economical cars and its standards are already satisfy new requirements

TOYOTA: trends and expectations (2)

USA hybrid legislation

• USA introduces new law to encourage development of hybridtechnologies

• at present, when buying a car you can count on the hybridtax relief of up to $ 3,400, depending on the amount of car sales (the more cars the company sells the smaller the deduction ) – the aim is to support companies desiring to enter the market with hybrid technology

World Market demand for cars will depend on the trend in oil, steel

and aluminum prices

FORD/TOYOTA: general data (in $ mln)

2006 2007 2008 Sales (FORD) 143,249 154,379 129,166 Sales (TOYOTA) 203,874 256,581 2081,262 Income from operations (FORD)

-7,926

8,031

-4,130

Income from operations (TOYOTA)

19,058

22,159 -4,674

Net income (FORD) -12,613 -2,723 -14,672 Net income (TOYOTA) 13,996 16,766 -4,430 Employment (FORD) 283 247 213 Employment (TOYOTA) 286 299 316 Total assets (FORD) 279,196 279,264 218,328 Total assets (TOYOTA) 277256 318875 294627

TOYOTA: production (in 1000s)

2006 2007 2008 North America 1201 1205 1268 South America 122 147 150 Europe 623 709 711 Asia, Africa, Australia 1081 1019 1258 Japan 4684 5100 5160

FORD/TOYOTA: sales (in 1000s)

2006 2007 2008 North America (FORD) 3051 2890 2329 (TOYOTA) 2556 2943 2958 South America (FORD) 381 438 435 (TOYOTA) 233 284 320 Europe (FORD) 1846 1918 1820 (TOYOTA) 1023 1224 1284 Asia, Africa, Australia (FORD)

589 535 464

(TOYOTA) 1384 1361 1559 Japan (TOYOTA) 2364 2273 2188

Risk factors

FORD Ford is exposed to various kinds of risk not only to the

market risk currency risk, commodity price changes, interest rate risk,

financing risk, risk of extraordinary events are just some of the most important kinds of risk present

risk of loss of liquidity: hedge against it by sale of receivables (securitization), issue of debt and bank loans

insurable risks: the loss (damage) of property, civil liability – companies insure themselves privately

they use derivatives to hedge – currency, interest rate or changein commodity prices risk – by forwards, swaps, options

• does not use derivative to speculate

TOYOTA Toyota is exposed to risks arising from:

changes in exchange rates interest rates availability of materials changes in prices of materials

Instruments used to protect: forward contracts currency and interest rate options swaps

Unfortunately, Toyota does not protect itself from price changes and changes in supply of materials

only protection is to maintain reserves of some materials

TOYOTA: currency risk Toyota settles its invoices in Japanese yen

which increases its currency risk Changes in exchange rates reflect very strongly

on company results change in the dollar-yen exchange rate of 1% will

change revenues by about $42 million Toyota protect itself from risk with the help of

swaps and futures Despite this, the company is unable to protect

itself from a falling demand for exports of Japanese cars due to a change in exchange rates

Ratio analysis

Liquidity ratios (1)Current ratio 2006 2007 2008

Toyota 1,00 1,01 1,07

Ford 2,28 2,32 1,33

Liquidity ratios (2)Quick ratio 2006 2007 2008

Toyota 0,80 0,82 0,87 Ford 2,13 2,19 1,25

Debt ratioDebt ratio 2006 2007 2008

Toyota 0,62 0,61 0,64 Ford 0,62 0,60 0,71

Turnover ratios (1)Receivables (A/R) turnover ratio 2006 2007 2008

Toyota 32,14 29,59 26,15 Ford 15,89 17,14 14,95

Turnover ratios (2)

Inventory turnover ratio 2006 2007 2008 Toyota 13,21 14,79 11,80 Ford 13,60 13,20 13,80

Turnover ratios (3)

Asset turvover ratio 2006 2007 2008 Toyota 0,70 0,76 0,66 Ford 0,57 0,62 0,67

Profitability ratios (1)

Net profit margin 2006 2007 2008 Toyota 0,07 0,06 -0,03 Ford -0,08 -0,01 -0,10

Profitability ratios (2)

ROA 2006 2007 2008 Toyota 0.05 0.05 -0.02 Ford -0.05 -0.01 -0.06

Profitability ratios (3)ROE 2006 2007 2008

Toyota 0.14 0.14 -0.04 Ford 0.00 -2.52 0.00

Market value ratios (1)

Earnings per share 2006 2007 2008 Toyota 4.34 5.40 -1.42 Ford -6.46 -1.38 -6.72

Market value ratios (2)

Price/Earnings ratio 2006 2007 2008 Toyota 29.94 18.68 -44.58 Ford -1.16 -4.86 -0.34

Market value ratios (3)Dividend yield 2006 2007 2008

Toyota 0,01 0,01 0,02 Ford 0,11 0 0

Cash flow analysis

FORD TOYOTA Operating Investing Financing Operating Investing Financing

2006 + - + + - - 2007 + - - + - - 2008 - - - - - -

SWOT analysis

FORD

Strengths

Hybrid technology

Well-known brand in the USA

Weaknesses:

Weak sales results

Inability to accommodate products

to changes on the market

Opportunities:

Promotion of ecology-friendly cars

Appeal of a national brand in crisis

Threaths:

Further evolution of the crisis

TOYOTA

Strengths

Hybrid technology

Ability to cope in crisis

Weaknesses:

Lack of protection against changes

in prices and demand

Opportunities:

Promotion of economical and

ecology-friendly cards

In crisis, lesser importance of

competitors

Threaths:

Rapid increase of material costs or

decrease in supply

Thank you for your attention