COMPARATIVE ANALYSIS: FORD MOTOR COMPANY TOYOTA MOTOR CORP

dr Agata Kocia based on presentation by:

PAWE ORZECHOWSKI, MACIEJ OWIT & 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 fastpaced 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 countrys textile industry Two years later, he founded the company Toyoda Automatic Loom Works Toyody Sakichis 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-90s 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 Fords 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 Toyotas image

in 2009, the company had to withdraw from the market 3.8 million vehicles due to the acceleration system flaw 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 short term:

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 markets mainly 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 hybrid technologies at present, when buying a car you can count on the hybrid tax 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)

Sales (FORD) Sales (TOYOTA) Income from operations (FORD) Income from operations (TOYOTA) Net income (FORD) Net income (TOYOTA) Employment (FORD) Employment (TOYOTA) Total assets (FORD) Total assets (TOYOTA) 2006 143,249 203,874 -7,926 19,058 -12,613 13,996 283 286 279,196 277256 2007 154,379 256,581 8,031 22,159 -2,723 16,766 247 299 279,264 318875 2008 129,166 2081,262 -4,130 -4,674 -14,672 -4,430 213 316 218,328 294627

TOYOTA: production (in 1000s)

North America South America Europe Asia, Africa, Australia Japan

2006 1201 122 623 1081 4684

2007 1205 147 709 1019 5100

2008 1268 150 711 1258 5160

FORD/TOYOTA: sales (in 1000s)

North America (FORD) (TOYOTA) South America (FORD) (TOYOTA) Europe (FORD) (TOYOTA) Asia, Africa, Australia (FORD) (TOYOTA) Japan (TOYOTA) 2006 3051 2556 381 233 1846 1023 589 1384 2364 2007 2890 2943 438 284 1918 1224 535 1361 2273 2008 2329 2958 435 320 1820 1284 464 1559 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 change in 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
forward contracts currency and interest rate options swaps

Instruments used to protect:

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 Toyota Ford 2006 1,00 2,28 2007 1,01 2,32 2008 1,07 1,33

Liquidity ratios (2)

Quick ratio Toyota Ford 2006 0,80 2,13 2007 0,82 2,19 2008 0,87 1,25

Debt ratio
Debt ratio Toyota Ford 2006 0,62 0,62 2007 0,61 0,60 2008 0,64 0,71

Turnover ratios (1)

Receivables (A/R) turnover ratio Toyota Ford 2006 32,14 15,89 2007 29,59 17,14 2008 26,15 14,95

Turnover ratios (2)

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

Turnover ratios (3)

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

Profitability ratios (1)

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

Profitability ratios (2)

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

Profitability ratios (3)

ROE Toyota Ford 2006 0.14 0.00 2007 0.14 -2.52 2008 -0.04 0.00

Market value ratios (1)

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

Market value ratios (2)

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

Market value ratios (3)

Dividend yield Toyota Ford 2006 0,01 0,11 2007 0,01 0 2008 0,02 0

Cash flow analysis

FORD Operating 2006 2007 2008 TOYOTA Operating

Investing

Financing

Investing

Financing

+ + -

+ -

+ + -

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