Toyota et Honda : different but strong

Looks like a no-deal
This November, we receive the financial results of Japanese automakers for the first half of their fiscal year, which ends at the end of March. Awaiting of Nissan, which will only be made public this week, we can look at those of Toyota and Honda, which already reveal the unequal exposure of Japanese carmakers to the decline in global demand that is now taking shape.
From this point of view, Toyota impresses by posting increasing volumes, sales and results.
Toyota sold 4.64 million vehicles from April to September, 220,000 more than last year. Its turnover increased by 600 billion yen (almost 5 billion euros), i.e. by 4%, and its operating income by 140 billion yen (1.16 billion euros, +11%). Its operating margin was 8.6% of turnover for the first half of the previous year, compared to 9.2% for the first six months of 2020.
In terms of geographical breakdown, what is most remarkable is that except in South and Central America (-25,000) and Oceania (-16,000), Toyota's sales volumes (including those of Daihatsu and Hino) are growing everywhere: 109,000 more in Japan (two market share points from 43.2% to 45.2%), 35,000 more in North America, 31,000 in Europe, 28,000 in Asia, 19,000 in Africa and 46,000 in the Middle East. Similarly, while Toyota is not as profitable everywhere, its operating income declines only in Asia (from 10.75% to 8.2%). In Japan, it rose from 9.5% to 9.8%, in North America from 2% to 4.2% and in Europe from 3.8% to 4.4%.
This allows Toyota to continue its very generous distribution policy: Toyota announces for the first 6 months of its 2020 financial year a dividend distribution of 279 billion yen and share buybacks of 300 billion yen, which correspond to a 45% distribution rate as a percentage of net income.
This does not deprive the company of its ability to invest and finance its R&D. These expenses remain at 1,450 billion yen (12 billion euros) and 1,100 billion yen (9 billion euros) respectively over the year: compared to, respectively, 3 billion euros and 2.5 billion for Renault, and 2.6 billion and 2.5 billion for PSA, these amounts indicate that the company is acquiring the resources to make its competitive advantage sustainable.
As S. Wilmot puts it in the Wall Street Journal, despite these enviable results and the investment capabilities they provide, Toyota placed great emphasis on the scale of the challenges and the impossibility, even for Toyota, to meet them on its own when presenting its results.
At the same time as the results, a joint venture was announced with China's BYD (for Build Your Dream) to develop joint R&D to design batteries and their production platforms in China. This is a way for Toyota to switch back to the battery-powered electric vehicles required by the Chinese authorities without giving up on controlling these technologies.
This joint venture complements Toyota's existing portfolio of agreements with Panasonic and CATL in this area.
More generally, Toyota's management theorizes this need to open up to the current period under the concept of "Oyaji no Kai", which implies "building alliances" that would complement the traditional, more self-centred Kaizen: the mergers made with Suzuki, Subaru, Mazda or Denso are in line with this perspective.
As we have known for a long time, Honda does not have the same profile as Toyota. Apart from the fact that Honda is also a motorcycle manufacturer, the two manufacturers differ in size and in the distribution of their sales worldwide.
In the first half of this fiscal year, Honda sold 10.019 million motorcycles (648,000 fewer than the previous year) and 2.562 million cars (-11,000).
90% of its motorcycles are sold in Asia. Its cars are primarily sold in Asia excluding Japan (1,094,000 in H1 2020, compared with 1,071,000 in 2019) and, in the first place, in China (788,000 in H1, up 18.7% in a market that fell by 9.6%). Its second largest market is North America: 928,000 cars sold in 6 months (compared to 946,000 last year).
Japan accounts for only 14% of its automotive sales.In terms of turnover, the automobile dominates, generating five times more turnover than the motorcycle. In terms of operating income, things are in balance since, over the last three months for example, the motorcycle operating margin was 15% and the automotive operating margin was 3%. Thus, in terms of profits generated for the whole, motorcycles, cars and financing are at parity.
Honda announced honourable results for the first six months of its financial year, but a fairly sharp decline less due to the decrease in global automotive demand than due to the slowdown in motorcycle markets in Asia.
Honda expects its net profit to fall from 645 billion yen (5.3 billion euros) to 575 billion yen (4.75) over the year.
The forecast refers to what has already been observed over the first six months, the sales declines and unfavourable exchange rate effects linked to the appreciation of the yen could not be offset by cost reduction plans and reduced R&D spending.
At the end of the year, Honda expects motorcycle sales to fall by 450,000 and car sales by 135,000, generating a decline in sales of 5.3%, an operating profit that will fall in the same proportion and a pre-tax profit that will fall by 7.6%. In spite of this, both capital expenditure (440 billion yen or 3.6 billion euros) and R&D expenditure (860 billion yen or 7.1 billion euros) will increase by 13.4% and 39.9% respectively.
Thus, without having the size and geographical dispersion of the risks enjoyed by Toyota, Honda, in a difficult context, maintains, partly thanks to the margins provided by its motorcycle division, results that are certainly lower but very respectable.
On these bases, despite a world automobile production that will be below 5 million this year, Honda is maintaining its rather "solitary" course.
Rather, it has succeeded in the past and complying with a kind of global "standard" requiring everyone to belong to a group that "weighs" 8 to 10 million vehicles cannot be a "one best way".
Toyota has achieved this through its organic growth and has acquired, partly as a result, control of its operations in each market, which largely explains its results. Honda has always maintained a healthy diversification outside the automotive sector and has focused its internationalization efforts on China and North America. This results in greater volatility in Honda's results, but it cannot be argued that one is superior to the other.
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Translated with, corrections by Géry Deffontaines

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