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Breaking Views

Toyota has a tankful of cash

The Japanese automaker's first operating loss may be harsh, but it's still in a lot better shape than its American rivals.

By John Foley, breakingviews.com

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(breakingviews.com) -- Like a Hollywood starlet caught drunk behind the wheel, Toyota's first operating loss looks somehow worse than if it came from a regular car-maker.

For the Japanese producer, the global recession and sharply rising yen ended a record of 70 consecutive years of profitable operations. And with more of a crash than a skid. The company burned through $6.9 billion in the fourth quarter of the year to leave a $4.5 billion full-year loss. Toyota sees worse in store: a 20% slide in revenues in 2010 leading to an $8.5 billion loss.

The jump in the yen, which makes Japanese exports more expensive, cost Toyota (TM) twice what it spent on research and development. And the slump in volumes came too fast and has lasted too long. Auto sales fell 23% in Japan during April compared to a year ago, and 34% in the U.S. As dealers reduced inventories, Toyota's own sales halved in the last quarter.

Still, Toyota is in much better shape than General Motors, which lost $6 billion in the last quarter, and also saw sales cut in two. The Japanese automaker has a full tank of cash. And despite the losses, it added $8 billion to its coffers over the year, ending with $30 billion of cash and quickly-sellable assets on its balance sheet.

Toyota needs to get used to a harsher world. A steadily high yen, global overcapacity and a shrinking Japanese market, where Toyota still gets a quarter of its sales, may force Toyota to break with another tradition - that of never having closed down a plant.

Toyota also needs to find a way to thrive in China, one of few growing markets. Toyota's Chinese sales fell 17% in April, while GM (GM, Fortune 500), which has a bigger presence in popular compact brands, saw a 50% rise.

Toyota has lost its way, but its cash, technology and manufacturing expertise should see it through the crisis. Indeed, if the company can respond with its traditional fervor, it may find its global position is stronger than before. Japan's biggest car-maker is leaking red ink, but not the toxic kind that bathes the streets of Detroit. To top of page

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