Profits THAT high – but what will Toyota do with all the money it earned?

Profits THAT high - Picture courtesy Bertel Schmitt

Helped by a strong U.S. market, cost cutting, cautious CAPEX, and a – finally – lower yen, profits of Japanese automakers are up sharply, so much that people already cast desirous eyes on the money pile, and develop ideas on how to spend all that money.

After a series of near-death experiences, brought on by a collapsed overseas market, paired with an obscenely strong yen, Japan’s few export-heavy makers suddenly are in profit heaven. Subaru-maker Fuji Heavy tripled its quarterly operating profit, while Mazda enjoyed a 540 percent profit surge. Less export-dependent automakers report less exhilarating, buy still solid growth.  According to a tally of The Nikkei, Suzuki’s profits were up 37%, those of Mitsubishi Motors rose 65%, Toyota is up 81%, Honda 29%. Only Nissan saw its operating profits shrink by 3%.

The Nikkei expects profits of all seven Japanese carmakers to jump by 50% in the full fiscal, “approaching the pre-Lehman-shock peak.”

The elephant in the bank of course is Toyota, which expects to amass 2.2 trillion yen ($22.2 billion) in operating profits when this fiscal comes to a happy end on March 31, 2014. To put this in relation, Toyota will have made – in one year – an operating profit double of what GM’s bailout finally did cost the taxpayer after many nerve-wracking years.

A lot of people are hoping that TMC will not keep all that money under the futon.

At Wednesday’s earnings press conference, Toyota’s Executive Vice President Nobuyori Kodaira was questioned on what his employer will do with all that money, and he gave an answer that would be surprising outside of Japan. He said that on top of the list of recipients are the taxman, and the people who help making all those cars.

The Japanese government wants both. Its tax take is guaranteed, and “there is tremendous pressure for Toyota” to raise wages. Says The Nikkei:

“One of Japan’s most powerful companies, Toyota has a big influence not only on other companies but also on consumers. Given Toyota’s weight, a wage hike at the company could be the factor that allows the current government to succeed in its fight against deflation.”

Also coveting Toyota’s money are suppliers, who want a reward for their parts, stockholders, who desire higher dividends, even journalists hope to get more at these big events than the customary bottle of water and 2 hours of free WiFi, if – Catch 22 – you manage to get a confirmation email first out of a basement meeting room that is impervious to major cellphone networks.

If you ask me – and nobody will – I would pour a good chunk of the money into R&D and expansion. Toyota has pretty much frozen new factory construction through 2015, while competitors Volkswagen and GM open new factories nearly on a weekly basis. One of the reasons for Volkswagen’s current strength is the fact that it obstinately maintained a 5+ percent on revenues R&D spend, even during the carmageddon of 2008 ff, while multinational carmakers such as GM and Toyota drastically cut back investments into new cars and technologies.