Tuesday, August 14, 2007

Summer Commentary #2

This article is remarking on Toyota’s strong performance in the global automobile market. It notes the different reasons for this strong performance and comments how the performance has been so strong over not only the past months but over the past few years has led to Toyota replacing GM as the dominant global automaker force.
The article then ties its title to the body by connecting the strong performance with Toyota’s desire to expand its business into emerging economies such as Russia and China.

Toyota has had much success in the past few months for a few reasons.
1. Increased pump prices around the world has increased the popularity of Toyota cars. Pump prices (gasoline) is a complement of an automobile. Thus, when the price of gas goes up, the demand for automobiles decreases. However, since Toyota’s cars are high-mileage (that is, little gas for many miles). Therefore, Toyota’s cars are marginally more popular because they are marginally more efficient.
2. Reminiscent of the Yuan-Dollar conflict, Detroit automakers (Big Three – GM, Ford and Chrystler), are working themselves up because of the weak Yen. They are claiming that the weakening Yen as compared to the Dollar is making Toyota’s exports cheaper in the States.

In the face of climate change, where China and Russia are slowly but surely becoming more conscious of their environment, Toyota’s efficient cars (the new Hybrid Prius, for example) are becoming more attractive choices. True that these cars are more expensive, but the very reason that Toyota wants to expand into these countries is because of their growing middle class. It also seems that Toyota might have an edge over the competition with the currency. The weakening Yen would make Japanese cars such as Toyota marginally cheaper than American cars such as GM or European cars such as Audi or Fiat.

In light of emerging auto-markets, where Toyota has the potential to tap a new middle class, it is only natural that they would try and expand. Considering the factors discussed in this analysis, I believe that they will be successful therein.

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