Toyota: Analyzing the Non Controllable Economic Environment of an International Operating Company
International Economic Environment Toyota Motor Corporation Group paper Analysing the non-controllable economic environment of an international operating company Date of publication: 16-02-2012 Group 16 Lennart Bayer Rick Cobussen Yixing Gai Marieke Martens Table of Contents Business cycle sensitivity4 Figures from Toyota4 Quotations from the annual reports (2005-2011)5 Actual figures of aggregated demand5 Gross Domestic Product6 Consumption7 Consumer confidence9 Overall Market Demand10 Exchange rate sensitivity11 Cost of production sensitivity16 Wage development compared to turnover growth16 Wage development compared to price increase. 6 Wage development and wage per unit17 How important are commodity prices? 17 Monetary Policy20 Investments20 Fiscal policy22 Governmental expenses22 International Trade23 Export-Import23 Conclusion26 References27 Update: Bank of Japan stimulus to boost growth The Bank of Japan (BOJ) has made a surprise move to boost growth as the country’s economy continues to struggle. The central bank has announced it is to expand its asset purchase program by 10tn yen ($130bn; ? 83bn). The move comes just a day after data showed that Japan’s economy shrank by more-than-expected 2. 3% in the last three months of 2011.
The BOJ also left rates unchanged at between zero and 0. 1%. The central bank said it will use the extra funds to purchase Japanese government bonds. “The Bank will pursue powerful monetary easing by conducting its virtually zero interest rate policy and by implementing the Asset Purchase Program mainly through the purchase of financial assets,” the bank said. ‘Risky assets’ The announcement was greeted positively by the markets with the Japanese currency falling by as much as 0. 4% to 77. 96 yen against the US Dollar. The yen has been near record highs recently which has severely hindered Japan’s export-led economy. High uncertainty’ The Japanese economy has been hurt by various factors over the past few months. At the same time, demand for Japanese goods has fallen in some of its biggest markets such as the eurozone, not least due to the economic issues in the region. The country’s businesses have also been hurt by a strong yen, which makes Japanese goods less competitive.  Business cycle sensitivity In this chapter we are going to analyze the external economic factors that are directly related to the business cycle. We focus on to specific time frames; economic boom period (20004-2008) and the economic crisis (2009-2011).
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Figures from Toyota From 2004 onwards to 2008 was a booming period for Toyota, an increase of net revenue of 65,8%, to ? 26,289. 2 billion in 5 years. Fiscal 2009, ended March 31, 2009, was an extremely difficult period for Toyota. On a consolidated basis, vehicles sales were down 1,346,000 units, to 7,567,000 units, and net revenues declined 21. 9%, to ? 20,529. 5 billion. On top of that, the Net Income resulted in a loss of ? -436. 9 billion. In 2010 there was still a decline in net revenue of ? 1,578. 6 billion, to ? 18,951 billion. The net income however increased to a positive ? 209. 5 billion.
In 2011 the revenue started to increase again, to ? 18,993. 7 billion and the net income almost doubled to ? 408. 2 billion. Below, in the graph ‘Toyota Consolidated Vehicle Sales’ is the units’ sales per region visible. [i] [pic] Below, in the graph ‘Consolidated Performance (U. S. GAAP)’ is the revenue, operating income and net income visible. [ii] [pic] Quotations from the annual reports (2005-2011) From 2005 until 2008 there are less economic environmental factors mentioned in the annual reports. The only aspect that is mentioned is that the demand in Japan, North America and Europe is very important.
Furthermore, Toyota states that the demand is highly related to the economic conditions in these markets. Started in 2009, the ‘global economic downturn’, ‘economic stemming’, ‘weak global economy’ or ‘financial crisis’ were mentioned until 2011. Mainly Toyota’s main markets, Japan, North America and Europe, were significantly troubled by the economic crises. [iii] Actual figures of aggregated demand Based upon the topics mentioned in the annual report, we are going to compare the economic factors mentioned by Toyota’s to the actual figures. The following figures are analyzed: Gross Domestic Product • Consumption • Consumer Confidence • Overall Market Demand Gross Domestic Product The Gross Domestic Product (GDP) refers to the market value of all final goods and services produced within a country in a given period. The GDP gives information on the value of products, which is determined by the demand and the related price of products. [iv] [v] [vi] [pic] As can be seen in the graph, there is an increase throughout the 8 years. However, in 2009 there is a slight decrease in the GDP for all 3 regions. This could partly indicate the decrease in unit sales and revenue.
Underneath, the four objectives that are linked with the aggregate demand are analyzed. When comparing these figures with the unit sales of Toyota in these countries, we found a relation between the GDP and sales of Toyota, see below. [pic] [pic] [pic] When the GDP is increasing, the unit sales increase as well. In fact, the unit sales in the United States and the European Union increase with a higher percentage compared to the GDP. When the GDP growth stabilizes, in 2008, so do the sales. However, at the moment the GDP decreases the units’ sales of Toyota decrease as well, again with a higher percentage in all three markets.
This could indicate that when the GDP decreases in 2009, the units sold by Toyota decreased as well. Therefore we can conclude that there is a relationship between the GDP of these markets and the units’ sales in these markets. Consumption The household final consumption expenditure gives insight on the amount each household has to spend on average each year. Obviously, when the expenditure decreases, on average, each household spends less and buys fewer products. [vii] [pic] As can be seen in the graph, the final consumption expenditure of household has increase during these 7 years.
However, just as with the GDP, in 2009 there was a decrease in all 3 areas of expenditure. When comparing these figures with the unit sales of Toyota in these countries, we found a relationship between the consumer spending and sales of Toyota, which can be seen in the graphs below. [pic][pic][pic] These figures show almost the same as the GDP and Units Sales. When the household expenditure is increasing, the unit sales increase as well. In fact, the unit sales in the United States and the European Union increase with a higher percentage compared to the household expenditure.
When the household expenditure growth stabilizes, in 2008, so do the sales. However, at the moment the household expenditure decreases the units’ sales of Toyota decrease as well, again with a higher percentage in all three markets. This could explain that because of the household expenditure decrease in 2009, the units sold by Toyota decreased as well. In the annual reports from 2004 till 2008, Toyota is concerned about the demand that could change in each market due to a change in economic conditions in the markets Toyota operates: ‘The markets in which Toyota competes have been subject to considerable volatility in demand in each market.
Demand for automobile sales depends to a large extent on general, social, political and economic conditions in a given market and the introduction of new vehicles and technologies. As Toyota’s revenues are derived from sales in markets worldwide such as Japan, North America and Europe, economic conditions in these countries and regions are particularly important to Toyota. ‘ Toyota mentions the change is customer demand in their annual report of 2009: ‘Each of the markets in which Toyota competes has been subject to considerable volatility in demand.
Demand for vehicles depends to a large extent on social, political and economic conditions in a given market and the introduction of new vehicles and technologies. As Toyota’s revenues are derived from sales in markets worldwide, economic conditions in such markets are particularly important to Toyota. In reflection of the worldwide deterioration in the economy stemming from the financial crisis, the demand for automobiles in Japan, North America and Europe, which are Toyota’s main markets, declined substantially particularly since the latter half of 2008, adversely affecting Toyota. Consumer confidence
Consumer confidence can be defined as the degree of optimism that consumers are expressing for the state of the economy, their saving and spending activity. [viii] [ix] [x] [pic][pic][pic] When the customer confidence is increasing, the unit sales increase as well. In fact, the unit sales in the United States and the European Union increase with a higher percentage compared to the household consumer confidence. When the consumer confidence growth stabilizes, in 2008, so do the sales. However, at the moment the consumer confidence decreases the units’ sales of Toyota decrease as well, with a lower percentage in all three markets.
This could explain that because of the consumer confidence decrease in 2009, the units sold by Toyota decreased as well. Therefore we can conclude that there is a relationship between the consumer confidence of these markets and the units’ sales in these markets. Overall Market Demand When comparing the figures of consumption, demand of Toyota and the demand of the auto industry in several areas. The market demand explains what the total demand of cars was in several countries for from 2004 until 2010. [xi] [pic]
As mentioned above with consumption, the consumption and therefore the demand of Toyota decrease. The decrease of demand is also noticeable in the overall demand of the industry. In the graph above is clearly visible that the demand of cars in the United States and Europe decreases in 2008 and 2009. This proves the decrease of demand for Toyota and therefore the related decrease in units sold and revenue When the GDP, household expenditure, or consumer confidence decreases, the demand of products decreases as well. As a result of that, the prices of these products will decrease as well.
See the graph on the left; when the demand decreases (from D0 to D1, shift to the left), the price equilibrium will go down (from A to B). Due to the lower equilibrium, both the price per product (revenue) as well as the quantity (units sold) decreases. It can conclude that Toyota is highly sensitive with respect to the GDP, consumption expenditure of households, and consumer confidence. Exchange rate sensitivity Within the Annual Report of TOYOTA 2010, it is indicated that TOYOTA is exchange rate sensitive due to the foreign exchange rate fluctuation between Japanese Yen and other local currencies, such as U.
S. dollar, Euro and Chinese Yuan. [pic] According to the figures from TOYOTA (TOYOTA Annual Report 2010, Page 31), within 2010, only 29. 9% of its vehicle sales are in their native country of Japan, which means 70% of its total vehicle sales are outside Japan. Additionally, due to the fact that the entire turnover from vehicles sale outside Japan are accounted in local currencies and eventually exchanged into Japanese Yen. Therefore, any exchange rate fluctuation between Japanese Yen and the local currencies will have a direct impact on Toyota’s total turnover. [pic]
Furthermore, besides turnover from foreign regions, the export of products is another vital aspect how exchange rates influence TOYOTA, because not all of its products are produced locally. There are certain amount of products need to be export to other regions outside Japan. [pic] The chart above shows the exchange rate between USD and JPY from 2005 to 2011, as can been seen that the USD has appreciated to the highest point at 122. 62 YEN per USD in January 2007. After that, the USD has started to depreciate since second half of 2007 until now with the exchange rate of 77. 83 YEN per USD.
USD dramatically depreciated more than 35% against YEN for the last 4 years. [pic] The chart above shows the exchange rate between EUR and JPY from 2005 to 2011, as can been seen that the EUR kept appreciating until 2008 and reached the highest point at 168. 48 YEN per EUR. However, it has suddenly dropped sharply from the highest point to 118. 24 YEN per EUR within one year. The reason why it depreciated sharply is believed as due to the global financial crisis in 2008. After several fluctuations during the last three years, the exchange rate is currently at the point of 102. 62 YEN per EUR. pic] The chart above is the amount of vehicle production and sales by region of TOYOTA from 2001 to 2010. By comparing it with the exchange rate data above, interesting results can be found that the linear relations of Toyota’s regional sales and exchange rate between JPY and local currencies are matching with each other. For example, the USD/JPY exchange rate reached the highest point in 2007 when Toyota’s vehicle sales in North America also reached the top spot. Since then, the USD kept depreciating against JPY when Toyota’s vehicle sales in North America followed the same track. pic] [pic] The two charts above clearly shows the fact that Toyota’s regional sales in both Europe and North America market have almost the same linear relations with the exchange rate against JPY. Therefore, we could declare that TOYOTA is exchange rate sensitive due to the fact that the exchange has certain impact on the local market vehicle sales of TOYOTA. Furthermore, the reason why the exchange rate can influence the Sales of TOYOTA is that the purchasing power of USD or EUR decreases when USD or EUR depreciate against JPY.
As the result of it, Toyota’s vehicles become relatively more expensive due to the fact that the vehicles are imported from Japan. Therefore, customers will choose to buy the cheaper locally produced vehicles instead of Toyota’s imported ones. [pic] On the other hands, by comparing the interest rate index of U. S, European Union and Japan from 2007 to 2011, the result shows that the interest rate index of U. S dramatically went down since 2007 until 2009 and stayed at a nearly zero point since 2009 until now. Secondly, the interest rate index also dropped since 2008 due to the financial crisis, but not as dramatically as the U.
S. Thirdly, comparing with U. S and EU, the interest rate index of Japan are relatively high than both the U. S and EU, even though it also followed the trend since 2008. Therefore, in conclusion, TOYOTA is very exchange rate sensitive, because the change of interest rate index of these three regions results the currency depreciation of both USD and EUR against JPY. The government of U. S and EU planned to use this method in order to make JPY appreciated, which indirectly make Toyota’s vehicles exported from Japan are relatively more expensive than the locally produced vehicles, such as the products of GM, Ford, Citroen and Volkswagen.
The government of U. S and EU want to support their local automotive industry in order to have lower unemployed rate, because automotive industry could potentially create huge amount of employee positions. Toyota’s sales have decreased since 2007 until now due to the impact of the intended lowering interest rate by the U. S and EU governments, because the lowering interest rate will cause less capital inflow into the U. S market, which will make the value of USD decreasing. Cost of production sensitivity In the following section of the report Toyota will be analyzed thoroughly on its sensitivity.
This sensitivity will be tested with respect to wages and commodity prices. Wage development compared to turnover growth In the annual reports and on the Internet there was no information available about the amount of money spent on the wages of the Toyota employees. Therefore we have chosen for the cost of products sold representing the wages. To represent the turnover we have used the ‘sales of products’ of Toyota. [pic] Most of the Toyota employees work in the manufacturing process of the cars. The Manufacturing employees are very dedicated to their work and feel proud to work for Toyota.
Unfortunately Toyota made its first loss in 2009 (for the first time in years) and as a result of that multiple employees had to be fired or salaries had to be lowered in order to cope with the lower revenues. The graph above shows what happened to the wage development and turnover. When Turnover went down then wage development also decreased. Wage development compared to price increase. Toyota is well known for targeting every segment within the automotive industry. In the US prices of cars (without options) range between $14. 115 and $68. 20 and in Germany the price of a car (no options) ranges between €12. 050 and €87. 900[? ]. In the lower price segment, the rice of a Toyota is seen as a competitive advantage. Therefore it will not be so easy for Toyota to increase prices in the lower price segment. No specific number of the price development was available in any of the annual reports. In order to calculate the price development we have divided the sale of products by the total amount of cars sold. [pic] In the graphs above it can be seen that the wages and the prices of the cars increased until 2008.
When in 2009 the wages decreased also the prices decreased. The graphs prove that Toyota is able to increase its prices when costs are increasing. Wage development and wage per unit No sufficient information available to determine the wage per unit. How important are commodity prices? Toyota is facing intense competition from various car manufacturers in different geographical segments in which it operates. Competition is likely to increase further and will put additional pressure on Toyota to adequately respond to fluctuating and evolving customer demand in the automotive market.
In order to maintain its competitiveness it will have to continuously invest in research and development to secure future success in existing and new markets. Toyota is adversely affected by changing market conditions and the weakness in demand. A decline in demand in the automotive market may also affect other directly related factors such as the prices of raw material and components for assembly. Fluctuating demand will lead to lower unit sales and therefore the price of Toyota cars is expected to decline significantly.
Furthermore, the cost of production will continue to rise and will diminish margins and adversely affect Toyota’s financial results. Since raw materials, parts and components represent a significant share of Toyota’s operations, any price increase in steel, metal, aluminum and plastics will cause production costs to increase and herewith negatively impacting Toyota’s future profitability. The chart below is visualizing the total sales revenue development of Toyota, including the cost of goods sold. As can be clearly noticed from the graph, the period after 2007 is downward sloping, meaning a negative sales growth.
The overall downfall in demand for cars is due to the stressed economic conditions, as explained earlier in this report. The difference between the red and blue line represents the margin, which is clearly minimized during the previous years. [? ] [pic] The total cost of production, as stated in the income statement of Toyota, is for a major part determined by the price level of commodities. Commodities such as metals form the basis of raw materials required to produce parts for assembly. Suppliers of Toyota, producing those parts, are experiencing higher prices which they have to incorporate in their sales price accordingly.
As a result, Toyota is negatively impacted due to a decrease in margin. Given the strong decrease in demand and thus unit sales for Toyota, and continuing relatively high fixed costs, the percentage of COGS increased from around 81% on average to 90% of total sales revenue. In comparing above charts, a significant relationship is noticed. From the beginning of 2009 there is a strong increase in commodity prices according to the index. As a result of increased prices for raw materials, the costs of goods sold are directly negatively impacted.
In order for Toyota to secure a healthy financial position in the future, they will either review their pricing models and make adjustments accordingly, or continuously work on the cost structure or a mixture of both. Cost reduction is critical in business, especially in tense economic situations like we are in today. Being able to reduce costs at any point in time provides a competitive advantage, as the company will be better able to secure margins in order to invest in research and development to remain successful in the future. Due to cost reduction efforts by Toyota, they have managed to reduce operating costs by ? 80. 0 billion. Although, the price of raw materials experienced an upward trend during the fiscal year of 2011, savings were achieved by maintain close relationships with suppliers and continuous reengineering to reduce the production costs per vehicle. By maintaining low stock levels and optimal ordering quantities, Toyota is not involved in using derivative instruments to hedge price risks of commodity prices. [? ][? ][? ] Monetary Policy Investments Investments by banks or other financial institutions are needed for companies to expand, become more efficient, develop new products and innovate.
There are four major determinants of investment. The consumer demand is already explained above, which is decreasing. The expectations about future market conditions are uncertain; firms rely on these expectations when investing. Figures on the cost and efficiency of capital cannot be provided. The rate of interest will directly influence the profitability of an investment. The higher the rate of interest, the more expensive it will be for firms to finance investment. [? ] [? ] [? ] [pic] In the graph above are the interest rates of the major markets of Toyota visible.
The interest rates are decreasing starting in 2008 for the United States and in 2009 for the European Union and Japan. This should indicate that the cost of borrowing is decreased. [pic] When comparing the interest rates with the interest expense of Toyota no direct linkage can be found. However, in the annual report is stated if in that particularly fiscal year more or less borrowings are made. In 2006 fewer borrowings were made which explains why the total interest expense increased less compared to the overall increase of the interest rates.
In 2007, not only the interest rate increased in all 3 areas, Toyota also borrowed a significant amount of funds for expansion in the United States. Although the interest rates decreased in 2009, the total interest expense was still high due to higher borrowings and the payments of the borrowing of the huge borrowings of 2007 (see quotation of annual report 2009. In 2010 and 2011, the total interest expense decreased as the interest rates stayed low in all 3 areas. If the interest rates decreases and the interest expense relatively decreases as well the cost per unit sold will decrease as well.
There are two options that possible for Toyota; they can keep their sales price per units the same or they can decrease their sales price per unit. When they keep their sales price on average the same, they will directly increase their profits (keeping all other factors unchanged). On the left side the costs per total costs per unit decreases (from CPU0 to CPU1). It is obviously that the profit percentage increases (keeping all other factors unchanged). When Toyota would decrease their price, the demand will increase. On the right side, Toyota decreases the price (from P0 to P1, movement along the supply curve, point B to point C).
In can be seen that the demand for Toyota will increase (from Q0 to Q1, point B to point A), however, Toyota has to increase their production to meet the demand (shift in supply from S0 to S1), again keeping all other factors the same. Quotations of the annual report 2009 regarding increase in interest expense: ‘In fiscal 2009, there was an operating loss of ? 72. 0 billion in financial services operations because of the global economic downturn. The increase in the outstanding loan balance and improvement in the lending margin contributed to our earnings.
However, our earnings were reduced significantly overall due to an increase in allowance for credit and residual value losses in our finance services subsidiaries. ‘ ‘The world economy continues to be weak and business conditions remain difficult. A number of financial institutions and investors have been facing difficulties providing capital to the financial markets at levels corresponding to their own financial capacity. As a result, there is a risk that companies may not be able to raise capital under terms that they would expect to receive with their creditworthiness.
If Toyota is unable to raise the necessary capital under appropriate conditions on a timely basis, Toyota’s financial condition and results of operations may be adversely affected. ‘ It therefore can be concluded that the interest rate has a direct impact on the cost and earnings of Toyota. This results in Toyota being sensitive for interest rates and investments. Fiscal policy Governmental expenses A government spends money on goods and services. These costs are seen as a part of the demand for firms’ output. When governments increase their spending so could also the demand of products and services increase. [? ] [? ] [? ] pic][pic][pic] As can be seen above, that all the governments increase there governmental expenses untill 2009. In 2010 the governments decrease their expenses. In 2011 however, the 3 governments have different expenditures, the United States expenses stayed relatively the same, the European Union increased their expenses and Japan decreased their expenses compared to the prior year. When comparing theses figures to the demand of Toyota, some relationship can be seen between the governement expenses and the unit sales of Totoya. When the expenses of the governments increase untill 2009 the unit sales of Toyota increase untill 2008.
In 2010, the governemental expenses as well as the unit sales decrease. In the annual report of 2010, Toyota mentioned the government expenses and the effors to increase demand on the eares, see below. Although these efforts the demand didnot increase for Toyota. ‘During fiscal 2010, despite government efforts to stimulate demand in Japan, North America and Europe, which are Toyota’s main markets, market condition in those areas remained difficult, and Toyota was adversely affected by changes in the market structure with further shifts in consumer demand to compact and low-priced vehicles. Therefore it can concluded that Toyota is not highly sensitive with respect to the government expenses. International Trade Export-Import Money flows into the circular flow from abroad when residents abroad when residents abroad buy our exports of goods and services. On the other hand, not all consumption is of totally home-produced goods. Households spend some of their incomes on imported goods and services, or on goods and services using imported components. This money will find its way abroad and and therefore leave the curcular flow of income.
When the export increases relatively to the import, more money flows into the circular flow of income. Resulting in a higher aggregate demand (total spending on goods and services made within the country). Below you will see the export of goods and sevices als well as the import of goods and services of the three main markets of Toyota. [? ] [pic][pic] As can be seen in the graphs above, there is a relationship between exports and imports. Both graphs show an increase for all 3 markets from 2004 until 2008. In 2009, the export as well as the import decreased for these 3 markets.
When comparing these figures to the figures of Toyota, the same relation can be seen. In 2009 (after a 5 year increase of exports, imports and growth of Toyota), the exports, imports and the units’ sales and revenue of Toyota go down. Below the differences between the export and import can be seen. These differences increase when there is more export relatively to the imports, meaning more money comes in than goes out compared to the previous year. [pic] [pic] [pic] Japan has more exports compared to their imports, resulting in a positive number above.
The United States and European Union have more Imports compared to their Export. In the United States, the difference was stable from 2004 until 2008 between -0. 6 and -0. 8 billion Dollars. However, in 2009 the difference decreases enormously to less than -0. 4 billion Dollars due to higher exports relatively to their imports, meaning, more money went into their circular flow of income. The European Union had a decrease in difference between export and import, which entails that there was money flowing out of the circular flow of income. In 2009 however, this difference decrease from -6. 65 to -5. 1 billion dollars meaning an increase of export compared to their imports resulting in an increase of aggregate demand (leaving all other factors constant). Japan is the only main market of Toyota where the difference between export and import increased during the period of 2004-2008. In 2009, this difference decreases meaning that lesser amounts of money were spend on Japanese products and services compared to the amount the Japanese spend on products and services from abroad. For Japan this means a lower aggregate demand and therefore a lower demand in demand. Comparing this to figures of Toyota.
In the United States and the European Union around 50% of the Toyota cars sold are made in the same countries. This means that the other 50% has to be imported from Japan. Japan is the only country where Toyota makes more cars than they sell, which means that a sufficient amount of cars are exported to countries such as the United States and the European Union. The figures of Toyota say the opposite, although the figures of the United States and European Union indicate more cars could be imported and the figures of Japan indicate more cars could be exported to these countries.
Toyota still had an enormous decrease of unit sales in 2009. When going more into detail regarding these numbers, there is a gap between the United States and the European Union going down that the amount that Japan is going up. The decrease in the difference of these two markets cannot be compensated by the increase of the Japanese market. A reason could be that the United States and the European Union got more export from other countries than Japan compared to previous years. The shift of export from Japan to other countries could influence the demand of Toyota negatively.
If the demand decrease (shift in demand to the left, from D0 to D1), the price equilibrium will go down (from A to B). Due to the lower equilibrium, both the price per product (revenue) as well as the quantity (units sold) decreases. When the demand of Toyota cars goes down in Japan, fewer units are sold and less revenue comes in. Quotation of Toyota’s annual report 2009: ‘The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution.
Many governments also impose tariffs and other trade barriers, taxes and levies, and enact price or exchange controls. Toyota has incurred, and expects to incur in the future, significant costs in complying with these regulations. New legislations or changes in existing legislation may also subject Toyota to additional expenses in the future. ‘ ‘Competition has intensified amidst difficult overall market conditions due to the weak global economy. In addition, competition is likely to further intensify in light of continuing globalization in the worldwide automotive industry. It can therefore be concluded that Toyota is sensitive with regards to the export and import in their main markets. Conclusion Toyota is influenced by the economic environment that they are in. There can be relations seen between the consumption expenditure of households and the units sold and revenue incurred by Toyota. When the consumption expenditure decrease so do the units sold and revenue of Toyota. Second relation that can be seen is between the interest rate and earnings of Toyota. When the interest rates decreases, Toyota has less interest costs.
With respect to the cost of production of Toyota it can be concluded that they are highly sensitive to price developments. Commodity prices represent a major part of the total cost of production. Toyota is sensitive since they are unable to forward their increased costs on to the customer by charging a higher sales price. As a result of this, Toyota is negatively impacted by increased prices for raw materials and margins are decreased resulting in a lower operating income. The final relation is between the export and import, when the United States and the European Union export relatively less than import, Toyota’s sales and revenue decrease.