Thursday, July 30, 2009

Is Toyota Really in the Red?

Do any of you find it difficult to comprehend how Toyota is in the red? Just last year Toyota was bathing in billions of dollars of profit. How could things turn around so quickly, and is it true? Surely you can't go from earning billions to losing them?

Well the truth is you can, and it happened. Here are the main points; simplified.

Firstly, lets make Toyota's sales 100.

- In 2007, Toyota's cost of sales was 80. Take out overheads and R&D and its profits were 6.5 (ie. sales to profit ration of 6.5%)

- Where were the bulk of profits made? A: Mainly in the US, and definately not in Japan

- In 2008, Toyota's cost of sales rose to 89. Keep overheads and R&D constant, and what does that do to profits? A: 6.5- 9 = - 2.5

- What did Toyota report as its profit ration in 2008? A: - 2.2%; the difference between 2.5 and 2.2 being 0.3, which is the costs Toyota managed to cut in a frenzy towards the end of last year.

- So, why did cost of sales rise to be 9 more than in 2007? Well, bunch of reasons;

1. Rising cost of materials in 2008 (they did drop off later in the year)
2. Huge cost of making cars and holding stock in the US that couldn't be sold (and still isn't)
3. Huge drop in the exchange rate; Japanese yen strengthening against the dollar
4. Huge fixed cost of plants that couldn't be reduced, as sales in Japan, the US and the rest of world dropped dramastically

- In summary, Toyota was basically far too dependant on profits driven from their US businesses, and when the floor dropped out of the market in the US, out the window went all their profits.

So there you are, Toyota is now said to be operating at about 50% or less of its capacity. The share cost of holding onto that other 50% of capacity that isn't being used is HUGE, and is likely to drive Toyota into the red again this year.

There is talk about what Toyota will do with "NUMMI" the plant they shared with GM, now that GM have pulled out. Will they hold onto it? Well, I don't think they can; they have far too much capacity and fixed costs, so NUMMI is going to get the boot.

Finally, and something that dispells a bit of a myth; Toyota has a bunch of debt to finance. We all hear about Toyota and its rich cash reserves, but if you take a close look at their balance sheet, the car financing they do at Toyota Finance leaves them with a very large amount of debt on their books!

But, they are still a great company!!

Sunday, July 26, 2009

Economy Predictions

Rental housing in Tokyo or Nagoya? Serviced Apartments in Nagoya? Relocation in Tokyo and Nagoya? Car / Furniture Leasing and Purchase in Tokyo or Nagoya? http://www.japanhomesearch.com/ and http://www.relojapan.com/. We want to help you in Japan!

Jesper Koll came and spoke in Nagoya a week or so ago, and his basic account of things is that Japan will be fine into the future. Jesper points out the share amount of R&D that Japanese companies do, are doing and will continue to do compared to other countries of the world. Koll believes that this will hold Japan strong into the future. The general indication was that things will be tough for another 12 months, but that things would begin to fall into place again after this.
What was very evident from Kolls presentation, the same message that I have heard from other Japanese economists / university professors in the past week, is Japan's dependence on exports. Demand internally in Japan is simply something that, even with a good economy, does not paint a pretty picture; less population, smaller workforce, growing ratio of senior citizens etc. I would also point my finger at the Japanese education system; there are less kids in Japan now, but are they receiving the correct education for the future ahead?

All good companies in Japan are going to need to turn to the rest of the world to drive their profits and grow their market share into the future. Japan's self sufficiency rate is down in the 40 percentile. For foreigners in Japan, this is a hint of one place to look to in the future. Japanese companies have to continue to be global and to export and they are going to need help doing it.

In terms of a shorter term prediction for the future, I was talking with one of Japan's better known foreign entrpreneurs today, and he indicated that we are not out of the woods yet. Obviously, this only one person's prediction, but he can see the US dollar crashing again before the end of the year, which he mentioned would pull down the sharemarket with it. Obviously, in the short-term this would be very harmful to Japan's exports and therefore the economy we are trying to recover in! Look out for a temporary set back before the end of the year!

Wednesday, July 15, 2009

Where is the economy going?

Rental housing in Tokyo or Nagoya? Serviced Apartments in Nagoya? Relocation in Tokyo and Nagoya? Car / Furniture Leasing and Purchase in Tokyo or Nagoya? http://www.japanhomesearch.com/ and http://www.relojapan.com/. We want to help you in Japan!

I am hearing two different voices out there with regard to Japan and the economy. It is going to be interesting tonight when Jesper Koll comes to Nagoya to share with us his thoughts.

Our clients and many of the people I speak to in the foreign community recently have indicated that things have definately picked up in Japan in the last 2 months. For our housing and relocation business this is also true. However, this is supposed to be our busy period of the year anyway, so I am a little skeptical to believe that we are out of the worst yet. But, things definately are better than they were.

Many are saying that after the Obon Holiday shut down, we are really going to see things start to take off again. I was talking to the head of a recruiting company a week ago, and he commented that while some companies have already begun to recruit again, he felt that many will start recruiting in earnest after getting Obon out of the way.

This all sounds great, but on the other hand we have economists pointing out that the rise in the Japanese stock market index is "artificial" or "inflated" and that the steady increase has no justified foundation or basis. I would point out that alot of it would seem to be more confidence that Japan is getting better, this factor alone being one of the big reasons why Japan's economy has shrunk so much in the last 6 months. Too much media gloom! So, maybe this is "artificial confidence" I am not sure, but when you do take a look around there are alot of things that are still not happening; banks are not lending, companies are still cutting expenses and people where they can, companies continue to go under at the highest rate in 6 years, etc. So I can certainly see why some economists would choose to say we are not out of things yet.

So, which is it? We are out of the worst and after Obon things will take off, or we are not out of the worst and after Obon there is going to be another downturn in the stock market..... Hopefully Jesper Koll will shed some light on things tonight, but I suppose only time will tell.

Free International Dialling!

I have just been introduced to a new phone service called "FLAT TALK". Yes, believe it or not, there is now a phone calling service that you can use to call internationally free. Yes, that is right FREE!

What is more, you require no registration, no up front fee, nothing. All you do have to do is dial a local number, for which you will bear the domestic phone calling charges for the length of the call, listen to a 15 second advertisement, and then your call is put through.

The countries are limited, but growing steadily; USA, China, Hong Kong, Canada, Singapore, UK, with the following countries to be added soon; Thailand, Germany, France, Denmark, Ireland, Australia (Sydney only at this stage) and Russia (Moscow only at this stage).

Some countries do restrict calling to landlines.

The dial in numbers are as follows;
Tokyo 03-4530-6868
Chiba 03-670-6868
Nagoya 052-456-6868
Osaka 06-4560-6868

You simply dial in, listen the 15 second advertisement, dial in the country code and number, and you are on a free call!

Websites and phone calling cards with the information are on their way and will be launched soon!

Try out "FLAT TALK" !!

Rental housing in Tokyo or Nagoya? Serviced Apartments in Nagoya? Relocation in Tokyo and Nagoya? Car / Furniture Leasing and Purchase in Tokyo or Nagoya? http://www.japanhomesearch.com/ and http://www.relojapan.com/. We want to help you in Japan!

Monday, July 6, 2009

Housing Negotiations in Tokyo

When looking at a property, don't just ask about the rent! Ask about what type of contract the owner is offering!

Rental housing in Tokyo or Nagoya? Serviced Apartments in Nagoya? Relocation in Tokyo and Nagoya? Car / Furniture Leasing and Purchase in Tokyo or Nagoya? http://www.japanhomesearch.com/ and http://www.relojapan.com/. We want to help you in Japan!

Over the past 6-months we have witnessed a large part of the Expat Community relocate back to their home lands and home offices. Our Tokyo Office has been flooded with assisting repatriations out of Japan, and we now have many owners in Tokyo begging for the opportunity to show their properties to potential tenants.

Naturally, the rental prices are falling quickly. On average I would say rental prices for properties over 700,000 yen per month have dropped by 20- 30% compared to when Lehman was still around. Yes, that means that there are savings to be found. At http://www.japanhomesearch.com/ we would be happy to assist you find a new house / apartment at a much discounted price per month. We have helped a number of people; rent of JPY 1,500,000 back to JPY 1,200,000 in a new property, rent of JPY 900,000 back to JPY 700,000 in a similar property, etc. There are moving costs and the costs of renovating the previous property and paying the up front fees for new properties. However, when you are saving 200,000, 300,000 or sometimes up to 500,000 yen per month on rent, the cost of moving into a new property is very quickly recovered. Food for thought!

ONE WARNING; There is something you need to be aware of in doing this!! Large savings can be found, but there is a trade off involved in many cases. There is a high potential that you will be asked to sign a fixed term contract.

In Japan residential rental properties are generally offered under one of two types of contract. One is a "Ordinary Contract" (普通契約)and the other is a "Fixed Contract" (定期借家契約). Ordinary contracts are typically 2-years in length and often automatically renew, or sometimes you pay a 1-month renewal fee. Ordinary contracts very much protect the tenant under Japanese Real Estate Law and once a tenant is in the property, owners often have not even a leg to stand on. This is therefore the contract you want to be signing if you are a corporate company signing for your expat tenant in Japan.

The second kind of contract is the "Fixed Term" contract. This is virtually no different to the ordinary contract during the term of the contract, but the big difference is that once the term is up, the contract does not renew. A new contract needs to be signed. Effectively, this means that as the contract finishes, unless the owner wishes to sign a new contract, the tenant doesn't have a foot to stand on. If the owner says "no" to a new contract, they can demand you leave the property.

So, what are owners doing these days in Tokyo. Well, they are offering you 200,000- 500,000 yen off the monthly rent for a "fixed term". ie. they are asking you to sign "Fixed Term Contracts", which means when the 2 or 3 years is up, they can renegotiate with you on a new contract. The tenant is pretty well protected under real estate law for the ordinary contract, so it is difficult to do for this type of contract. However, fixed term contracts are just that. You need a new contract to continue living in the property, and owners have every right to negotiate with you when this happens. They also have every right to say no to a new contract if you don't agree to their terms. Yes, in 2 or 3 years time, they may come back and ask you to pay the extra 200,000- 500,000 yen or more! Just beware!

Owners mayn't be willing to discount rent so much if you are looking to sign an ordinary contract, so the moral of the story is;

When looking at a property, don't just ask about the rent! Ask about what type of contract the owner is offering!