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Federal Reserve Bank of Cleveland
Symposium on Inflation
Chuck Brown
Vice President - Accounting & Finance
Toyota Motor Engineering & Manufacturing North America
May 30th, 2014
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What “pricing” means for Toyota
•
How do we create competitive prices which:
– Reflect the consumer’s idea of value and are based on
marketplace demand
– Support Toyota’s sales goal (volume, product mix, etc.)
– Provide profitability for dealers, sales & marketing
companies, and manufacturing companies & TMC
– Help us to maintain long-term prosperity for all of our
stakeholders
– Are fair to the marketplace and society
2
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Pricing Philosophy Factors
Manufacturers
Consumers
Society
3
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Pricing from the Consumer Point of View
•Tangible Value
– Basic Performance (Horse power, fuel economy, etc..)
– Standard Specifications and Options (A/C, audio,
etc..)
– Size, Utility
•Intangible Value
– Brand (Lexus vs. Toyota)
– Status (S Class vs. E Class)
– Environment (Hybrid, Diesel, etc..)
4
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Price, Profit, & Cost
• Formulas for Profit Generation:
#1: Cost ＋ Profit ＝ Price
(Actual cost） （Required profit）
#2: Price － Cost
（Expected Price)
＝ Profit
(Market price） （Actual cost）
（Profit as a result）
#3: Price － Profit ＝ Cost
（Market price） （Required profit） （Target cost）
5
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Price, Profit, & Cost
• Formulas for Profit Generation:
#1: Cost ＋ Profit ＝ Price
(Actual cost） （Required profit）
#2: Price － Cost
（Expected Price)
＝ Profit
(Market price） （Actual cost）
（Profit as a result）
#3: Price － Profit ＝ Cost
（Market price） （Required profit） （Target cost）
6
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General Price Changes
Automotive companies consider many factors when pricing their product, but
the Market provides very clear feedback on appropriate pricing levels.
Price change vs. previous period
EXAMPLE
OE #1
07MY
+0.5
07 mid-year
+0.5
08MY
+0.3
08 mid-year
+1.1
09MY
+0.8
09 mid-year
OE #2
OE #3
+0.7
OE #6
OE #7
-2.4
-0.6
-0.5
+1.1
+0.3
+1.3
+3.1
-0.1
-1.2
-0.2
-3.3
+0.5
+1.6
+2.2
+2.0
+3.2
+0.9
+1.5
+2.7
-0.1
+1.0
-2.1
+0.1
+0.5
+0.2
+3.7
+3.1
+2.7
+3.0
+0.8
-0.1
-0.1
-0.0
-2.9
-0.2
+0.6
+0.2
+1.6
+0.1
+0.3
+0.0
-
-
OE #5
+0.5
-
+0.3
OE #4
10MY
+0.1
10 mid-year
+1.0
11MY
+0.9
+0.8
+0.1
-0.1
+0.0
+0.0
+0.5
11 mid-year
+2.2
+0.5
+2.4
+0.6
+1.1
+0.8
+0.7
12MY
+0.1
-0.1
+0.4
+0.1
+0.3
-1.2
-0.0
12 mid-year
+0.2
+0.5
+1.6
+0.7
+0.5
+0.6
+0.5
13MY
+0.6
+0.4
+0.9
+0.7
+0.0
+0.3
+0.1
13 mid-year
+0.5
+0.2
7
-1.5
+0.9
+0.8
+0.7
+0.3
-
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Average Transactional Price
Source: PIN
8
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Capacity Utilization
U.S. Straight-Time Capacity and Utilization
13.5
13.0
Capacity (M units)
100%
Utilization
12.9
90%
12.6
80%
12.5
12.0
12.0
11.5
11.5
11.4
11.0
11.0
70%
60%
11.1
50%
10.5
40%
10.0
30%
CY07
CY08
CY09
CY10
Source: IHS Global Insight, TMA Strategic Research
9
CY11
CY12
CY13
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30
Annual Vehicle Sales
30%
Leasing % of Total Volume
25%
20%
15%
21%
22%
10.4
26%
25
22%
17%
14.5
11.6
28%
15.6
16.0
(est.)
20
15
12.8
10
10%
5%
5
0%
0
2009
2010
2011
2012
Source: Edmunds.com for leasing %
10
2013
2014
Millions
Annual Sales Volume & Leasing Trend