Toyota nears $40B cash reserve as calls grow for new investment, payouts

Wed, 05 Feb 2014

With the April 15 tax deadline just a few months away, our US readers will be faced with a decision should they get a refund: save or spend? It seems this issue is one many of us face whenever there's a windfall, trying to decide whether we should set the money aside in an account of some sort or use it as a down payment on a new car or a trip to the Apple store. Unsurprisingly, major corporations face a similar, albeit more complex, issue.

Take Toyota, for example. With President Akio Toyoda at the helm, the Japanese manufacturer has gracefully weathered recalls and natural disasters, all while turning beaucoup profits. Last quarter, profits quintupled to 434.4-billion yen ($4.3-billion USD), according to Bloomberg. Toyota also upped its forecast for the end of fiscal year 2013 (which ends on March 31 for Japan), to a record 1.9-trillion yen (about $18.8 billion). Now, the Japanese brand is reportedly sitting on a cash pile of nearly $40 billion, leaving Toyoda-san in an envious predicament – what should the company do with all that money?

Some think Toyota should be doing something, anything with that big stack of cash.

Some think Toyota (and Toyoda) should be doing something, anything with that big stack of cash. "Capital efficiency is not improving as fast as the fundamental improvement of Toyota," Takaki Nakanishi, founder of Nakanishi Research Institute in Tokyo, told The Detroit News. "So I am not happy, but that's how Toyota is." Nakanishi advocates either investments in existing facilities or construction of new factories, as well as dividend payments or stock buybacks.

According to The Detroit News, Toyota has already said it will pay up to 30 percent of its income in dividends, and that new factory construction has been paused until 2015. "Our fundamental approach to production is to build cars where the demand is," said Shino Yamada, a Toyota spokeswoman. "Based on this idea, we are working to maximize the utilization and productivity of existing plants and facilities."

Part of the push to spend money is the belief among analysts that Toyota is lagging behind in production capacity, particularly in China, where it's faced anti-Japanese resentment that dates back to World War II. According to the report, Toyota only plans to increase Chinese capacity to 990,000 units by 2015. Volkswagen, meanwhile, is investing $19 billion in China, while General Motors is targeting an $11 billion investment, allowing both brands to produce millions of vehicles.

By Brandon Turkus