Toyota's Five-year Plan (TM, F, GM, HMC)

Toyota Motor Corp. (NYSE: TM) has just recovered from a year that could have sunk lesser companies.  Mere survival, though, is not Toyota’s goal. The company’s president and grandson of Toyota’s founder, Akio Toyoda, plans to nearly double the company’s operating profit margin from 2.9% in 2010 to 5% “as soon as possible.” That will be a tall order, even for Toyota.

According to a presentation available on Toyota’s global website, the company sold 7.29 million units in its 2010 fiscal year and expects to sell 7.53 million units in the 2011 fiscal year, which ends in March. Toyota’s plan is to sell 7.5 million units “as soon as possible” to get from an operating profit of 550 billion yen to $1 trillion yen. The plan also includes a major shift in where the sales will be. Currently Toyota sells 60% of its vehicles in developed countries. By 2015, the company wants to increase sales in emerging markets to 50%, matched by 50% of sales in developed countries.

The competition from Ford Motor Co. (NYSE: F), General Motors Co. (NYSE: GM), Honda Motor Co. (NYSE: HMC), and Volkswagen AG is likely to be fierce. And as we’ve pointed out before, virtual equality in quality ratings means that the automakers are probably going to be forced to compete on price and incentives in the US.

Toyota is aiming to dodge the US price wars by increasing sales in China, India, and Brazil, where it hopes that its reputation for quality and value will keep its margins up while it battles for share and margin in the US. Slide 25 in its presentation notes that the plan positions Toyota “to cope with market risks/exchange rate fluctuations” even if unit sales drop 20% as a result of another global economic downturn. That’s pretty aggressive — not to say, optimistic.

The plan also streamlines the company’s management by reducing the board of directors from 27 members to 11, and eliminating one management layer. Toyota will also increase the number of its overseas executives from 13 to 15.

Even achieving the stated profit goal of 5% leaves Toyota at less than half its profitability at its peak. In the 2008 fiscal year, the company’s operating profit was nearly 2.3 trillion yen. The rush for profit growth was one item that the company pointed to as a cause of the recall of nearly 20 million vehicles last year.

Toyota’s plan does not have the company aggressively seeking to raise profits so much as it does finding a level of sustainable profitability. But more competition in emerging markets and lower margins in the US could make even this less-aggressive target a hard one to hit.

Paul Ausick