Toyota 2006 Annual Report Download - page 46

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Risk Factors
Industry and Business Risks
The worldwide automobile market is highly competitive.
The worldwide automotive market is highly competitive.
Toyota faces strong competition from automobile manufac-
turers in the respective markets in which it operates.
Competition is likely to further intensify in light of continuing
globalization and consolidation in the worldwide automotive
industry. Factors affecting competition include product quality
and features, innovation and development time, pricing, relia-
bility, safety, fuel economy, customer service and financing
terms. Increased competition may lead to lower vehicle unit
sales and increased inventory, which may result in a further
downward price pressure and adversely affect Toyota’s finan-
cial conditions and results of operations. Toyota’s ability to
maintain its competitiveness will be fundamental to its future
success in existing and new markets and its market share.
There can be no assurances that Toyota will be able to com-
pete successfully in the future.
The worldwide automobile industry is highly volatile.
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. Demand may also be affected by factors directly
impacting automobile price or the cost of purchasing and
operating automobiles such as sales and financing incentives,
prices of raw materials and parts and components, cost of
fuel and governmental regulations (including tariffs, import
regulation and other taxes). Volatility in demand may lead to
lower vehicle unit sales and increased inventory, which may
result in a further downward price pressure and adversely
affect Toyota’s financial conditions and results of operations.
Toyota’s future success depends on its ability to offer innova-
tive new, price competitive products that meet and satisfy
customer demand on a timely basis.
Meeting and satisfying customer demand with attractive new
vehicles and reducing product development times are critical
elements to the success of automobile manufacturers. The
timely introduction of new vehicle models, at competitive
prices, meeting rapidly changing customer preferences and
demands is fundamental to Toyota’s success. There is no assur-
ance that Toyota may adequately perceive and identify chang-
ing customer preferences and demands with respect to quality,
styling, reliability, safety and other features in a timely manner.
Even if Toyota succeeds in perceiving and identifying customer
preferences and demands, there is no assurance that Toyota
will be capable of developing and manufacturing new, price
competitive products in a timely manner with its available tech-
nology, intellectual property, sources of raw materials and
parts and components (including the procurement thereof),
production capacity and other factors affecting its productivity.
Further, there is no assurance that Toyota will be able to imple-
ment capital expenditures at the level and times planned by
management. Toyota’s inability to develop and offer products
that meet customer demand in a timely manner can result in a
lower market share and reduced sales volumes and margins,
and may adversely affect Toyota’s financial conditions and
results of operations.
Toyota’s ability to market and distribute effectively, and
Toyota’s maintenance of brand image, are integral parts of
Toyota’s successful sales.
Toyota’s success in the sale of automobiles depends on its abil-
ity to market and distribute effectively based on distribution
networks and sales techniques catered to its customers as well
as its ability to maintain and further cultivate its brand image
across the markets in which it operates. There is no assurance
that Toyota will be able to develop sales techniques and distri-
bution networks that effectively adapt to customer preferences
Operational and other risks faced by Toyota that could significantly influence the decisions of investors
are set out below. However, the following does not encompass all risks related to the operations of
Toyota. There are risk factors other than those given below. Any such risk factors could influence the
decisions of investors.