Autos

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

U.S. President Donald Trump may have stumbled onto a useful home truth in his criticism of Japan's car industry.

"Try building your cars in the United States instead of shipping them over. Is that possible to ask? That's not rude. Is that rude? I don't think so," he told local car executives during this week's visit to the country.

It's obvious what Trump's getting wrong here. While American automakers have more or less abandoned Japan, since the 1980s their Japanese rivals have done the opposite. Some cars, to be sure, are shipped over, but the vast majority of Japanese cars sold in the U.S. are made there, with total output in 2016 of 3.98 million vehicles -- more than either General Motors Co. or Ford Motor Co. manufactured domestically.

Made in America
Japanese automakers aren't undermining the U.S. car industry. They are the U.S. car industry
Source: Company reports, JAMA, Bloomberg
Note: Figures are for U.S. vehicles manufactured (Japanese manufacturers); North American vehicles manufactured (Ford); North American sales (GM).

Here's something he got right, though: The U.S. car market is running low on gas. Focusing on the home front rather than the high seas of international operations isn't a bad idea for Japan's carmakers.

Toyota's second-quarter results Tuesday provide a vivid illustration of this. Operating income from North America fell by 79 billion yen ($692 million) to 52 billion yen, making the past 12 months the weakest on that front in at least four years.

Give and Take
Toyota's trailing 12-month operating income in the U.S. is at its weakest level since 2013. Stronger profits at home are compensating
Source: Bloomberg, company reports, Gadfly calculations

Toyota can't be blamed for the way sales discounts and a glut of off-lease cars on second-hand lots are depressing prices there -- but a lineup that's traditionally been dominated by sedans and hatchbacks looks increasingly out of step in a market overrun by SUVs.

Look to the other side of the Pacific, though, and you see why this lackluster performance isn't getting in the way of a 250 billion yen share buyback. In Japan, operating income climbed 126 billion yen to 322 billion yen. Over the past 12 months, Toyota has made roughly 940 yen of profit at home for every 100 yen in North America.

That has ever been the case. For all Toyota's global heft, around 60 percent of its profit is made at home in a typical year, where its one-half domestic market share and an export focus on premium vehicles like the Lexus gives it the best margins among global divisions.

Home Advantage
Japan accounts for about one-quarter of Toyota's vehicle deliveries but three-fifths of operating income
Source: Bloomberg
Note: Fiscal years.

All the more reason to pay attention to Japan. Honda Motor Co. and Nissan Motor Co. (at least until its recent inspection problems) have been nibbling away at Toyota's local market share for much of the past year; combined sales of the Toyota and Daihatsu brands made a rare dip below 40 percent of the total in September. 

President Akio Toyoda's grip on Japan is close to unshakeable, but that's why it's worth pressing the accelerator. Tuesday's earnings presentation by management buzzed with the white heat of technology as executives laid out plans for autonomous driving, electric vehicles and connected cars. That's a welcome change for a company that's tended toward a more prosaic view of the future lately -- but such lofty ambitions can get expensive awfully quickly.

If Toyota is looking for a cash cow to fund its continued dominance of the global industry, it would be wise to go easy on any attempts to build market share in the U.S. Right now, the best opportunity is lying right under its nose.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net