Toyota Reacts to a Spanking: Thank You, Sir, May I Have Another?

Last Updated May 12, 2010 9:54 AM EDT

Toyota (TM) would never put it this way, but the company shrugged off its terrible recall problems by posting a huge positive swing in operating earnings of about $8.5 billion for the quarter ending March 31.

I wrote recently that after millions of vehicles recalled, months of unfavorable press, a fine imposed by the National Highway Traffic Safety Administration and a growing number of unintended-acceleration lawsuits, Toyota was starting to make things look easy again.

Toyota achieved its financial reversal the old-fashioned way, by cutting costs to the tune of about $10.6 billion. That more than offset lower global sales and unfavorable exchange rates. The positive swing took the supposedly ailing Toyota from a big operating loss in the year-ago quarter to operating earnings of about $1 billion for the latest quarter. The quarter just ended was the fourth quarter of Toyota's 2010 fiscal year.

For the fiscal year, Toyota had a net profit of about $2.3 billion, up from a net loss of $4.3 billion in the previous fiscal year.

If that's how Toyota manifests distress from recalling millions of cars worldwide, then maybe Toyota President Akio Toyoda should sign up for more distress. Toyoda, a member of the founding family, took over the position just last June.

Toyota's earnings recovery is a win-win for Toyoda. He can (tacitly) throw the blame for legacy problems on his predecessors, and he can continue to use the recent experience of lower sales worldwide and the huge recalls as a stick to motivate whatever cost-cutting or other reforms he wants to adopt.

It may be a nice problem to have, but too much prosperity in terms of sales growth was bad for Toyota the car company. It's much easier to reform a company when it's in crisis, and harder to persuade people of the need for change when everything seems to be going great.

That's the situation Toyota was in a couple of years ago, when it passed General Motors to become the world's biggest car company in terms of global sales. The knock on Toyota today is that it was so focused on becoming No. 1 the company took its eye off the ball on safety.

That's not likely to recur any time soon.

Chart: Toyota