Toyota Motor Corporation (TM - Free Report) announced that it will be investing around GBP 240 million ($294 million) in the U.K. The automaker plans to go ahead with the investment irrespective of the economic uncertainty surrounding Brexit.
The investment will be utilized for upgrading Toyota’s plant in Burnaston, located about 135 miles northwest of London. Although the investment reaffirms the company’s confidence in the country, it believes access to the European market is very important for future success.
Automakers in UK are under pressure as terms regarding the future relations with the EU are being negotiated. The auto industry is worried about the loss of access to the EU market which covers around 500 million people.
Separately, Toyota announced that it will start selling Corollas in Peru, which were produced in Brazil. The automaker, in order to make its South American plant more competitive, will also export vehicles from Brazil to Chile and Colombia.
Export to Peru is a long term plan of the automaker to integrate Brazilian operations with the rest of Latin America. Earlier Latin America imported Corollas from the U.S
Earlier in 2013, Toyota's Brazilian factories exported vehicles only to Argentina. Now, the plant also exports the mid-sized Corolla sedan and smaller Etios to Uruguay and Paraguay.
Toyota has also invested in a new engine plant and engineering facilities in Brazil. Toyota considers the investment to enable the Brazilian plants to export more competitively as it decreases the parts import. In 2016, export from Brazil increased 10% to 43,000 vehicles while production stood at roughly 176,000 vehicles.
However, the country is under pressure due to the on-going recession. Auto sales have significantly declined and also reduced employment opportunity. Auto manufacturing plants are currently using less than half of the installed capacity. Toyota has also undertaken several cost cutting measures to continue operations in the challenging environment.
Toyota underperformed the Zacks categorized Auto Manufacturers-Foreign industry over the last three months. Share price of the company decreased 7% while the industry saw a 4.4% decline. Weak guidance for fiscal 2017, frequent product recalls and large settlement on a U.S truck lawsuit remain concerns for Toyota.
Zacks Rank & Key Picks
Toyota currently carries a Zacks Rank #3 (Hold).
Better-ranked companies in the auto space include American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , Lear Corp. (LEA - Free Report) and Honda Motor Co., Ltd (HMC - Free Report) . While Lear sports a Zacks Rank #1 (Strong Buy), Honda and American Axle carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For the current year, American Axle, Lear and Honda expect earnings growth of around 8.1%, 8.9% and 26%, respectively.
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