Toyota Invests in Its Future

Yesterday was an interesting day for Toyota (NYSE:TM). It announced both its fiscal first-quarter results and an initiative to greatly increase its production of hybrid vehicles over the next few years.

First, the results, which were somewhat surprising. Toyota reported that its quarterly profit fell 6.9% to $2.4 billion, citing a strong yen and increased research spending. Those factors offset impressive sales results, which increased 10.5% to $44.7 billion. Even in the face of the hugely successful discounts being offered by its U.S. counterparts, Toyota managed to increase North American sales by 12% in the quarter.

It's obvious that Toyota remains confident about its outlook for the remainder of the year and its long-term prospects. Although Toyota doesn't provide profit forecasts, it did raise its fiscal-year sales forecast to 7.97 million vehicles, which would represent an increase of 7.7% over last year.

It also seems unwilling to get dragged into a price war with the likes of General Motors (NYSE:GM) and Ford (NYSE:F). Despite GM's recent announcement that it would introduce large price cuts on several models, Toyota announced modest price increases on some of its more popular models. Toyota seems convinced that a plethora of potential buyers will be willing to pay a higher price for what they view as a better product.

Longer-term, Toyota is more than willing to spend money on research now to ensure it maintains its reputation as a technological leader and to ensure continued growth. The company is obviously committed to research, which is why associated costs and other expenses counted $781 million against its latest results. You can't really argue with Toyota's approach. Its hybrid vehicles have been a huge success, prompting the company to announce plans to increase production of hybrid vehicles with the goal of hybrids accounting for 25% of its U.S. sales by 2010.

Its costs were also pushed higher to pay for its rapid expansion, which has been necessary to keep pace with the high demand. That's hardly something to be concerned about.

What does concern me is whether the surge in sales from not only Toyota but also automakers overall is sustainable. Sales in the U.S. have reached levels not seen in several years. Although I can't imagine who's buying all these vehicles, there doesn't seem to be indication of a slowdown just yet.

So, what are Toyota investors to do? I would suggest they focus on why profits were down, rather than being concerned about the drop. Although investing in technology and expansion to meet demand may pull down profits short-term, they bode well for future growth. Even with the decrease in profits, Toyota seems to be coasting right now, with everyone else struggling to keep pace.

Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of any company in this article.