Toyota Motor Corp. President Akio Toyoda, whose company hasaccumulated a cash pile of almost $40 billion, is facing calls toput that money to better use.

The world's largest carmaker is seeing profits surge as the yenweakens and demand rises in the U.S. and China. The company willprobably report today net income quadrupled to 434.3 billion yen($4.3 billion) last quarter, according to the average analystestimate compiled by Bloomberg, adding to the 3.88 trillion yen incash and short-term investments it had at the end of September.

Toyoda's reluctance to spend has prompted the likes of TakakiNakanishi, Institutional Investor magazine's top-ranked Japaneseauto analyst, to say the Camry maker should return more money toshareholders or increase capital investments. Options includehigher dividend payments, stock buybacks, or building factories inmarkets such as North America and China, where capacity isstrained.

“Capital efficiency is not improving as fast as the fundamentalimprovement of Toyota,” said Nakanishi, founder of NakanishiResearch Institute in Tokyo. “So I am not happy, but that's howToyota is.”

Toyota has said it aims to pay 30 percent of net income asdividends—a lower payout ratio than at Honda Motor Co. last fiscalyear—and that the company won't build any new factories until 2015as it focuses on improving efficiency at existing plants.

“Our fundamental approach to production is to build cars wherethe demand is,” said Shino Yamada, a Toyota spokeswoman. “Based onthis idea, we are working to maximize the utilization andproductivity of existing plants and facilities.”

Instead, Toyota plans to increase its “net cash”—available fundsminus some liabilities—to 6 trillion yen, from 4.6 trillion yen atthe end of last fiscal year.

Behind Toyota's hesitation to spend are memories of toughertimes, such as when it reported a record loss in the year endedMarch 2009, followed by millions of vehicle recalls related tounintended acceleration—adversities that Toyoda has partly blamedon over-expansion.

U.S., China

The company, which hasn't announced any new car plants sinceJanuary 2012, has the capacity to make about 9.5 million unitsannually, according to Issei Takahashi, an analyst at Credit SuisseGroup AG in Tokyo. Still, production can exceed capacity throughadded shifts or working hours.

Takahashi estimates capacity is tightest in North America,Toyota's biggest market. Its plants are so stretched that Toyotaproduces some of its Camry sedans at a Fuji Heavy Industries Ltd.factory.

By comparison, Volkswagen AG announced plans at last month'sDetroit auto show to spend more than $7 billion during the nextfive years in North America. VW seeks to boost sales of itsnamesake and Audi brands to 1 million vehicles by 2018, the year ithas set as a goal to become the top-selling automaker in theworld.

In China, Toyota forecasts its sales will rise to above 1.1million vehicles in 2014, though the company has only disclosedplans to build up annual capacity in the country to 990,000 unitsin 2015. Toyota saw record sales in the world's largest auto marketlast year as it recovered from the consumer backlash triggered in2012 by a territorial dispute between Asia's two largesteconomies.

“They have to make a decision very quickly,” Edwin Merner,president of Atlantis Investment Research Corp. in Tokyo, said inreference to Toyota's capacity in China. “If they don't do it,they'll lose market share. They can't lose more market share.”

One risk of doing so is that like other Japanese carmakers,Toyota is vulnerable to geopolitical tensions, as illustrated byJapanese Prime Minister Shinzo Abe's recent visit to the YasukuniShrine, which includes World War II soldiers convicted of Class-Awar crimes. In 2012, consumers shunned Japanese products because ofa dispute over a group of uninhabited islands, sending Toyota salesdown by 4.9 percent, while companies from General Motors Co. toHyundai Motor Co. increased their deliveries.

“They can't just walk away from China,” said Yoshihiro Okumura,general manager at Chiba-Gin Asset Management Co. in Tokyo. “GM, VWare not hampered by the political headwinds and increased capacitya lot. Toyota will have to be aggressive too.”

VW, which has said it plans to invest 14 billion euros ($19billion) in China through 2016, is building a new plant in the farwestern Xinjiang region along the old Silk Road. GM expects toinvest at least $11 billion in China from 2013 to 2016, adding fourassembly plants and raising capacity to 5 million vehicles.

Returning Cash

In the luxury segment, Toyota's Lexus is the only main brandthat doesn't make cars in China. Even smaller marques includingCadillac, Volvo Cars, Infiniti, and Acura are going to bemanufactured in China.

For Satoshi Yuzaki, general manager at Takagi Securities Co. inTokyo, investments into future growth are often better thanreturning cash to shareholders.

“Is it better to return profits to investors, or keep anappropriate level of cash to invest for the future?” said Yuzaki.“I personally prefer them to invest wisely for projects that canguarantee their future growth.”

Toyota returned 20 percent of profit last fiscal year asdividend payments, compared with 28 percent at Nissan Motor Co. and35 percent at Tokyo-based Honda.

Still, Toyota's payouts are rising as profits increase, with thecompany last paying an interim dividend of 65 yen a share, morethan double what it paid a year earlier. The trend should continueas earnings keep rising, Credit Suisse's Takahashi said.

“They should return cash to investors no matter in what form,”he said.

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