Toyota forecasts profit drop on Japan slump, yen

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TOKYO (Bloomberg) -- Toyota Motor Corp. forecast profit will fall from last year’s record as demand slumps in Japan, competition intensifies in the United States and the yen is no longer the boon it used to be.

Net income will probably slip to 1.78 trillion yen ($17 billion) in the fiscal year ending March 31, Toyota said in a statement today.

For the fourth quarter that ended in March, Toyota's net profit fell 5.4 percent to 297.0 billion yen. Net profit for the 12 months ended on March 31 grew an unprecedented 89.5 percent to 1.82 trillion yen as a weaker yen boosted the value of sales from Prius hybrids and Lexus vehicles exported from Japan.

As the currency edge fades, Toyota and Honda Motor Co. are predicting smaller-than-estimated earnings and are among Japanese automakers bracing for a record decline in domestic demand because of the nation’s first sales-tax increase in 17 years.

"The tailwind is over," Tatsuo Yoshida, a Tokyo-based automotive analyst for Barclays, said by phone before Toyota released its results. "Unlike in a usual year, we cannot assume flat sales or even growth in Japan because of the hangover from last fiscal year."

Toyota led a surge in the nation’s corporate earnings as Prime Minister Shinzo Abe’s economic policies helped weaken the yen by 8.7 percent against the dollar in the 12 months ending in March. In the year earlier period, the yen fell 12 percent.

As prospects dim for a further benefit from the yen, Toyota faces a number of challenges.

Safety defects have led to mounting global recalls, including one last month affecting more than 6 million vehicles to fix top sellers such as the Camry sedan and RAV4 SUV, and another involving 1.9 million Prius hybrids in February.

In March, Toyota agreed to pay a $1.2 billion penalty to end a U.S. criminal probe into sudden unintended acceleration problems with the company’s vehicles, which were tied to 10 million recalls in 2009 and 2010.

Toyota’s sales have increased in the United States at a slower pace than the total market in the first four months of 2014 as deliveries slipped 0.2 percent for the Camry, the top-selling car for the last dozen years. Sales of the Prius, which last underwent a major overhaul in 2009, have slumped 18 percent this year, putting the company on course for a second-straight year of lost market share.

Incentives up

To compensate for its aging lineup, the automaker has boosted spending on incentives by 10 percent in the first four months of 2014, more than the industry average of 6 percent, according to data from Autodata Corp.

A restyled Camry also will roll into showrooms in the second half of this year. The sedan debuted at last month’s New York auto show with more contoured body panels, softer-touch interiors and added welds for sportier handling.

"Toyota whacked the bee hive of the New York auto show by unveiling what could legitimately be called an attractive Camry" Automotive News Europe sister publication AutoWeek said in an April 16 post on its Web site. "It’s a bright, sunny face in the often drab mid-sized sedan segment."

‘Waku-doki’

The praise from critics follows an emphasis by Toyoda, 58, on "waku-doki" design, shorthand for the Japanese phrase for heart-racing qualities. In February, he named Tokuo Fukuichi to become the first designer to lead the company’s Lexus premium brand.

"Akio has changed the company in a better way to be more focused on the product attractiveness and styling, not just the engineering and hard numbers,” Yoshida at Barclays said. "He’s emphasized the emotional appeal of the products, which typically were lacking for Toyota in the past."

In Japan, Toyota faces a pullback in consumer spending after the nation’s first increase in the consumption tax since 1997. The increase in the levy, which took effect on April 1, contributed to a 5.5 percent drop in industry sales last month.

At Toyota, deliveries fell 17 percent to the lowest since June 2011. The automaker counted on its home market for about one in four deliveries globally in the last fiscal year.

Factory freeze

Toyoda is keeping a lid on growth for the upscale Lexus brand and the company more broadly by instituting a three-year freeze on new car plants to tilt priorities to quality and efficiency after the 2009-2010 recalls.

The strategy contrasts with plans for the booming auto market in China at General Motors, which is spending $12 billion from this year through 2017 to add manufacturing capacity and offer new and refreshed models. Volkswagen has said its Chinese joint ventures will invest 18.2 billion euros ($25 billion) through 2018 to expand in the world’s largest auto market.

"Toyota has been focusing more on restructuring after the financial crisis while other carmakers are going forward to invest and increase the capacity," said Satoru Takada, an auto analyst with Toward the Infinite World in Tokyo.

Stock buyback

After accumulating cash by refraining from building new factories, Toyota is buying back stock for the first time in five years. The company said in March it would repurchase as many as 60 million shares, equivalent to a 1.9 percent stake, for 360 billion yen.

Toyota also agreed in March to increase base wages in Japan for the first time since 2008, with the average union member earning 2,700 yen more in base pay per month. The average bonus per worker rose to 2.44 million yen, the equivalent of 6.8 months of salary and the most in six years.

In Southeast Asia, where Toyota is the biggest automaker, a deepening political crisis in Thailand and the scrapping of an incentive for first-car buyers has dented industrywide demand and led to a 33 percent plunge for the company’s sales this year through March.

Deliveries in Indonesia, where Toyota has gained from a government plan that provides tax breaks and incentives to manufacturers of small, fuel-efficient cars assembled locally, has softened the blow.

LMC Automotive estimates that sales in the Asean market -- Thailand, Indonesia, Malaysia, Philippines and Vietnam -- will decline to 3.2 million this year, from 3.36 million for 2013. The researcher project deliveries in Thailand will decline to fewer than 1 million this year, from 1.29 million last year. Demand in Indonesia is estimated to rise to 1.2 million, from 1.1 million.

Reuters contributed to this report

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