TOKYO -- Toyota Motor Corp. reported a 39-percent tumble in global operating profit in the latest quarter as foreign exchange losses and higher expenses offset an increase in worldwide sales.
Operating profit plunged to 438.5 billion yen ($3.76 billion) in the fiscal third quarter ended Dec. 31, Managing Officer Tetsuya Otake said Monday while announcing financial results.
Net income dropped 23 percent to 486.5 billion yen ($4.17 billion) in the October-December period. Worldwide revenue declined 3.5 percent to 7.08 trillion yen ($60.7 billion) in the quarter, even as global retail sales advanced 2.9 percent to 2.28 million vehicles.
In Europe, retail sales volume climbed 11 percent to 233,000 vehicles in the quarter, while regional operating profit increased 11 percent 233 billion yen ($2.0 billion).
Toyota, which surrendered its four-year reign as world's biggest automaker to Germany's Volkswagen Group last year, is feeling the bite of the Japanese yen's increased value against foreign currencies including the U.S. dollar. The appreciation has hit profits across the board at Japanese automakers and has derailed Toyota from a three-year streak of record earnings.
Meanwhile, Toyota is facing additional headwinds in the U.S., its traditional cash cow.
The Japanese carmaker was slow to tap the U.S. boom for light trucks and is now facing rising price pressure and higher markdowns for falling residuals on a glut of cars coming off lease.
“Competition has intensified in the market. Incentives in the market trended upward,” Otake said, adding that Toyota expects the overall U.S. market to decline about 2 percent in calendar year 2017, after a record finish in 2016. “We expect a tough used car market going forward.”
Further uncertainty looms for Japan's top carmaker as U.S. President Donald Trump threatens tariffs on vehicles imported from Mexico and a border adjustment tax on other vehicles shipped from overseas. Otake said Toyota was taking a wait-and-see approach.
“As of today, the impact of the Trump Administration's policies is very difficult to incorporate [into Toyota's strategic planning,]” Otake said.
Toyota is especially sensitive to any pressure on imports.
More than half the cars it sells in the United States come from outside the U.S.
Toyota already has a small truck plant in Mexico. But it is investing some $1 billion on another assembly plant in that country that will begin making Corolla small cars in 2019.
That plant, in the state of Guanajuato, will have annual capacity of 200,000 vehicles.
The carmaker ships cars to the U.S. from Japan, Canada, Mexico and France. Japan accounted for about 26 percent of all the Toyota and Lexus vehicles sold in the U.S. last year. Canadian-made vehicles accounted for 20 percent of the U.S. sales total, and Mexico was the source of 5 percent of the carmaker's U.S. volume. France chipped in about 10,872 Yaris subcompacts in 2016.
Profit forecast lifted
Citing a more lenient foreign exchange rate assumption, Toyota lifted its profit forecasts for the second time for the current fiscal year ending March 31, 2017.
Operating profit is now expected to fall to 1.85 trillion yen ($158 billion), as opposed to dropping to 1.70 billion yen as earlier predicted. The new forecast represents a 35 percent drop from the previous year. It also improved its net income outlook to 1.7 trillion yen ($14.6 billion), up from its earlier target of 1.55 trillion ($13.3 billion) but still down 26 percent from the year before.
Toyota improved its global retail sales forecast by 50,000 vehicles, mostly on the higher North American outlook. Worldwide volume is now seen at 10.15 million vehicles, up from 10.1 million.