Yoshio Takahashi | December 23, 2008
Article from: Dow Jones Newswires
TOYOTA has warned it expects to make its first-ever operating loss in the fiscal year through March as recessions at home and abroad corral Japan's biggest automobile maker into as tight a corner as it has ever known.
Citing the strength of the yen and a recession-sprung slump in vehicle sales in key markets like the United States, Europe and Japan, Toyota said it now expects a consolidated operating loss of Y150 billion ($2.5 billion), in the fiscal year through March, compared with a profit of Y2.27 trillion in the last fiscal year ended March 2008.
Just six weeks ago, the company that has long been seen as a bellwether of Japan's corporate strength said it expected an operating profit of Y600 billion in the current fiscal year, down sharply from its earlier forecast for Y1.6 trillion outlined in May.
Toyota president Katsuaki Watanabe said: "It's a kind of emergency that we've never experienced before. The environment surrounding us is extremely harsh."
The latest earnings revision reflects the industry-wide sales decline that had brought grim warnings from US automakers like General Motors, Toyota's traditional rival in the chase to be the world's biggest carmaker by sales. GM had warned it might run out of cash by the end of the year before securing a temporary bailout from the US Government late last week.
The Japanese auto sector's predicament is weighing down the Japan's economy. The Government said yesterday that Japanese exports dropped at their sharpest rate on record in November, due mainly to falling shipments of cars and automobile parts to the US and Europe.
Mr Watanabe said that while rapidly changing market conditions make it difficult to predict how the company will fare next year, he is hopeful Toyota can turn an operating profit.
It has already sought to cut costs by scaling back production and laying off temporary workers at factories in Japan, as well as postponing new factory investments in places like Mississippi, where it was scheduled to start producing its successful Prius hybrid sedan in May 2010.
In addition, the expected fall in raw material prices may help.
Still, Mr Watanabe warned: "It's not yet possible to tell where the market's bottom will be."
Some analysts expect Toyota's earnings to remain sluggish at least through the first half of next fiscal year. "The main concern now is whether there will be any signs of bottoming out in the second half," said SMBC Friend Research Centre analyst Shigeru Matsumura.
Toyota said yesterday it expects to book a net profit for the current fiscal year of just Y50 billion, less than a tenth of the Y550 billion it previously forecast, just days after Honda, Japan's second-biggest auto maker by sales, also cut forecasts for the second time in two months.
Last fiscal year, Toyota posted a net profit of Y1.718 trillion.
Few are expected to escape the downturn slicing through the auto sector: Yesterday, both small car specialist Suzuki and Toyota subsidiary Daihatsu announced fresh production cuts, while tire maker Bridgestone also lowered its financial forecasts on sliding sales.
Toyota also reduced its revenue projection to Y21.5 trillion from Y23.0 trillion. It posted revenue of Y26.289 trillion in the last fiscal year.
Apart from weathering a slowdown in vehicle sales, Toyota, like the rest of Japan's major exporters, has been unable to sidestep the stubbornly strong yen's sharp gains against other major currencies in recent weeks.
Toyota said it now expects the US dollar to be worth Y93 on average through the second half of the fiscal year and the euro to be worth Y123, compared with Y100 against the US dollar and Y130 against the euro it previously expected. The strength of the yen means that sales in US dollars and euros are worth less in Toyota's books.