Toyota Motor Corporation (TMC) on Friday reported a staggering 160% year on year fall in operating profits for its fiscal third quarter ended 31 December, 2008, posting a loss of JPY360.6bn compared with a JPY601.5bn profit in Q3, fiscal 2007/8.
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The company has also revised its full year forecasts of operating and net losses to JPY450bn and JPY350bn, respectively (this reportedly would be its first operating loss in history and first net loss since 1950) and said it would further cut costs and develop new vehicles better tailored to regional markets.
Just six weeks ago, the automaker had cut its full year net profit forecast a massive 91% to JPY50bn from JPY550bn and said it expected an operating loss of JPY150bn versus an earlier projection of JPY600bn operating profit.
A day later, a Tokyo paper said Toyota was considering promoting vice president and founding family member Akio Toyoda to replace Katsuaki Watanabe, a move the automaker confirmed (effective next June) in January, around the same time as Japanese media began reporting Toyota would post a full year operating loss of JPY400bn.
The main reason for Toyota’s Q3 plunge was much the same as other Japanese automakers reporting their results (mostly written with red ink) this week: lower sales in the key US and European export markets and the soaring value of the yen versus the dollar and the euro.
Consolidated net revenues fell 28.4% to 4.8 trillion yen and, even, before income before income taxes, minority interest and equity in earnings of affiliated companies, the loss was JPY282.1bn.
The world’s top selling automaker, which again beat GM to the global top slot in calendar 2008, posted a net loss of JPY164.7bn in the third quarter versus a net profit of JPY458.6bn a year ago.
In a statement, Toyota said negative factors contributing to the decline included JPY560bn due to “the effects of marketing activities” and JPY250bn due to the appreciation of the Japanese yen against the US dollar and the euro.
TMC executive vice president Mitsuo Kinoshita said in a statement: “Both revenues and profits declined severely during this period. The negative results are largely due to lower vehicle sales volume under difficult market conditions mainly in the US and Europe, and the rapid appreciation of the yen against the US dollar and the euro.”
Consolidated vehicle sales fell 443,000 to 1.84m units.
Japanese sales were down 76,000 to 465,000 units and operating income there plunged JPY553.6bn to a JPY164.2bn loss, due mainly to the appreciation of the yen against the dollar.
North America sales fell about a third (235,000) to were 521,000 units and operating income there fell JPY311bn to a JPY247.4bn loss including, Toyota noted, JPY119.6bn of valuation losses from interest rate swaps.
Kinoshita told a news conference in Japan today he expected the US market to stay at the current low levels for the time being and begin to turn up around the year-end, supported by President Barack Obama’s stimulus package.
European sales were down 73,000 to 235,000 units and operating income fell JPY77.4bn to a JPY43.4bn loss.
Asian market vehicle sales were down 19,000 to 222,000 units and operating income fell JPY23.8bn to JPY40.5bn.
Sales in Central and South America, Oceania, Africa, the Middle East and other minor markets were off 40,000 units to 395,000 while operating income for Central and South America, Oceania and Africa was down JPY16.4bn to JPY33.5bn.
Financial services operating income plunged over 100%, JPY144.8bn, to a loss of JPY123.9bn, including JPY111.2bn of valuation losses from interest rate swaps.
The decline was mainly due to the increase in allowance for credit and residual value losses in the US despite the contribution of the increase in outstanding loan balance and the improvement in lending margin, TMC said.
The automaker is now estimating consolidated vehicle sales for the full fiscal year will be 220,000 units below last December’s forecast at 7.32m units – it had originally planned to build 8.87m in 2008/9.
Kinoshita said that while the sales environment was “extremely unpredictable”, he did not expect production and sales to be lower in the new business year, Reuters reported.
Consolidated net revenues are now forecast at 21 trillion yen, the operating loss at JPY450bn, negative income before income taxes, minority interest and equity in earnings of affiliated companies at JPY500bn and the net loss at JPY350bn.
Kinoshita said: “Due to the severe automotive market situation, we have revised our forecast for fiscal 2009.”
He added: “As we announced last November, we have been operating under the newly established ’emergency profit improvement committee’. To accelerate our activities further with the aim of reforming our earning structure as swiftly as possible, we will focus more on how we can maximise revenues, by developing a new product line-up that responds to the customers’ requirements in each region.
“For the mid-term, we plan to enhance the development of hybrid and compact vehicles which we believe are the key to our future growth. For example, our new generation Prius will launch in May, followed by Lexus’ first exclusive hybrid vehicle, the HS250h this summer.
“We are also thoroughly reviewing our entire business to reduce costs across the board. We are aiming to implement a more effective cost structure in the areas of research and development, production and sales operations. Specifically, we plan to expand the scope of our emergency value analysis to achieve further cost reduction and reduce fixed costs by 10%.
“By taking these measures, we will overcome the current crisis and evolve into a company with a higher level of efficiency and resilience.”
According to Reuters, Kinoshita said at the results presentation that Toyota aimed to cut fixed costs by 10%, or roughly 500bn yen, partly through work-sharing and other arrangements.
Having let most temporary workers go, Toyota could also cut regular jobs in Britain and North America, a source told the news agency, in a rare move for the automaker, which prides itself on its job security.
As just-auto reported, the company’s UK unit is currently in talks with workers about making further changes to car and engine production here from April onwards. Measures such as short time working or production suspensions are on the table.
“We will look into various measures, taking into consideration labour laws in each country,” Kinoshita said. “But we will not make any involuntary job cuts.”
Citing the likelihood of persistent pressure on Toyota’s earnings through next year, Moody’s Investors Service earlier on Friday cut its credit rating on Toyota for the first time in a decade, to Aa1 from Aaa, Reuters said.
“This is absolutely awful,” Yoshinori Nagano, chief strategist at Daiwa Asset Management, told the news agency.
“But hopes for US economic steps and their effectiveness have supported the company’s stock, and that will likely continue even after the [Q3] earnings [result]. Still, if something goes wrong on that front, that could batter the stock price once again.”
“Toyota’s fixed costs haven’t been reduced,” Koji Endo, an auto analyst at Credit Suisse in Tokyo, told Reuters. “I’m more worried about next financial year, which will probably be even more difficult than this year.”
The news agency said Toyota shares were up around 5% so far in 2009 as investors favour stocks with competitive long-term prospects, beating Tokyo’s blue-chip Topix index which was down 8% on Friday.
Ahead of Toyota’s results on Friday, the stock ended up 1.6% at JPY3,090 while the Topix closed up 0.6%.
