Toyota could offset the effect on profits from a strong yen by making a higher-priced mix of vehicles in Japan, including luxury Lexus models.
Executive vice president Yukitoshi Funo told the Reuters Rebuilding Japan Summit in Tokyo a US dollar below JPY80 would put additional pressure on the profitability of the automaker’s exports from Japan.
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He said: “For us in the private sector, that level would be tough,” adding that Toyota could respond by rejigging production to focus more on higher-end models in Japan, as well as cutting operating costs.
The yen’s strength has raised questions about the rationale of Toyota’s commitment to producing at least 3m cars a year in Japan.
President Akio Toyoda said last month he wanted to stick to that goal although his wishes alone may not be enough to justify the loss-making proposition. Chief financial officer Satoshi Ozawa has stressed that producing in Japan at the current scale was untenable with the dollar at JPY80.
Japanese automakers have traditionally been reluctant to raise prices but Funo said Toyota sees an opportunity to sell a higher-priced mix of cars made in Japan in overseas markets. “It’s not just a cost-side problem. It’s a revenue-side issue too,” he added.
Funo said he was confident consumers overseas would buy pricier cars, insisting the automaker’s image in the US market had not been seriously damaged by the wave of safety recalls in 2010.
However, Toyota still faces years of litigation after having recalled several million vehicles for problems since late 2009.
For now, Funo said Toyota’s Japanese plants remained competitive with its overseas production hubs, including its flagship US factory in Kentucky, despite pressure from the yen and relatively high electricity costs and corporate taxes.
Toyota has also bounced back faster than initially expected, he said, from the production disruption caused by the 11 March earthquake.
The automaker announced plans this week to hire another 4,000 contract workers in Japan to ramp up production which it expects to rebound to pre-quake levels by July.
In North America, Toyota expects production to return to 100% in September with eight of the 12 models it builds there already back at full production.
The company still forecast a bigger-than-expected 35% fall in operating profit for the business year to 31 March, 2012, expecting to lose almost 0.5m vehicles in potential sales because of the earthquake.
Funo said Toyota would rethink areas of its supply chain including its purchasing of parts like microcomputers that were hit hardest by the supply disruption after the quake.
He added: “I think we should address how to manage these risks by diversifying our supply base by adding suppliers and production locations.”
Toyota expects to build 3.03m vehicles in Japan this year, out of a total 7.39m, with nearly 60% slated for export. The company has said it wants to achieve an operating margin of 5% on parent-only sales of 7.5m vehicles and a dollar rate of JPY85 well before 2015.
