With Toyota Motor’s quarterly profits hit harder than expected, as a result of the 11 March earthquake and tsunami in Japan, there have been renewed calls for the government to do more to support the automaker’s pledge to keep building large numbers of cars at home.
The 9.0 magnitude earthquake that rocked the country’s north east forced Toyota and other Japanese automakers to slash output at home and abroad as they struggled to secure vital parts while the ensuing Fukushima nuclear plant disaster and power shortages have compounded problems.
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Though it held back profit forecasts for the current fiscal year due to the continued disruption to production, Toyota said output would begin recovering as much as two months earlier than it had expected as parts makers come back on line and expects to give guidance by mid-June, Reuters reported.
The disasters added another reason not to produce cars in Japan, already unprofitable for exports with the US dollar at JPY80 yen. Toyota, which has said it needs the dollar at JPY85 or weaker to break even in Japan, did not forecast the yen rate for this year, the news agency noted.
It added that Toyota has long been accused by some of putting the interest of Japan before shareholders. Investors reportedly said the pressure to explain its rationale of making at least 3m vehicles a year in the shrinking Japanese market could grow given the current crisis.
“I expect (profits) to recover in the second half and to grow next year,” Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, told Reuters. “But looking ahead, Toyota’s production rate in Japan is high … and with energy and electricity costs in Japan expected to rise, I think it will be necessary for them to rethink their global production strategy.”
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By GlobalDataToyota makes 38% of its cars in Japan compared to 25% at Honda and Nissan.
During a news conference, Toyota president Akio Toyoda acknowledged that the headwinds were greater now, given the concerns over power supply and the risk of aftershocks’ disrupting the supply chain again, but repeated he remained committed to Japan and protecting its jobs.
“The auto industry has a very broad reach, and we have the ability to drive Japan’s recovery during these very tough times,” Toyoda, the grandson of the company’s founder, said.
“Toyota was born in Japan, raised in Japan and is now a global company,” he said. “I love Japan, and I want to keep the tradition of manufacturing strong here.”
Chief financial officer Satoshi Ozawa stressed that, for that to happen, Toyota needed help from the government to level the playing field against global competitors such as through free trade agreements and currency policy.
“As long as the president is saying, ‘Let’s keep fighting and get through this’ we will do that,” Ozawa told Reuters after the news conference.
“But as the one responsible for the coffers, I have to say that the current environment makes it very, very difficult.”
Toyota now sees average output in Japan and elsewhere recovering to about 70% of plans before the quake in June, instead of 50% in Japan and 40% overseas. Previously, it had expected domestic production to begin normalising in July and in August overseas. The number of missing parts had fallen to around 30 from 150 a month ago, the company said.
Toyota stuck with a forecast for a full return to production for all models and factory lines by November or December.
“Toyota’s president’s saying that the company’s production is expected to recover to 70% of its pre-quake plan in June is positive,” Tsuyoshi Segawa, an equity strategist at Mizuho Securities, told Reuters which noted that the massive hit to production will almost certainly mean Toyota will fall behind General Motors and possibly Volkswagen to rank third in global vehicle sales this year.
With inventory tight and supplies short for popular models such as the Prius hybrid, Toyota is losing customers to rivals such as South Korea’s Hyundai Motor which has been nipping at its heels for the past several years.
The quake happened just as Toyota was recovering from a recall crisis that had already dented its sales and reputation.
“There is no denying that Hyundai and Kia have improved their brand recognition in the US market, as their Japanese rivals were struggling from the recall crisis,” Ahn Young-Hee, a fund manager at KTB Asset Management in Seoul, told the news agency.
“Not only the recall, but Japan’s earthquake has benefited South Korean carmakers. But the quake effect will be temporary and Japanese carmakers will gain back market share.”
