Blog: Dave LeggettToyota operating loss

Dave Leggett | 22 December 2008

If ever there was a sign of the collective nature of the immediate problems facing the auto industry generally, Toyota's announcement that it foresees an operating loss is surely it. Even the mighty Toyota is being buffeted by recessionary winds across the globe (okay, and a high yen).

What will Toyota's response be? Cost-cutting generally and looking to up the ratio of overseas to domestic production wherever possible are probably bankers.

But besides pulling back on new investments, it's still pretty unclear where markets are ultimately headed, where exchange rates will settle and therefore where you want to max out or reduce production capacity.

The industry forecasters have an unusually difficult task right now in trying to work out where automotive markets are going and on what timescale. How long will demand stay below trend and how much 'pent-up' automotive demand is building? Will credit taps gradually be turned on again over time? If so, how quickly?  

Or is there a structural change taking place, consumers 'deleveraging' wherever they can and discovering that the household four- or five-year-old car is actually rather reliable (well done automakers!) and maybe not in need of replacement every two or three years after all? When credit becomes more available, will more of these people decide that actually they don't want it, preferring the extended car replacement cycles that save money?

For the economists and TIV (Total Industry Volume) forecasters it's about making some very difficult calls for a base case or central forecast for automotive markets over the next two years. I expect scenario forecasting will become even more popular next year.

JAPAN: Toyota predicts operating loss


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