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Toyota Profit Plunges 99%

August 3, 2011
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TOKYO(Story via Edmunds AutoObserver )-- It was close, but in Tokyo Tuesday, Toyota posted a wafer-thin net profit of 1.1 billion yen for the April-June first quarter of its current business year, as the huge negative impacts of the March 11 earthquake in Japan and soaring value of the yen tore into its earnings. For Japan's strongest automaker, that represented a fearsome 99.4% drop on the same quarter last year and amounted to just $13.4 million, when converted into U.S. dollars using Toyota's 82 yen to the U.S. dollar rate. On the plus side, Toyota didn't slide into the red, as a select group of analysts had earlier predicted.

And with its recovery from the March 11 disaster now well under way and, in fact, ahead of schedule, Toyota raised its sales forecast for its full fiscal year (which runs April 1, 2011 to March 31, 2012) to 7.6 million vehicles globally up from the 7.24 million previously forecasted. That’s puts Toyota squarely in the fight with General Motors and Volkswagen to be overall global sales leader. Japan's biggest automaker is also now gunning for a net profit of 390 billion yen ($4.9 million), assuming the yen stays in or around the 80 yen to the dollar level, and well up on the 280 billion yen envisaged for the full year to March 2012 just a couple of months earlier.

Senior Managing Director Takahiko Ijichi told a somber news conference in Japan that Toyota's operating income reversed from 211.6 billion yen a year ago (then $2.3 billion) to a loss of 108 billion yen ($1.32 billion) for the latest quarter, on net revenues of 3.441 trillion yen ($41.96 billion), down 29.4%. Consolidated vehicle sales came down almost 600,000 units to 1.221 million units, with Japan (208,000 units) and North America (250,000 units) accounting for the bulk of the losses. Toyota's financial services operating income, in fact, held up pretty well, considering: from ¥09.5 billion yen in a particularly strong 2011 first quarter, to 96.9 billion today, a drop of ‘only' 12.6 %.

While sales and profits dropped significantly in Japan, Toyota's North American operating income also softened dramatically in the quarter. From 109.7 billion yen for the first quarter last year to 28.9 billion yen for the latest period, a fall of some 81 %. Vehicle sales also tumbled by 250,000 units to 276,000 units in the US. "In North America, we made efforts to decrease marketing expenses," explained Toyota's Ijichi," however due to the decline in vehicle sales and in spite of how well our financial services performed, our operating income declined."

In the U.S., Toyota sold 378,864 in the quarter ended June 30, a 17.8 % percent decline from the year-earlier quarter. That pushed down Toyota’s U.S. market share to 11.6 % from 15 %. Because of tight inventories caused by disruptions in auto assembly and parts production in Japan stemming from the earthquake, Toyota backed off incentives significantly – by 29.7 % in the quarter to an average of $1,570 per vehicle on average. That pushed Toyota’s average transaction price up by 3.3 % to $28,455.

Now, the comeback starts, with Ijichi announcing that full production will start after September. "We said it would be October, but now we are a month ahead of that schedule." Toyota has also revised down the number of production units lost due to the March 11 earthquake and tsunami. Originally expecting a loss of 800,000 units, Toyota has now minimized that significantly to 350,000 units. From September, Toyota will go to five-shift working in Japan to make up for the shortfall.

For the full year to March 2012, Toyota is now forecasting a 330,000 unit increase in production to 7.72 million units, with Toyota and Lexus sales expected to hit 7.45 million units. For the whole group, with includes Daihatsu and Hino, the new target of 7.6 million sales would put Toyota ahead of last year's level of 7.3 million units, but within that total, North American sales are expected to drop from 2.03 million units down to 1.93 million, with Asian and other emerging markets set to pick up the slack.

Toyota's latest forecast for the current 2012 fiscal year forecast sees it posting an operating income of 450 billion yen ($5.63 billion), well up on the 300 billion yen previously targeted, on net revenues of 19 trillion yen ($237.5 billion). Toyota has a wave of new product offerings coming to help boost sales, including the launch of the redesigned Toyota Camry and Yaris, the new Scion iQ and Toyota Prius V minivan and Prius plug-in hybrid and a revamped Lexus GS. While Toyota's North American share was 14.1 % before the quake, Toyota's Ijichi believes the company can be close to that level by next March again. Toyota, he adds, will also resume the fleet business. In his call with U.S. media and analysts, Ijichi said Toyota is “assuming very strong (inventory) numbers” in September. “We are going to accumulate the stock with a strong will,” he said and so the pipeline will be “relatively full.” However, he said, September will still be a month in recovery; full recovery to normal inventory levels.

And yet the overwhelming strength of the yen (currently at the highly unprofitable 78 yen level) is threatening to put a sizeable dent in Toyota's plans. In the conference, Toyota's Ijichi referred to the yen over and over again. But the "H-word" was also mentioned at least three times. Once, that might have meant Honda. Today, it means Hyundai. Ijichi acknowledged that it's difficult for Toyota to raise prices as one route to offset the yen when Hyundai is competing so aggressively to grab market share, its products are improving and has the benefit of 50 % less labor costs than Japan. % "Therefore, in order to do battle with them, we have to have overwhelming technology," asserted Ijichi, adding that, "we will launch countermeasures against them." Such tactics in the U.S. would seem to include incentives. "We will also be using them to acquire share. Of course, we will not sacrifice profitability. Whether it will be China or other market, there will be new vehicles and the marketing of those vehicles to claim back share." In Japan, Toyota is famously known as the only company that can wring water out of a dry towel. The first-quarter numbers might be down, but Toyota will soon be back. %

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