Hammered by waning global demand and a surging yen, Toyota slashed its earnings forecast again on Monday.
The company now expects it will barely break even for the year through to March with a net profit of just 50-billion yen ($555-million).
That’s a tiny fraction of the 1,7-trillion yen Japan’s top carmaker earned last fiscal year.
”The change that has hit the world economy is of a critical scale that comes once in a hundred years,” President Katsuaki Watanabe said at the company’s Nagoya office.
The drop in vehicle sales over the last month was ”far faster, wider and deeper than expected”.
Sinking sales in the US in the wake of the financial crisis have dealt a heavy blow to Japanese carmakers. But Watanabe said that emerging markets, which had held up in the beginning, were also slowing down now.
The surging yen has battered profits as well by eroding overseas earnings when converted back to yen.
The dollar has fallen to 13-year lows of about 90 yen recently.
This is the second time Toyota — which makes the popular Camry sedan and Prius gas-electric hybrid — has reduced it annual earnings forecast this year.
Initially, it had been projecting 1,25-trillion yen ($13,9-billion) in profit for the year through March 2009, but last month it reduced that to 550-billion yen ($6,1-billion) before chopping it further Monday.
It also lowered the number of vehicles it expects to sell globally this calendar year to 8,96 million, down 4% from a year ago, Watanabe said.
Unlike previous years, he gave no goal for vehicle sales for 2009.
He also gave no earnings forecast for the following fiscal year, ending March 2010, noting the company didn’t have a sales plan yet.
Continuing struggle
Tsuyoshi Mochimaru, motor analyst for Barclays Capital in Tokyo, said that Toyota is likely to continue to struggle next year because US car sales won’t start recovering until toward the end of 2009, and the dollar may also lag.
”The problem is next year,” he said, while adding that the latest revisions were within expectations. ”It’s unmistakable that things are extremely tough for Toyota.”
The dramatic revisions are even more stunning because Toyota had racked up a record operating profit for the fiscal year through March 2008.
It is now expecting to bleed red ink in operating income — which shows its core business performance — for the fiscal year ending March 2009, the first time ever for Toyota since it began reporting such numbers in 1941.
In July Toyota lowered its global vehicle sales target for 2008 to 9,5 million from the initial 9,85 million. Last year, it sold 9,37 million vehicles around the world.
Toyota also lowered its sales forecast for the fiscal year through March to 21,5-trillion yen ($239-billion), down about 18% from the previous fiscal year.
It had earlier projected 23-trillion yen in sales.
Grabbing attention in recent years has been whether Toyota would dethrone Detroit-based General Motors as the world’s number one in annual vehicles sales.
But the mood was pure gloom at the president’s annual year-end event.
Waiting for the market to recover
Watanabe and other executives said production expansion plans and other investment will be on hold — including a new plant in the southern US state of Mississippi and new vehicle plans in India — until the global market recovers.
Watanabe vowed Toyota would grow so lean it will be able to realise profitability even if its worldwide sales slide to as low as seven million vehicles — what he called the basic ”bottom line” for Toyota.
He promised his workers would offer ”ideas as well as sweat” to steer the carmaker through difficult times.
Mitsuo Kinoshita, a Toyota executive, said he hoped the results for the fiscal year through to March would mark a bottom, with recovery expected the following fiscal year, partly boosted by a drop in material prices.
Soaring prices of steel and oil had been a negative for the carmakers, but they have fallen back in recent months.
Toyota has cut 130-billion yen ($1,4-billion) in costs for the fiscal year through various measures, Kinoshita said.
But an unfavourable currency shifts will slash 200-billion yen ($2,2-billion) from its results for the fiscal year through to March, while marketing activities eroded another 570-billion yen ($6,3-billion), according to Toyota.
Although plans to develop a diesel engine with Japanese partner Isuzu Motors will be stalled, Toyota will continue to invest in hybrids and other ecological technology, the executives said, as a long-term investment for growth.
Toyota’s US vehicles sales plunged by a third on year in November, when overall sales fell to their lowest level in more than 26 years.
And there is little hope for a quick recovery as consumers hold back big purchases amid a serious downturn.
While Japan’s carmakers are in far better financial shape than the cash-strapped American counterparts, the global slowdown is still hitting them hard.
”The crisis we face now is totally different from past crises,” said Watanabe.
At a similar news conference last week, Honda President Takeo Fukui, Japan’s second-biggest carmaker also lowered his company’s profit and sales forecast and declined to give a vehicle sales goal for 2009.
Toyota said it will reduce thousands of temporary workers at its Japan plants, but said their full-time employees will have job security. — Sapa-AP