The crisis facing the world’s automotive industry deepened as Toyota, one of the global elite, revealed it was on course to record its first operating loss in more than 70 years.
A combination of sliding sales and a surging yen has battered profits at Japan’s biggest carmaker, which said it expected operating losses for the year to the end of March to total $1,6-billion, a huge turnaround from its previous forecast of a $6-billion operating profit.
The profits warning, the second from Toyota in less than two months, marks a dramatic setback for the company in a year that was expected to see it cement its dominance at the top of the global automotive sales league. Toyota, once a byword for opulence in corporate Japan, is now expected barely to break even, slashing its net income forecast by 90% to $500-million.
“Toyota will undoubtedly be looking forward to the end of this financial year, which promised so much, yet has become an annus horribilis,” said Ian Fletcher, an automotive analyst at Global Insight.
Toyota’s announcement came as the Japanese government released figures showing the biggest drop in exports since records began, and the economics minister appeared to call for divine intervention to save the world’s second biggest economy from collapse.
Toyota and other Japanese carmakers have been forced to cut production, slash earnings forecasts and lay off temporary and part-time workers as they struggle to contain the fallout from the global recession. In the United Kingdom, where Toyota employs about 4 600 people, one shift has been suspended, the Christmas break extended and the company is planning further downtime this year.
The grim figures mark the first time Toyota has suffered an operating loss since 1938. “The change that has hit the world economy is of a critical scale that comes once in a hundred years,” Toyota’s president, Katsuaki Watanabe, told reporters at the firm’s headquarters in Nagoya.
Toyota makes most of its profits in the United States, where exports fell 34% in November. The US government has already stepped in to try to help domestic car makers General Motors and Chrysler with a $17,4-billion package. “US car sales have fallen off the edge and manufacturers are getting a caning,” said one industry executive recently.
Europe is also taking its share of the pain. Toyota said exports to Europe fell at a similar rate to those to the US in December, with Watanabe warning the slump in overseas sales had been “far faster, wider and deeper than expected”.
The slump in demand for new cars in Europe has caused the region’s biggest annual fall in industrial new orders on record. Figures from the European Union’s statistical office, Eurostat, showed orders falling by 15,1% year on year in October last year, increasing the pressure on the European Central Bank to cut interest rates further. Several companies have already announced temporary cuts in production to cope with falling sales. But carmakers are not the only ones feeling the pinch. Suppliers from steelmakers to tyre manufacturers are also suffering from the fall in demand.
High up among Toyota’s problems is the recent surge in the yen against the dollar and euro. Every yen gain against the dollar results in about a $400-million plunge in profits at Toyota. The company made its initial forecast based on an exchange rate of 100 yen to the dollar, but the US currency appears trapped around the 90 yen level, a 13-year low.
The situation is not much better at home, however, with warnings that domestic sales of new vehicles will probably fall below five-million for the first time in 30 years.
Toyota, the maker of the Camry sedan and Prius hybrid cars, expects to sell 8,96-million vehicles worldwide this year, down 4% from last year. Watanabe broke with convention and did not give global sales or production targets for 2009.
Koichi Ogawa, an analyst at Daiwa SB Investments, described the figures as “very, very, very bad”.
“There is a chance that they could fall into the red in the next business year as well. This is also not just a problem for Toyota. What is good for Toyota is good for the Japanese economy.”
The finance ministry, meanwhile, said Japan’s exports fell at a record pace in December, staying in the red for a second month for the first time since 1980.
In the US, GM began talks with the United Auto Workers union about pay concessions and other conditions attached to the US government bail-out of carmakers that was approved by President George W Bush in December. GM and Chrysler received the first round of loans from Washington on December 29, which will be used for payments owing to car parts makers this month.
The Canadian government said over the weekend it would provide loans of more than $3-billion to GM and Chrysler operations north of the border.
The carmakers, however, must press on rapidly with meaningful restructuring measures in order to satisfy the stringent conditions attached to the rescue plan. —