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Toyota feels bite of U.S. downturn

From Automotive News:

Toyota feels bite of U.S. downturn
Warns of first profit fall in nine years

Hans Greimel
Automotive News
May 8, 2008 - 2:10 am ET
UPDATED: 5/8/08 8:10 a.m. EDT


TOKYO -- Toyota Motor Corp. racked up record results for the just-ended fiscal year.

But the good news ends there. Now the world's biggest, most profitable car company is warning that earnings for the current year are poised to fall for the first time in nearly a decade.

What's more, Toyota backed off its optimistic outlook for a 2008 sales increase in North America. A top executive now says his company's volume is likely to decline instead.

It's a dramatic reversal from the year ended March 31, 2008. Sales, operating profit and net income hit all-time highs in that period, President Katsuaki Watanabe said May 8.

But now Toyota finds itself buffeted by a triple whammy of outside forces: An unraveling U.S. market, surging raw material prices and a Japanese yen that is surging in value against the dollar.

“The business environment surrounding us has changed very rapidly to become tougher,” Watanabe said here while announcing full-year financial results. “Whether we can absorb these negative impacts or not will be true test of Toyota's capabilities.”

Slump Ahead
Toyota is hardly alone. The same headwinds are lashing its domestic rivals as well. And this earnings season in Japan has been marred by gloomy outlooks.
Mitsubishi Motors Corp., Honda Motor Co. and Mazda Motor Corp. have all forecasted double-digit percentage decreases in operating profit and net income for the current year.

Nissan Motor Co. gives its financial results May 13.
Toyota says operating income will tumble 29.5 percent to 1.600 trillion yen ($16.00 billion) in the current fiscal year ending March 31, 2009. Any downturn would be the first operating profit decline in nine years.
Meanwhile, net income is expected to slump 27.2 percent to 1.250 trillion yen ($12.50 billion). That would be the first net decline in seven years.

The forces fueling the downturn are largely beyond Toyota's control:
• U.S. sales volume down 7.7 percent at an adjusted annual rate of 14.7 million vehicles.

• Domestic steel prices that have shot up 27.8 percent between November and March.

• A Japanese yen that has climbed 11.1 percent against the dollar since October.

Toyota says foreign exchange rates alone will slice 690.0 billion yen ($6.90 billion) off operating profits this year. Added expenses will sap another 160 billion yen ($1.60 billion).

Toyota missed its North America sales target of 2.97 million vehicles in the fiscal year just ended. It sold 2.958 million vehicles and sees a 6.4 percent drop to 2.77 million this year.

For the 2008 calendar year, Toyota had been predicting a 1 percent sales increase to 2.64 million cars in the United States, despite the deteriorating market.

But that too is under pressure, Senior Managing Director Takeshi Suzuki said.
“We are thinking it's going to decline a little,” Suzuki said after the financial results. “We are now examining the sales plan and will announce the figures soon.”

Good Times Gone
Toyota is struggling with record high inventory levels in the United States, largely because it misjudged how bad the U.S. market downturn would be. Suzuki said the company predicted total volume in the high 15 millions, but was now working with the low 15 millions.

The warning signs began to surface in the fourth quarter, from January to March, 2008.

Toyota's operating profit dove 30.5 percent to 396.70 billion yen ($3.79 billion) in the period, from 570.5 billion yen ($5.43 billion)a year earlier.
Net income skidded 28.0 percent to 316.80 billion yen ($3.02 billion).
Yet on an annual basis, it was a banner year for the Japanese automaker.
Revenues rose 9.8 percent to 26.289 trillion yen ($230.60 billion). Operating profit added 1.4 percent to 2.270 trillion yen ($19.91 billion). And net income advanced 4.5 percent to 1.718 trillion yen ($15.07 billion).
All those results were company records.
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