Free loans give Toyota edge in U.S.

by Alan Ohnsman and Naoko Fujimura

Bloomberg

Toyota Motor Corp., rocked by a sales slump that led it to project the biggest annual earnings drop in at least 18 years, may win market share with its ability to fund car loans as cash-strapped U.S. competitors seek government aid.

Asia’s largest carmaker, leading General Motors Corp. in global auto sales this year, said Thursday net income in the year ending March 31 may drop to ¥550 billion, down from an earlier target of ¥1.25 trillion.

Toyota had an operating loss of ¥34.9 billion in North America in the second quarter as U.S. demand for its trucks and cars dropped 14 percent. The carmaker, with its AAA credit rating, has turned to no-interest loans to spur sales, a measure GM, Ford Motor Co. and Chrysler LLC can no longer afford.

“In the U.S. you’re looking at a market that’s shrinking by a third,” said Tim Gilbert, who helps manage about $287 billion in assets at Principal Global Investors in Des Moines, Iowa, including Toyota and Honda Motor Co. debt. “Toyota is running a zero-percent loan campaign, because they, and Honda, are the only companies that can do it right now.”

GM, Ford and Chrysler chief executives met with Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi Thursday seeking aid to help survive the worst auto market in 25 years.

The U.S. automakers are seeking $50 billion, consisting of $25 billion for health-care spending and $25 billion for general liquidity that could be delivered in different ways, including short-term borrowing from the Federal Reserve, according to a source.

U.S. market share for Toyota will likely continue to rise, said Stephen Usher, a San Diego-based equity analyst for Japaninvest PLC.

“That’s going to be cold comfort to Toyota,” Usher said. “It’s not going to be a V-shaped recovery where sales plunge and rebound sharply. We’re going to go into a hole and will stay there for some time.”

Moody’s Investors Service Inc. rates Toyota’s long-term debt Aaa and Standard & Poor’s puts it at AAA, the top ratings issued by the companies. Toyota is the sole automaker with the ratings.

Toyota’s American depositary receipts fell the most in 18 years Thursday. Shares in Tokyo were untraded as sell offers outnumbered bid offers by a 2-to-1 ratio at the 11 a.m. break.

“It’s a Toyota shock,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co. in Tokyo. “There is a possibility that Japanese automakers will trim their forecasts again because their sales may not meet their expectations.”

The yen’s 15 percent rise against the dollar and 33 percent gain against the euro this year have also squeezed profits at Toyota and other Japanese automakers.

Toyota based its forecasts on ¥103 to the dollar and ¥146 to the euro, compared with its previous estimate of ¥105 and ¥161, respectively. Every ¥1 gain against the dollar and euro trims Toyota’s annual operating profit by ¥40 billion and ¥6 billion.

“This is the worst I have seen,” said Koji Endo, an auto analyst at Credit Suisse Securities (Japan) Ltd. in Tokyo. “I can’t rule out the possibility that Toyota will report an operating loss in the second half,” if the yen remains at current levels against the dollar and euro.

The company set up an emergency committee, headed by President Katsuaki Watanabe, to focus on cutting costs and review the timing and scale of all new projects, Executive Vice President Mitsuo Kinoshita said Thursday.

Still, “we shouldn’t reduce research and development spending just to boost near-term profits,” he said.

Toyota, the world’s largest seller of hybrid-electric cars, will bring out a new version of its Prius hatchback next year to win more consumers seeking fuel-efficient cars.