Toyota raises loss forecast to ¥450 billion

by Hiroko Nakata

Toyota Motor Corp. radically revised its earnings projections again Friday and said it now expects a ¥450 billion group operating loss and a ¥350 billion group net loss for the year ending March 31.

The expanded losses, which would be the biggest since the automaker was established in 1937, underline how fast global demand is sliding, at a time when the yen is also surging against the dollar and euro.

Toyota posted a ¥2.27 trillion operating profit and a ¥1.72 trillion net profit on ¥26.3 trillion in sales the previous year.

Japan’s biggest automaker, which finally surpassed General Motors in global sales in 2008, also said it expects to log ¥21 trillion in group sales in the business year ending in March.

It is the third time the auto giant has revised its earnings forecast since Nov. 6.

“Frankly speaking, the financial results were very tough for the October-December quarter,” Executive Vice President Mitsuo Kinoshita told reporters in Tokyo. “Then the January-March quarter started, and the market situation is getting more severe in North America and Europe.”

Toyota posted a ¥360 billion group operating loss and a ¥165 billion group net loss for the October-December quarter.

Slumping consumption in the United States, Japan’s biggest market, is beginning to cripple domestic automakers.

Analysts said Toyota’s earnings were hit hard because it expanded its lineup to include large pickup trucks and sport utility vehicles, which have been shunned amid soaring gasoline prices and rapidly declining demand.

Another reason is that Toyota was racing to expand global supply to meet higher demand just before the financial crisis erupted and spooked consumers.

In Japan, Toyota needed to make more automobiles for export to Africa and the Middle East, where the carmaker lacks plants, said Yasuaki Iwamoto, an automobile analyst at Okasan Securities Co.

Building new plants left the automaker with higher fixed costs.

“Thus, Toyota was tending toward expanding into red ink,” Iwamoto said.

He said Toyota’s ability to limit its losses will depend on how fast it can eliminate fixed costs this year.

To improve the bottom line, Toyota said it will maximize sales and trim costs.

Toyota plans to reinforce development of less-polluting vehicles, including the Prius and Lexus hybrids.

The company will also cut fixed costs by 10 percent, including capital investment and employment, it said.

Asked for its forecast for the year starting in April, Kinoshita said negative factors will be weak demand and the strong yen.

“If the yen remains high, it will be a very heavy blow to us,” Kinoshita said.

But the drop in raw materials prices is a positive factor, he said.