Toyota sets profit goal of ¥1 trillion

Half of sales will be in emerging markets, chief says

by Hiroko Nakata

Toyota Motor Corp. President Akio Toyoda said Wednesday the auto giant aims to earn more than ¥1 trillion in group operating profit as soon as possible as it tries to rebound from a record loss two years ago when it was hit by the global economic downturn and massive recalls.

The world’s biggest automaker will recover to a 5 percent operating profit ratio even if sales decline to 7.5 million units and the yen trades at 85 to the dollar, he said. This compares with the current 2.9 percent based on an average dollar exchange rate of ¥86.

“This goal means we will maintain strong profitability, even if another big economic downturn hits and our sales fall by about 20 percent,” Toyoda said during a news conference in Tokyo trumpeting the company’s “global vision” through 2015.

Signs of recovery have started to appear. On Feb. 8, Toyota boosted its group operating profit forecast by 44.7 percent to ¥550 billion for the business year ending March 31, against a ¥147.5 billion profit in the previous year.

Toyoda said he hopes to see group sales reach around 10 million units by 2015, against the current 8.6 million.

To achieve its profitability goal, the company will focus on emerging markets and fuel-efficient technology. By 2015, Toyota will expand sales in emerging nations so 50 percent of overall sales can come from those nations, against 40 percent in 2010, Toyoda said.

As part of its focus on emerging markets, the carmaker added the Etios compact in India in December. It will try to boost sales in China to 15 percent of overall global sales, Toyoda said, adding his firm will launch 10 hybrid models by 2015.

Toyota will cut its board members to 11 from the current 27 as part of efforts to slim management.

The press conference followed the news March 4 that Standard & Poor’s downgraded Toyota’s long-term credit rating to AA- from AA, citing “weak” profitability.

“The downgrade reflects our opinion that Toyota’s profitability is unlikely to recover in the next one to two years to a level that we view as appropriate for the rating,” S&P said.

Tadashi Usui, senior analyst in charge of the auto industry at Moody’s Investors Service, said Toyota needs to speed up efforts to reach the 5 percent profit ratio ability, overcoming the strong yen and the fallout from the series of recalls related to unintended acceleration.

“Its profitability used to mark nearly 10 percent, but it had been declining,” Usui said.

When Toyota logged a ¥461 billion operating loss two years ago, it was the first time in the postwar period that the company had fallen into the red. It wasn’t easy getting back to profitability amid all of its recalls.

Analysts say Toyota still needs to regain customer trust in North America, which it has relied on as a rich source of operating profit. Toyota’s sales share in the U.S. has hovered at around 15 percent for about a year, down from around 18 percent, Usui said.

To reduce the impact of the yen’s rise against the dollar, Toyota will have to increase overseas production, procure dollar-denominated components or cut various costs in Japan, he added.