Business / Corporate

Toyota's recovery revives automaker's hometown

by Craig Trudell and Masatsugu Horie

Takako Sugiyama isn’t sure how old her two grandchildren’s school is. She knows this: the building, in the city of Toyota, Aichi Prefecture, was dated when her three kids — now in their 50s — attended.

This year, things will finally change. With Toyota Motor Corp. set to earn more money than all other Japanese carmakers combined, the company’s hometown is seeing a surge in tax revenue. The school will be torn down and replaced with an earthquake-resistant building, putting Sugiyama’s mind at ease.

“I’ve been worried the current building is a bit too dangerous,” Sugiyama, 71, said while walking by with her granddaughter. “The economy around this area has been improving as Toyota’s business has gotten better.”

The city plans to build two new schools, two community centers and a low-income housing complex this year as its fortunes improve. Corporate tax revenue jumped to an estimated ¥24.8 billion ($208 million) in 2014 and is projected to hit ¥26.2 billion in 2015, about seven times the average for the five previous years.

“It’s getting easier for us to pursue these kinds of projects for the future, as tax revenue from Toyota and its affiliates has grown,” said Ichihiro Nishiwaki, a team leader in the city’s policy planning office.

Toyota’s fortunes have turned since the 2008 global financial crisis, recalls over unintended acceleration and natural disasters in Japan and Thailand crippled sales and output — creating a bleak state of affairs for the city that was renamed after the company in 1959. In the span of five years, the industrial town of about 420,000 people drew down its savings by about a third, to ¥11.3 billion by the end of 2013.

Japan’s corporate tax laws allow companies, including Toyota, to incur loss carry-forwards that give them relief from paying taxes after an unprofitable year. In May 2009, less than a month before Akio Toyoda became president, the company reported a loss of ¥436.9 billion for the previous fiscal year. It was Toyota’s first annual loss in 59 years.

Toyota has bounced back and now forecasts a ¥2.13 trillion profit for the fiscal year ending March 31, a second consecutive record. Japan’s seven other carmakers are projected to earn about ¥1.76 trillion in total, according to analyst estimates compiled by Bloomberg.

The automaker’s stock has more than tripled since November 2011, outperforming the benchmark Topix index.

Nissan Motor Co., the nation’s second-largest automaker, may boost net income by 17 percent to ¥455 billion while No. 3, Honda Motor Co., may post a 0.8 percent drop to ¥569 billion, according to the estimates.

Toyota’s recovery is boosting not just tax revenue but paychecks as well. The company is giving unionized workers across Japan a ¥4,000 raise in base monthly salaries beginning April 1, its biggest wage increase since at least 1993.

While the increase is one-third less than what Toyota’s labor union proposed, Toyoda, 58, said at the end of negotiations that the raises would keep the company in the good graces of Japan.

“We’d like to hear children say that they’d like to work for Toyota in the future, they’d like to drive a Toyota,” managing officer Tatsuro Ueda told reporters on March 18. “Both labor and management will be heavily united to make that happen.”

The trickling down of some of Toyota’s wealth is a welcome sign for Prime Minister Shinzo Abe as he seeks to revive Japan’s economy and end deflation. While his economic policies have weakened the yen and provided a lift to large exporters such as Toyota, small businesses and the general public are less optimistic about prospects for a recovery.

Just 10 percent of people who responded to an annual Cabinet Office survey released in March said they thought Japan’s economy was headed in a good direction, down from 22 percent a year earlier.

Hironori Okada, who runs a motorcycle shop in Toyota City, said the past six months had been the worst period in the 10 years he had been in business. He had sold about 20 bikes, half as many as a year earlier.

“I don’t feel any benefit from ‘Abenomics,’ or from Toyota’s rising profits,” said Okada, who estimated about 70 percent of his customers worked for Toyota or related companies. “I’m in trouble.”

Even so, others see conditions improving. The Nikkei newspaper released results of a quarterly poll that found almost 75 percent of business executives at 145 companies said the economy was expanding, up 34 percentage points from December.

The Toyota Municipal Government remains optimistic. In addition to projects slated to be completed this year, a new hospital is planned within three to four years. The city also will redevelop an area surrounding Toyota-shi, a major train station that’s set to add a shopping mall within about a decade.

“It’s a sign of Japan getting out of deflation,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley in Tokyo.

“Japan has only been able to maintain existing facilities, at most, and unable to build up new infrastructure. Now, the government is beginning to spend money for new projects as tax revenue is increasing.”