Business / Corporate

Toyota ends tie-up with Isuzu, posts record net profit in first quarter


Auto giant Toyota Motor Corp. and its smaller partner Isuzu Motor Ltd. said Friday they will dissolve their 12-year-old capital tie-up on joint diesel-engine development amid a changing business environment.

Toyota currently holds a 5.89 percent stake in Isuzu as the second-largest shareholder following major trading houses Mitsubishi Corp. and Itochu Corp. Their capital tieup began in 2006.

At a news conference Friday, Toyota and Isuzu officials said that despite the end of their capital relationship, the two carmakers will continue to “maintain good ties” and collaborate with each other where they can.

The ongoing shift to eco-friendly vehicles using electric and hydrogen technologies has changed the business environment for their diesel tie-up. In 2009, Toyota and Isuzu abandoned a plan to develop vehicles based on their jointly developed diesel engines.

The move came as Toyota announced its April-June earnings the same day, saying it posted a record first-quarter net profit thanks to strong sales in North America and China, but warned that possible U.S. sanctions on the auto sector could have a “very big” impact on earnings.

The firm added that ongoing trade frictions between the U.S. and China, as well as Washington’s tariffs on metal imports, would also eat into its bottom line.

The firm said profit rose 7.2 percent to ¥657.3 billion ($5.9 billion) in April-June, its highest-ever first-quarter result.

Operating profit jumped 18.9 percent to ¥682.7 billion, with sales up 4.5 percent at ¥7.4 trillion.

However, Toyota said it is expecting net profit to fall 15 percent for the fiscal year to March 2019.

“On trade issues, we are expecting profits will decline by ¥10 billion because of (higher costs of) steel and aluminium in North America,” Masayoshi Shirayanagi, senior managing director, told reporters.

“We have not yet factored in the impact of auto tariffs. If they are imposed, we think the impact will be very big,” he added.

Satoru Takada, an analyst at TIW, a Tokyo-based research and consulting firm, said, “Compared to its domestic rivals, Toyota has been relatively competitive.”

“The firm performed strongly in North America and its sales in China are steady,” he said.

But U.S. President Donald Trump’s threat to impose stiff tariffs on vehicles imported into the world’s No. 2 car market remains a concern for Japanese automakers.

“U.S. tariffs will be a major risk for the Japanese auto industry. If tariffs are imposed, it will deal a big blow to Japanese carmakers,” said Takada.

Toyota’s global sales grew as the auto giant scored growth in the North American, European and Asian markets.

Increased sales volume and marketing efforts helped boost the bottom line by ¥45 billion, while cost cutting contributed ¥15 billion, the company said.

Foreign exchange rates — a major factor for the industry — had little effect on its earnings for the quarter, it added.

Last week rival Nissan Motor Co. said its net profit for the three months to June plunged more than 14 percent, under pressure from rising material costs and a higher yen.

It said sales were up in China in the three months to June, but fell in North America and Europe.

For the year to March 2018, Toyota reported a record net profit thanks to a weaker yen and U.S. tax cuts.

“The business environment for the industry remains severe,” TIW’s Takada said.

“Japanese carmakers need to step up their investment in new technologies, such as self-driving systems, in order to compete with their global rivals, while growing costs of raw materials are pressuring their earnings,” he added.