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Toyota spills red ink for first time

Sorry: Toyota CEO Katsuaki Watanabe apologised for Toyota's slow reaction to the financial crisis.

Japanese giant Toyota stung by volume plunge, exchange rates

Toyota logo11 May 2009

By IAN PORTER

TOYOTA chief executive Katsuaki Watanabe apologised to shareholders after admitting the slow reaction of directors to the world financial crisis was a factor in the group’s ¥560 billion ($A8.3 billion) loss in the 12 months to March 31.

It was the company’s first loss since 1950, and Mr Watanabe warned that worse was to come, predicting a loss of $A12.6 billion (¥850 billion) for the current financial year before income taxes, minority and equity interests were taken into account.

When the global financial crisis hit last year, Toyota had to suddenly change direction, from building new plants and production capacity around the world to sharply reducing production and laying off workers.

Production was slashed by 1.34 million units or 15 per cent, to 7.57 million units as plants were idled or slowed to bring output into line with demand. Revenues for the year slumped 23 per cent to $A284 billion.

“The negative impact was a consequence of the significant deterioration in vehicle sales, particularly in the US and Europe, the rapid appreciation of the yen against the US dollar and the euro and the sharp rise in raw materials,” Mr Watanabe said in a press release.

Later, at a press conference, he gave an even more frank assessment.

“Of course the external environment doesn't help, but we were lacking in the scope and speed of dealing with various problems and issues, and for that I am sorry," he told a news conference.

 center imageLeft: Toyota production line in the US.

Toyota sales plunged around the world. In Japan, they were down 11 per cent to 1.95 million, in North America they were down 25 per cent, to 2.21 million.

European sales were off 17 per cent, to 1.06 million, and in Asia they eased five per cent, to 905,000 units. The rest of the world, which includes Australia, was down 7.5 per cent to 1.44 million cars and trucks.

The dire forecast for an even bigger loss in the current year was based on a weak outlook for the major economies of the world. The company expects sales to fall a further 14 per cent, or 1.06 million cars and trucks, to just 6.5 million units in the current year to March 31, 2010.

That would be 27 per cent below the 2007-08 total of 8.91 million.

Currency shifts also played a large part in the latest result. Toyota moved from booking a $A100 million gain on currency in 2008 to listing a loss of $A26.8 million The group’s financing arm was not immune from the financial damage, continuing a loss of $A1.07 billion to the group result. Higher outstandings and improved margins were offset by provisions for bad debts and residual losses, mainly in the US.

Mr Watanabe said the company’s internal cost cutting programs would yield savings of around 800 billion yen or $A10.6 billion in the current financial year.

But he was not expecting a quick recovery in the largest western markets.

“It appears to take some more time before the financial markets in the US and Europe normalise and the global economy recovers.

“There is a rising concern for a further downside in the world economy caused by an even more vicious cycle of the financial crisis and the weakening of the real economy. The Japanese economy also has risks that the recession deepens further and lasts longer.

“In addition, the competition in the automotive market is more intense globally, as shown in the fierce competition with respect to compact cars and low-price cars, and the acceleration of development in technologies and introduction of new products while environmental awareness is growing throughout the world.” US auto industry consultant Maryann Keller said that while the severe downturn had buffeted all auto-makers, even Honda Motor Co and BMW AG, Toyota had “some self-inflicted problems".

"They were on a mad tear to become number one, and as a result generated a lot of excess capacity,” she said. “They also have excess labor, as a result." Toyota has problems not just with its installed capacity, but the models it produces, said another analyst.

“(Japanese market) rival Honda Motor Company last week forecast a small profit for this year thanks to its relatively healthy motorcycle business,” said Koichi Ogawa, chief portfolio manager at Daiwa SB In vestments.

“Compared with Honda, (Toyota) has a lot of larger models and a lot of excess capacity globally," Mr Ogawa said. “By 2010, cost cutting and capacity reduction may be taking effect, so they could breakeven by then.”

Read more:

Toyota trebles loss forecast

Bentley, Toyota slash production


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