Toyota Announces Halved Profit Forecast Thanks to Thai Floods, Strong Yen

Toyota’s profits have suffered greatly thanks to the events of the past year, and as a result, the Japanese company is expected to lose its title this year as the world’s top-selling automaker to General Motors, with its earnings also likely yielding to Volkswagen’s as well. According to Reuters, Toyota cut its annual profit forecast by more than half to $2.6 billion, with the Thai floods mostly to blame, but also the March earthquake and tsunami as well as a persistently strong yen. With production severely hindered, Toyota must reevaluate and hope for a recovery in profits in the coming years.

Toyota said in a statement that net income will fall 56 percent to roughly $2.3 billion in the 12-month period ending March 31. Toyota also decreased its projections for operating profits, now expected to fall 57 percent to 200 billion yen. That figure is less than half the 419 billion yen predicted in a consensus forecast from a survey of 23 Reuters analysts. Toyota previously issued a forecast of 450 billion yen in August, but withdrew it last month after the floods in Thailand severed the company’s supply chain to Toyota factories in 10 countries. The automaker said the floods would ultimately cost it 230,000 vehicles in lost production by the end of the business year, and that the disaster was reflected by a drop of 120 billion yen in the revised operating profit forecast.

Now that the waters have receded and workers can get in to assess the damage, recovery of those suppliers in Thailand can begin. Toyota said today it expects Thai production to return to normal this month, and that production in most regions is now moving at full steam. According to Reuters, Toyota is set for record production numbers next year, with its factories playing catch-up to replenish inventories.

Despite this, the strength of the yen, now trading at 77-78 yen to the dollar, will make profit recovery difficult. With the yen strong against nearly every other major currency, Toyota, as an export-heavy business, will rake in less profits. Reuters says the strong yen contributed to a drop of 190 billion yen in its revised operating profits forecast.

Toyota’s recent announcement that it will export Sienna and Camry models from the U.S. to South Korea helps address this problem, as it sidesteps tariffs and also saves money by building cars in the U.S. Though building cars in other markets is crucial for the automaker now, Toyota has committed to build 3 million vehicles in Japan each year, which would make up roughly 40 percent of its global output. But with more than half of those models destined for export, Toyota forecasts a parent-only operating loss of 530 billion yen, up significantly from the previous forecast of 370 billion.

Reuters reports last month marked a 15-1/2-year low for Toyota stock, which has fallen 18 percent this year. The rising strength of the yen is an issue for all of Japan, being that its economy is heavily reliant on exports. Toyota Chief Financial Officer Satoshi Ozawa has expressed his frustration over the yen, saying at a press conference: “[The revision] is partly because Toyota’s exposure to currency swings is big, but I think it also brought to light the severity of the crisis Japan is in, because the country is founded on its export strength.”

Source: Reuters

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