Dow Jones Newswires (Tokyo) - Toyota Motor Corp. on Friday slashed its profit outlook by more than half, signaling the corrosive effect of its currency exposure and threatening the car maker's recovery.
As the Japanese auto giant was rebounding this fall from production snags after Japan's massive earthquake in March, it was hit by flood damage to key component suppliers in Thailand and the fall of the dollar against the yen to record lows.
Those setbacks have eroded Toyota's competitive position against global rivals such as Hyundai Motor Co. and Volkswagen AG, especially for the many vehicles it still exports from Japan such as the Yaris subcompact. Toyota on Friday also lowered its global vehicle sales outlook to 7.38 million vehicles, a sign it could lose its crown as the world's largest auto maker this year, a title it took from General Motors Corp. three years ago.
The dollar and euro weakness against the yen has reduced the price competitiveness of Japanese exports in overseas markets and eroded the value of foreign profits on corporate Japan's balance sheets. Toyota still makes in Japan nearly half the vehicles it sells globally, leaving it more exposed to currency risk than Japanese rivals Nissan Motor Co. and Honda Motor Co. which make about a third of their respective output in Japan.
For its current fiscal year, which runs through next March, Japan's biggest car maker by volume said it now projects a net profit of ¥180 billion ($2.32 billion), down 54% from a previous estimate announced in August and less than half the ¥408 billion it earned last year.
Toyota expects the shortage of parts from Thailand suppliers to be fully remedied by next March. But it projected continued yen strength next year, which bodes ill for a quick earnings rebound.
The Toyota City-based company's new forecast assumes an average exchange rate of ¥77 to the dollar from this month through March, and ¥105 against the euro. That is up from ¥86 to the dollar and ¥113 to the euro in the last fiscal year.
Satoshi Ozawa, Toyota's chief financial officer, said one of the reasons Toyota was exposed to the Thai floods was because so much of Japanese industry has already been shifting its manufacturing operations offshore to escape the high yen, including auto parts makers.
"The fact that production of some electronic parts has been offshored [to Thailand] signals how the destruction of Japan's industrial base is proceeding apace. I find that very shocking," he said.
At current exchange rates, the company is forecasting a parent, or unconsolidated, net loss of ¥80 billion yen, which would mark its first dip into the red ever in terms of reported after-tax income.
Toyota also expects to report a fourth consecutive year of operating profit losses to the tune of ¥530 billion yen. Those parent company losses are a result of weak demand for cars in the Japanese market and the large number of vehicles Toyota exports from Japan.
The timing of the announcement was unusual, coming weeks after Toyota reported fiscal first half earnings. It had refrained from updating its forecast on Nov. 7, saying that more time was needed to assess the impact of the Thai flood damage.
Toyota's three local factories escaped the inundations in Thailand, but flood-triggered bottlenecks in the parts supply chain forced it to suspend local operations in early October, and also to later scale back output in other countries including the U.S. and Japan as the disaster's impact spread throughout its production network.
The production cutbacks were ill-timed as Toyota had just begun to make up for lost output after from the March quake and tsunami in Japan derailed its global production plans earlier in the year.
While the Thai parts shortages no longer plague vehicles sold in North America, Mr. Ozawa said it remains an issue for some vehicles sold in Japan such as the Alphard and Vellfire minivans, along with its Prius and Aqua hybrids.
But Toyota cut its revenue forecast to ¥18.2 trillion from an earlier estimate of 19 trillion yen and after posting sales of ¥18.9 trillion last year. The company said its operating profit is now seen at ¥200 billion, down from ¥450 billion previously and ¥468 billion in the year ended in March.
The company reports earnings under U.S. accounting standards.
