Toyota Cuts Profit Forecast 56% on Demand, Strong Yen

Toyota Cuts Profit Forecast 56% on Demand, Strong Yen

Nov. 6 (Bloomberg) -- Toyota Motor Corp., the world's second-largest automaker, forecast the biggest drop in profit in at least 18 years as a global slump cripples auto demand and gains in the yen erode the value of overseas sales.

Net income will likely be 550 billion yen ($5.6 billion) for the year ending March 31, compared with an earlier forecast of 1.25 trillion yen, the company said today. The new forecast will be a 68 percent drop from the 1.72 trillion yen Toyota earned last year.

President Katsuaki Watanabe slashed the carmaker's profit goal as higher fuel costs and the credit crunch have pushed industrywide U.S. sales to the lowest level since 1983. Toyota, Japan's biggest carmaker, follows smaller rivals Honda Motor Co. and Nissan Motor Co. in predicting larger-than- expected drops in earnings.

``For Toyota and other carmakers, the deterioration of the U.S. economy trumps everything else,'' said Hitoshi Yamamoto, chief executive officer of Tokyo-based Fortis Asset Management Japan Co., which manages $5.5 billion in Japanese equities. ``The companies will keep suffering as long as they rely on North America for profits.''

Toyota cut its operating profit goal 63 percent to 600 billion yen. It lowered its vehicle sales forecast 5.7 percent to 8.24 million from 8.74 million.

Toyota fell 10 percent to 3,810 yen at the 3 p.m. close on the Tokyo Stock Exchange before it released earnings. The stock has dropped 37 percent this year.

Stronger Yen

The carmaker had an operating loss of 34.6 billion yen in North America in the first half, after adjusting for a one-time gain in the valuation of interest rate swaps.

In response, the company set up an emergency committee, headed by President Watanabe, to focus on cutting costs and review the timing and scale of all new projects.

``The auto market is in a very severe situation, the like of which we have never experienced before,'' Executive Vice President Mitsuo Kinoshita told journalists in Tokyo.

Profits at Toyota and other Japanese automakers are also being squeezed by a strong yen, which breached 100 per dollar on Oct. 8 for the first time in six months. Toyota based its forecasts on 103 yen to the dollar and 146 yen to the euro, compared with its July estimate of 105 yen and 161 yen, respectively.

U.S. Sales

Toyota's second-quarter net income fell 69 percent to 139.8 billion yen from 450.9 billion yen a year earlier.

Industrywide U.S. auto sales in October plummeted 32 percent, as General Motors Corp.'s sales plunged 45 percent. Toyota's sales fell 23 percent. Nissan had a 33 percent drop, and Honda's fell 25 percent.

Toyota halted U.S. production of Tundra and Sequoia full- size vehicles for three months and plans to export the two models to the Middle East and Latin America. The carmaker also pared production in Western Europe, as demand slipped.

Toyota and Nissan are offering a no-interest loan promotion on popular models including the Toyota Corolla and Nissan Versa small cars to lure U.S. vehicle buyers.

Among 10 publicly traded Japanese car and truck makers, only Fuji Heavy Industries Ltd., the maker of Subaru cars, reiterated its earnings forecast when it reported first-half financial results on Oct. 30.

Honda, Japan's second-largest automaker, expects a 42 percent drop in operating profit this fiscal year, it said on Oct. 28. Nissan's operating profit may drop 51 percent, the company said on Oct. 31.

BLOOMBERG