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Toyota profit falls on weak U.S. sales

Toyota profit falls on weak U.S. sales

Automaker's quarterly net falls 28%, hit by lagging North American sales and stronger yen.

Last Updated: May 8, 2008: 11:21 AM EDT

CNN Money.com

TOKYO (AP) -- Toyota said the strong yen and weaker U.S. sales took a bite out of January-March earnings and projected worse was to come - a 27% plunge in its full-year profit. (Fall in accounting profits)

It would be the first drop in full-year profit in seven years for the automaker.

The results and outlook released Thursday highlight how the tough North American auto market is hammering profits. Meanwhile, unfavorable currency swings (losses in foreign exchange) added to a growing list of problems for Toyota Motor Corp., including soaring material. (Higher variable costs) and energy costs and a stagnant auto market (no shift in demand curve) in its home market of Japan.

"There is no mistake that things are seriously tough - even for Toyota," said Tsuyoshi Mochimaru, auto analyst at Lehman Brothers in Tokyo.

Still, the company appeared to be faring better than its American rivals. GM lost $3.3 billion in the first quarter. Ford had a surprise profit of $100 million for the same period but expects to lose money this year as the U.S. auto market deteriorates.

Honda Motor Co., Japan's No. 2 automaker behind Toyota, said last month that its January-March profit declined 86% compared with the same period a year ago because of a corporate tax levied on its Chinese joint venture. (Joint marketing and joint product promotion to save costs to increase profits and stay competitive) Nissan Motor Co. reports earnings next week.

For the fiscal fourth quarter, the automaker reported a 28% drop in net profit to $3.05 billion. It was the first decline in quarterly profit since April-June 2005.

Sales rose 3.8% in the most recent quarter to $63.14 billion.

Toyota had been on a roll with the success of its fuel-efficient models, (engaging in Research and Development to become X-efficient, reap more substantial internal Economies of Scale and for product differentiation-make demand curve more inelastic) including the Prius and the Corolla subcompact, which have gotten a boost from rising gas prices.

For the fiscal year ended March 31, Toyota racked up record profit of $16.54 billion - up 4.5% from the previous year. That was in line with the projection Toyota gave in February.

Annual sales grew 9.8% to $252.8 billion, also a record for the company.

But recent credit woes in North America have dampened sales in recent quarters.

"We are facing a severe business environment," President Katsuaki Watanabe said. "Toyota considers this headwind as a valuable opportunity to turn it into a more flexible and stronger company." (Toyota could engage in internal expansion- enjoy more internal Economies of Scale and increase productive capacity OR merging with another automobile company- increase competitiveness and increased market share)

Toyota projects this fiscal year's profit will tumble to $12.0 billion, while annual sales are seen falling 4.9% to $240.4 billion.

The last time the company's profit declined was in the fiscal year ending March 2002; the last time annual sales fell was in the year ending March 2000, mainly because of a weak dollar. (Less total revenue to be gained from the US market-when profit from the US market is converted to yen, profit is lesser)　　

Toyota - the world's second-biggest automaker after General Motors Corp also warned it will need to spend more in technology research and carry out cost cuts (to be productive efficient) to stay competitive. (Reap more internal Economies of Scale and increase competitiveness)

The recent shift to smaller cars is a crunch for the makers because those vehicles are cheaper and have smaller profit margins than trucks and other gas guzzlers. (Shift in consumer preference- Toyota must be able to adapt to market demand-Increased demand for smaller cars and decreased demand for bigger cars)

Toyota has been steadily boosting sales in recent years at a pace some analysts say is on track to overtake General Motors as the world's No. 1 automaker in annual vehicle sales.

For the fiscal year ended March 31, Toyota sold 8.91 million vehicles around the world. (Decreased output) That was slightly below the 8.93 million vehicles it had expected to sell for the fiscal year, but still 4.5% better than a year earlier.

North American vehicle sales, which had been strong for Toyota in the past, fell for the last fiscal quarters, according to the company. Japanese sales have also been stagnant recently.

Toyota said it expected to sell 9.06 million vehicles globally for the fiscal year through March 2009, up 1.6 from the year just ended.

Toyota shares slid 1.8% to $52.7 in Tokyo. The results were released just as the market closed. (Share price declines reflect negative consumer sentiment and poor outlook (prospects) for the automobile industry)

Ming Liang

posted by ming @ 3:31 AM