Dr. P.V. Viswanath
Weaker Dollar Causes Toyota's Profit to Slip
November 2, 2004, New York Times
Toyota, the world's second-largest carmaker, reported net income of 297.4 billion yen ($2.8 billion) for the quarter ended Sept. 30, as the falling dollar eroded the value of Toyota's sales in the United States.
Despite the weaker-than-expected profit, sales growth was faster than had been predicted. Revenue rose 9.3 percent, to 4.52 trillion yen ($42.7 billion), for the quarter, as the company increased vehicle sales at a double-digit pace in nearly every major market.
The result comes as Toyota and other Japanese automakers are being increasingly drawn into the fierce discounting battle in the United States. That battle has already taken a severe toll on the profits of Detroit's carmakers.
Even with the slippage in earnings, Toyota's report confirmed that it remains one of the fastest-growing and most profitable carmakers in the world. Toyota's profit was still four times the combined earnings of General Motors, the world's largest automaker, and Ford Motor in the period. Toyota also fared better than its closest Japanese rivals. Last week, Honda Motor reported a 7.5 decline in profit and Nissan Motor posted a 3.5 percent fall. Both blamed a weaker dollar and intense price competition in the United States.
Toyota, which also makes the Lexus luxury vehicle, expects profit for the full fiscal year ending March 31, 2005, to be near, or greater than, last year's record 1.16 trillion yen ($11 billion), Toyota's managing director, Takeshi Suzuki, told reporters on Monday.
Koji Endo, an auto analyst for Credit Suisse First Boston, said Toyota's sales had raced ahead.
"In Japan, the U.S., Europe and Asia, almost everywhere, Toyota's sales volumes have been running ahead of expectations," Mr. Endo said. "There are plenty of reasons to believe that the company will continue to post good earnings. But the company is getting larger and larger, and that means the impact from changes in the macroeconomy is also getting larger and larger."
Last year, Toyota passed Ford in global sales to become the world's second-largest carmaker. The company is now aiming to expand its global market share to 15 percent by the end of next decade, from about 10 percent now. Toyota is intensifying its assault on foreign markets to achieve that ambitious goal, with new factories going up in China, Europe and the United States. If it hits the target, Toyota could overtake General Motors.
On Monday, the company laid out more specific short-term sales targets.
The company forecast sales of 7.22 million vehicles globally for the full fiscal year ending next March, which would be an increase of 7.5 percent from 6.72 million last fiscal year. And Toyota's chairman, Hiroshi Okuda, said the company wanted to sell 8.5 million vehicles in 2006. Toyota's sales grew 13 percent, to 1.78 million vehicles, in the recent quarter.
In the crucial North American market, where Toyota generates about two-thirds of its profit, the sales grew 12 percent, to 554,000 vehicles, for the quarter, thanks to strong sales of the Camry sedan and Prius gasoline-electric hybrid car. For the first nine months of the year, Toyota claimed a market share of 12.1 percent in the United States, up nearly a full point from 11.2 percent for the period last year. That share puts Toyota close on the heels of DaimlerChrysler, which has 14.3 percent of the market and is No. 3 in the United States.
The reputation that Toyota enjoys for quality and reliability has helped it expand sales without discounting its vehicles as much as Detroit manufacturers have done. And although its discounts are still not as steep as Detroit's, Toyota has been forced to offer larger incentives this year to keep up.
Toyota said that earnings were also slowed by a decline in profit at its truckmaking affiliate, Hino Motors. Toyota holds a 51 percent stake in Hino, Japan's second-largest truckmaker.
For the first half of the fiscal year, Toyota said the biggest drag on profits came from a drop in the dollar against the yen, which eats into the value of its overseas earnings when reported in yen. Toyota loses about 20 billion yen of operating profit a year for every yen that the Japanese currency strengthens against the dollar. The yen traded at an average 110 yen to the dollar in the quarter just ended, compared with an average of 118 yen a year earlier.
Toyota continued its aggressive expansion in Asian markets during the recent quarter, reporting a 44 percent increase in sales in the region, to 184,000 vehicles. The company got a late start compared with Honda, G.M. and others in China but has been quickly expanding production there in an effort to catch up.
In Europe, Toyota reported that its vehicle sales increased 11 percent, to 229,000.