Toyota Posts 1st Operating Loss In 70 Yrs.

By: AP
By: AP

(AP) Toyota Motor Corp. said Monday it will report the first operating loss in 70 years, acknowledging that after a decade of rapid growth it can no longer escape the slowdown plaguing the global auto industry.

The Japanese auto giant also lowered its global vehicle sales forecast for the second time this year and said it was putting ambitious expansion plans on hold, in large part because of a precipitous drop in demand in the key U.S. market.

"The tough times are hitting us far faster, wider and deeper than expected," Toyota President Katsuaki Watanabe told a gloomy news conference at the company's Nagoya headquarters. "This is an unprecedented crisis requiring urgent action."

Toyota had reported strong growth in recent years, boosted by heavy demand for its fuel-efficient models like the Camry sedan and Prius gas-electric hybrid.

But Watanabe said a severe drop in demand, especially in the U.S., which accounts for one-third of vehicle sales, and profit erosion from a surging yen were too much for Japan's No. 1 automaker. Overall U.S. auto sales fell to their lowest level in 26 years last month.

"The change that has hit the world economy is of a critical scale that comes once in 100 years," Watanabe said.

Toyota said it expects an operating loss of 150 billion yen ($1.66 billion) for the fiscal year ending in March, compared with an operating profit of 2.27 trillion yen ($25.2 billion) a year earlier.

Toyota said it would still post a small net profit of 50 billion yen ($555 million), thanks to outside dividend income, down from year-earlier earnings of 1.7 trillion yen ($18.89 billion). But operating income is seen as the best reflection of its core business.

The outlook was a dramatic change of fortune for the iconic company, which in recent years had outlined ambitious expansion plans and weathered an industry slowdown much better than its U.S. rivals.

Toyota, which started in business as a loom maker, began making trucks and passenger cars in 1937. Its first and only operating loss came the following year, before it started reporting formal results in 1941.

At the time, Toyota was still far behind the American automakers. With World War II, Toyota started a side business making aircraft engines, but that group company switched to making auto parts and sewing machines after the war.

In its forecast, Toyota lowered the number of vehicles it expects to sell globally this calendar year to 8.96 million, down 4 percent from last year. Earlier this year, Toyota had projected worldwide sales of 9.5 million vehicles.

We must change to become more slim, muscular and flexible.

Toyota President Katsuaki WatanabeInitially, it had an even more aggressive target of 9.85 million, and expectations had been growing that the tally would reach 10 million in coming years - allowing Toyota to dethrone General Motors Corp. as the world's top automaker.

Tsuyoshi Mochimaru, auto analyst for Barclays Capital in Tokyo, warned worse may be ahead.

U.S. auto sales aren't expected to start recovering until late 2009, and the dollar - already at a 13-year low against the yen - could lag further, he said. A strong yen hurts results because overseas profits must be converted into the Japanese currency.

"The problem is next year," said Mochimaru. "It's unmistakable that things are extremely tough for Toyota."

Watanabe and other Toyota executives repeated a recent announcement that expansion plans will be on hold, including a new plant in Mississippi and projects in India.

Toyota said there were no plans to lay off any full-time employees, though it plans to cut the number of temporary workers at its Japanese plants in half to about 3,000.

Toyota is a relatively old-style Japanese company that offers lifetime employment, and only in recent years has hired and let go of temporary workers to adjust production. It said it was reviewing overseas jobs but had not reached a decision.

Watanabe vowed Toyota would grow so lean it would realize profitability even if its worldwide sales fall as low as 7 million vehicles - what he called the basic "bottom line" for Toyota.

"We must change to become more slim, muscular and flexible," he said.

The automaker will focus on hybrids and small cars, and invest in ecological technology to prepare for long-term growth, officials said.

While Japan's automakers are in far better financial shape than their cash-strapped American counterparts, the global slowdown is hitting them hard. Last week, Japan's No. automaker, Honda Motor Co., also lowered profit and sales forecasts and declined to give a vehicle sales goal for 2009.

Monday marks the second time Toyota reduced its forecast. Initially, it had projected net profit of 1.25 trillion yen ($13.9 billion) for the fiscal year, but last month lowered that to 550 billion yen ($6.1 billion).

Also Monday, it lowered its revenue forecast to 21.5 trillion yen ($239 billion), down about 18 percent from a year earlier.

Toyota's U.S. vehicles sales plunged by a third on year in November, when overall sales fell to their lowest level in more than 26 years. And there is little hope for a quick fix as consumers hold back big purchases amid a credit crunch, rising unemployment and fears about the future.

The company's stock fell 5 yen, or 0.17 percent, to 2,895 yen in Tokyo. The benchmark Nikkei 225 stock average rose 1.5 percent.

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