Toyota expects £1.1bn loss a year after record profits

World's biggest car-maker hit by currency appreciation
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The Independent Online

The crisis facing the world's largest car-makers intensified yesterday as the Japanese giant Toyota, which last year reported record profits, forecast its first annual operating loss. The world's biggest car-maker blamed a continued slide in vehicle sales and a rise in the Japanese yen for the first such loss in its 71-year history.

Toyota cut its group operating forecast to a loss of Y150bn (£1.1bn) for the year to the end of March, after shocking financial markets last month by slashing the same forecast by Y1trn to Y600bn. It made a record profit of Y2.27 trn only last year.

Toyota now expects to make a net profit of Y50bn – a fraction of the previously forecast Y550bn.

Automakers around the world are facing a sharp fall in demand as the global financial crisis spreads, squeezing credit and consumer confidence.

Like the rest of the industry, Toyota has mothballed factories, slowed assembly lines and delayed projects, such as a new plant in Mississippi to build the Prius hybrid model, and said it would continue those moves until the tide turned. The company will also postpone all projects to expand capacity, move 16 of its 75 global assembly lines to a single shift, and cancel directors' bonus payments for this year, to improve near-term profitability, said the car-maker's president, Katsuaki Watanabe. He warned: "The change that has hit the world economy is of a critical scale that comes once in a hundred years."

Even the electric hand dryers at the company's Nagoya office building have been unplugged in an effort to cut costs.

Mr Watanabe stopped short of projecting what global car sales and earnings would do next year, saying only that Toyota hoped to return to profit and cut capital spending to below Y1trn, compared with the Y1.4trn planned this year.

Honda made a similar move last week, cutting its annual profit forecast by 67 per cent, and putting off non-urgent investments to prop up its profitability.

Elsewhere in Japan, the small-car makers Suzuki and Daihatsu announced more production cuts, of 29,000 units and 16,000 units respectively, by the end of March, along with a reduction of non-permanent workers.

In the United States, automakers – which had struggled during the economic boom, are in even bigger trouble, with President George Bush throwing General Motors and Chrysler a lifeline of up to $17.4bn (£11.7bn) to stave off bankruptcy.

This year Ford sold its Jaguar and Land Rover units to India's Tata Motors.

The Indian car-maker is now in discussions with the British Government to try to secure financial help for the beleaguered British firms it owns.

A spokesman for Tata said yesterday it will "do its best to resource all its businesses" including Jaguar and Land Rover, in response to a report that it has agreed to inject "tens of millions" of pounds into the two luxury brands to prevent an immediate cash flow crisis.

Ford, which also sold its Aston Martin business to a Middle-Eastern investor in 2007 as it shed non-core units, is considering selling its much bigger and more profitable Volvo brand.

European car-makers are also contemplating radical solutions to the problems they face. The Italian auto giant Fiat's vice-chairman, John Elkann, said this month that the company is open to a merger.

Germany's BMW, like Toyota, is considering further production cuts.

Meanwhile, automotive parts suppliers yesterday also took steps to reduce capacity. Bridgestone, Japan's largest tyre maker, cut its operating profit forecast for 2008 by 24 per cent to Y118bn on slower tyre demand for new cars and replacement purposes. Its French rival Michelin said it faced costs of nearly €150m (£141m) as it cuts back operations to cope with a decline in tyre demand.

Japan's exports: Global crisis hits demand

Toyota is not alone among Japan's major exporters to be caught between the twin vice of a slowing global economy chipping at demand and a strong yen hurting competitiveness.

Japan posted its worst trade deficit performance in nearly 30 years in November, it emerged yesterday.

With shipments to the United States and China falling, a record 26.7 per cent plunge in exports, bigger than a 14.4 per cent fall in imports, pushed Japan's once politically sensitive trade balance into a deficit of Y223.4bn (£1.68bn) in November.

Japan last recorded a trade deficit in two successive months in 1980, when it was locked in a trade dispute with the United States and its currency appreciated by a third against the dollar.

The Bank of Japan cut interest rates to 0.1 per cent last week to try to boost the economy and reduce upward pressure on the yen. The currency has gained around 20 per cent against the dollar this year as investors, spooked by the global financial crisis, bailed out of risky assets and brought funds home.

Shipments to the United States, which is in recession, sank a record 33.8 per cent on slack demand for automobiles. US demand for Japanese goods has been falling for 15 months, ever since US mortgage defaults started to squeeze credit markets.

Asian markets, which had by contrast held up, are now crumbling at a dizzying speed, prompting Japanese exports to Asia to fall by a quarter in November. Shipments to China dropped 24.5 per cent, the biggest fall since 1995. The Chinese economy is slowing sharply as exports to Europe and the United States plunge.

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