Toyota skids on a record loss and debt downgrade

Toyota, the world's largest car maker, has reported its worst financial results ever and has seen its credit rating downgraded. The Toyota Motor Corporation lost ¥765.8bn (£5.1bn) in the first three months of 2009, bringing the loss for the year to ¥436.94bn.

Toyota has only lost money once before since its foundation in 1937: in 1950, when Japanese industry was recovering from the war, it also went into the red. Since then its history has been an almost uninterrupted success story. But this year its financial performance has been even worse than that of General Motors. Toyota overtook GM to be the world's number one manufacturer last year, but sales are down 22 per cent. The firm sold 7.6 million vehicles last year, down from 8.91 million vehicles in 2007-08. Next year it expects to take another hit of about 1 million units, to 6.5 million vehicles.

Yesterday Standard & Poor's lowered its long-term credit rating on Toyota one notch to AA, its third-highest rating, adding a "negative" outlook. However, S&P added that Toyota "maintains a minimal financial risk profile, characterised by a strong capital structure with massive liquidity".

The company has been laying off workers or cutting production at plants in America and Japan and has implemented short-time working at its UK operations – an engine factory in Deeside and an assembly plant making the Avensis. It has reduced the number of temporary workers in Japan from 9,200 last year to 3,000.

Katsuaki Watanabe, the company's president, said the devastating results were caused by "the significant deterioration" in vehicle sales, particularly in the US and Europe, and the strong yen, which makes the 50 per cent of Toyota cars still made in Japan, such as their luxury Lexus cars, relatively uncompetitive. He also blamed the rising cost of raw materials.

Global car demand has seen an extraordinarily synchronised downturn, with demand off between 25 and 50 per cent in Toyota's major markets. Normally a globally diversified operator such as Toyota benefits from its international spread, taking advantage of the different timings of the economic cycle in different markets; but the uniform worldwide downturn has left the car giant with no hiding place from collapsing demand for its products.

The purchase of a "big ticket" item such as a car is usually postponed when consumer confidence slumps; the durability and reliability of modern cars also allows motorists to put off replacing their transport. Scrappage schemes such as that due in the UK this month may help.

Toyota says it will now concentrate on hybrids, such as the next generation Prius due soon, and smaller cars.

Scrappage boosts jobs: Nissan takes on 150

The Chancellor this week talked about the "seeds of recovery", rather than the notorious "green shoots" phrase used by one of his predecessors. How quickly these germinate remains to be seen, but yesterday the UK's largest car maker, Nissan, sowed another seed for Mr Darling.

Nissan, the first manufacturer to reduce hours last year and which laid off 1,200 staff in January, defied the general mood of despair in the motor trade by announcing that it will create 150 jobs to deal with increased demand caused by scrappage schemes across Europe. The British scheme takes effect later this month.

Nissan, now in a close partnership with, and in effect controlled, by Renault, will take on temporary staff – employed with four-month contracts – to manufacture about 14,000 extra vehicles, starting in June. Its senior vice-president, Trevor Mann, said the market remained depressed, but the short-term effect of the scrappage schemes had boosted demand.

Nissan's Sunderland plant makes the small Micra, Note and "crossover" car/SUV Qashqai models, and the new staff will work on all lines.

The firm said last month it experienced a year-on-year increase in sales in major markets currently operating a scrappage scheme: up 31 per cent in France; 21 per cent in Italy and 9 per cent in Germany. In the UK it lost 5 per cent of its sales in the year to April, better than the industry average of a 24 per cent drop. The depressing "destocking" effect as dealers sold from stock rather than place fresh orders at car plants should also be coming to an end.