Toyota slashes profit forecast

Toyota slashed its fiscal year profit forecast today. It is barely breaking even at 50 billion yen ($555 million) as Japan's top automaker gets hammered by plunging global demand and a surging yen.

That's a tiny fraction of the 1.7 trillion yen it earned the previous fiscal year through March 2008.

"The change that has hit the world economy is of a critical scale that comes once in a hundred years," President Katsuaki Watanabe said at the company's Nagoya office. The drop in vehicle sales over the last month was "far faster, wider and deeper than expected."

Sinking sales in the US in the wake of the financial crisis have dealt a heavy blow to Japanese automakers. But Watanabe said that emerging markets, which had held up in the beginning, were also slowing down now.

The surging yen has battered profits as well by eroding overseas earnings when converted back to yen. The dollar has fallen to 13-year lows of about 90 yen recently.

This is the second time Toyota has reduced it annual earnings forecast this year. Initially, it had been projecting 1.25 trillion yen ($13.9 billion) profit, but last month it reduced that to 550 billion yen ($6.1 billion) before chopping it further Monday.

Toyota Motor Corp. — which makes the popular Camry sedan and Prius gas-electric hybrid — now expects to sell 8.96 million vehicles around the world this calendar year, down 4 percent from the it sold last year, Watanabe told reporters.

Unlike previous years, he gave no goal for 2009. He also gave no earnings forecast for the following fiscal year, ending March 2010, noting the company didn't have a sales plan yet.

In July, Toyota lowered its global vehicle sales target for 2008 to 9.5 million from the initial 9.85 million. Last year, it sold 9.37 million vehicles around the world.

Toyota also lowered its sales forecast for the fiscal year through March to 21.5 trillion yen ($239 billion), down about 18 percent from the previous fiscal year. It had earlier projected 23 trillion yen in sales.

Grabbing attention in recent years has been whether Toyota would dethrone Detroit-based General Motors Corp. as the world's No. 1 in annual vehicles sales.

But the mood was pure gloom at the president's annual year-end event.

Watanabe and other executives said production expansion plans and other investment will be on hold, including a new plant in the southern US state of Mississippi and new vehicle plans in India, until the global market recovers.

Watanabe vowed Toyota would grow so lean it will be able to realize profitability even if its worldwide sales slide to as low as 7 million vehicles — what he called the basic "bottom line" for Toyota.

He promised his workers would offer "ideas as well as sweat" to steer the automaker through difficult times.

Mitsuo Kinoshita, a Toyota executive, said he hoped the results for the fiscal year through March would mark a bottom, with recovery expected the following fiscal year, partly boosted by a drop in material prices.

Soaring prices of steel and oil had been a negative for the automakers, but they have fallen back in recent months. Toyota has cut 130 billion yen ($1.4 billion) in costs for the fiscal year, through various measures, Kinoshita said.

But an unfavorable currency shifts will slash 200 billion yen ($2.2 billion) from its results for the fiscal year through March, while marketing activities eroded another 570 billion yen ($6.3 billion), according to Toyota.

Although plans to develop a diesel engine with Japanese partner Isuzu Motors will be stalled, Toyota will continue to invest in hybrids and other ecological technology, the executives said, as a long-term investment for growth.

Toyota's US 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 recovery as consumers hold back big purchases amid a serious downturn.

While Japan's automakers are in far better financial shape than the cash-strapped American counterparts, the global slowdown is hitting them hard

At a similar news conference last week from Honda Motor Co. President Takeo Fukui, where Japan's No. 2 automaker also lowered profit and sales forecast and declined to give a vehicle sales goal for 2009.

Toyota said it will reduce thousands of temporary workers at its Japan plants, but said their full-time employees will have job security. Toyota is a relatively old-style Japanese corporation that offers lifetime employment, and in only recent years has hired and let go of temporary workers to adjust production.

"The crisis we face now is totally different from past crises," said Watanabe.