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Toyota Clambers Back With Record Sales Forecast

But Strong Yen Hinders Profitability; Moody’s Cuts Rating
Toyota Will Have To Switch Output From Japan, Raise Foreign Content

Toyota expects record global sales in 2012 – good news after its problems with natural disasters and product recalls – but it was the warning on profits which caught the eye of ratings agency Moody’s which cut its outlook to “negative” from “stable”.

Toyota said it expects sales in 2012 to rise 20 per cent to a record 8.48 million from 7.05 million in 2011, which beat its previous high of 8.43 million set in 2077. But Toyota had earlier warned that operating profits in fiscal 2012 would be sharply lower at 180 billion yen ($2.3 billion), down from 480 billion yen the previous year and less than its earlier forecast of 390 billion.

Moody’s said Toyota faced obstacles in two important areas – the impact of unfavourable foreign currency developments, and impaired customer quality perceptions after embarrassing product recalls mainly in the U.S.

“The change in outlook reflects the likelihood that the recovery in Toyota’s profitability will be more protracted than anticipated due to the company’s significant exposure to the strong yen. This foreign-exchange pressure is compounded by eroding macro-economic conditions in certain core markets, and Toyota’s weaker competitive position following product quality issues,” Moody’s said.

Toyota is particularly vulnerable to the strengthening yen because of is greater dependence on domestic product to support sales in markets like the U.S. and Europe, Moody’s said.

Nissan, Honda produce less in Japan
According to Moody’s, Toyota produced about half of its global vehicles in Japan, while competitors like Nissan and Honda only produced about one quarter of their total production at home. The strong yen undercuts margins on exported products, and adversely affects Toyota’s price competiveness in relation to foreign automakers too, Moody’s said.

Toyota is trying to lower its currency exposure by increasing overseas production, using more locally sourced components for transplant facilities and raising the use of imported components for domestic product.

“The transition to a greater level of local-market production will require time as well as incremental investment,” Moody’s said.

Toyota has been hit be a series of body blows, including the collapse of the U.S market in 2008, then a massive safety recall involving more than 12 million vehicles. The natural disaster in Japan when a tsunami followed an earthquake disrupted crucial supply lines. Floods in Thailand shut three Toyota plants for a time.


Neil Winton – January 10, 2012

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