Toyota Will Struggle To Restore Previous Profit

Toyota’s spectacular fall from grace as it chased GM’s poisoned chalice of crown as the world’s biggest car maker continues to roil investors.

Toyota lost $4.6 billion in the year ended March 2009, and expects to almost double that in the current financial year to $8.5 billion.

Deutsche Bank reckons that Toyota has served up some highly conservative evidence in its projections for the current financial year but “barring any large restructuring announcements we see a return to respectable levels of profitability taking time.”

Toyota said it will sell about 1 million fewer vehicles in the current financial year ending in March 2010. It sold 1.3 million less cars the previous year.

According to an Automotive News editorial, Toyota must produce more cars in the U.S. to make sure it’s not caught again in the foreign currency trap.

“Now the currency rates have swung against Toyota. To return to profitability, it will have to hedge its currency exposure. By far the best way to do that is to build cars and trucks where those vehicles are sold. Toyota needs more factories in the United States,” Automotive News said.

“Lulled by profits on vehicles shipped from Japan – profits fattened by a favourable dollar yen exchange rate – Toyota relied far more than its rivals on imports in the U.S. market. Fully 45.1 per cent of its sales in the United States last year were imports,” the U.S. magazine said.

It summed up Toyota’s problems as –

·      Neglect of small, affordable vehicles in favour of big, expensive ones.

·      Over-reliance on Japan exports.

·      Large exposure to exchange rate shifts.

·      Rapid overseas expansion that added costs, strained resources.

·      Slipping quality ratings.

Deutsche Bank doesn’t think a return a respectable factory use rate (and therefore profitability) will be quick.

“Without significant production capacity adjustments at home and abroad, we see it taking 3-years for it to get back to 80 per cent (factory) utilisation level with related fixed costs a continued challenge,” Deutsche Bank said.