Toyota Income Falls in 'Severe' Quarter

Detroit Free Press

DETROIT -- Toyota Motor Corp. said Thursday that its first-quarter net income dropped 28.1 percent to 353.6 billion yen, or $3.2 billion, mainly because of the impact of exchange rates between the yen and the dollar, higher raw material costs and the turbulent U.S. market. But it remained the world's most profitable automaker.

While Toyota cut costs and grew global vehicle sales by 24,000 to 2.19 million vehicles for the quarter ending June 30, it wasn't enough to overcome a plunge in sales in the United States and Western Europe.

For the three months ending June 30, Toyota's total revenue declined by 4.7 percent to 6.22 trillion yen or $56.9 billion.

"The financial results for this quarter were severe, due to our rapidly changing business environment," Mitsuo Kinoshita, Toyota's executive vice president, said in a statement.

Still, Toyota continued to gain market share in the United States and said it still plans to hit its target of more than $11 billion in profit for the year while Ford Motor Co. and General Motors Corp. just reported their largest and third-largest quarterly losses ever, respectively.

"Toyota, globally, is doing remarkably well," said University of Michigan professor Jeffrey Liker.

Toyota said the strengthening yen compared with the U.S. dollar cut profits by 200 billion yen, or $1.8 billion, while operating profit for Toyota's financial services unit dropped 21.8 billion yen, or about $199 million.

Toyota put a cost-reduction program in place earlier this year aimed at cutting 300 billion yen, or $2.7 billion, but Takahiko Ijichi, Toyota's senior managing director, said during a conference call Thursday that all of the company's gains have been wiped out by higher steel, plastic and other raw material costs.

Nissan Motor Co.'s second-quarter earnings also suffered because of slower sales in the United States, the weak dollar and declining resale value of leased vehicles. Nissan said Friday its first-quarter net income dropped 42.8 percent to 52.8 billion yen, or $492 million, while revenue fell 4.1 percent to 2.3 trillion yen, or $22.44 billion.

Like Toyota, Nissan said the declining value of the dollar compared with the strengthening yen and the declining residual value of vehicles hurt earnings. For Nissan, the currency issues accounted for a drop in net income of 54.7 billion yen, or $516 million, and said it cut the estimated resale value of leased vehicles in the United States and Canada by 42 billion yen, or $396 million.

Of the three Asian automakers, Honda Motor Co. turned in the best performance. Honda said July 25 its first-quarter net income grew 8.1 percent to 179.6 billion yen or $1.69 billion and quarterly revenue fell 2.2 percent to 2.87 billion yen, or $26.9 billion.

Toyota, along with almost every automaker, has also struggled this year to produce enough small cars and hybrid vehicles to satisfy demand as gas prices soared above $4 a gallon in the United States and has also been hit by a steep industrywide decline in pickup and SUV sales.

"Toyota will take swift actions in accordance with market changes by increasing the supply of models in high demand and launching new models," Ijichi said.

In July, Toyota announced plans to begin assembling the Prius gas-electric hybrid in 2010 at a plant in Blue Springs, Miss. Toyota also is suspending production of its Tundra pickup and Sequoia SUV from this week through mid-November.

Despite all its troubles, Toyota said its U.S. market share reached 17.4 percent, a record high.

"The whole strength of the company is flexibility to adjust to the market," Liker said. "This is like a minor headache compared to a deadly virus for the American car companies, but Toyota is not used to that."

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