Earthquake: Toyota getting back to normal

No. 1 carmaker, hit by supply problems following an earthquake last week, lost 55,000 units of vehicle production, but reaffirms its overall sales target for 2007.

Toyota Motor Corp. said it would resume work at two-thirds of its car assembly lines in Japan on Tuesday after an earthquake cut off supplies of key components to its factories, and it kept its global sales targets unchanged for 2007.

Auto production at Japanese carmakers has virtually ground to a halt after the country's top supplier of piston rings, Riken Corp., was hit by an earthquake on July 16.

Speaking at its annual mid-year news conference, Toyota President Katsuaki Watanabe said on Monday the automaker would lose about 55,000 units of vehicle output after a complete stoppage at all domestic plants through Monday and at 20 of the 31 assembly lines at its 12 group-wide car factories on Tuesday.

Plans for Wednesday and beyond would be decided on Tuesday.

But Watanabe stressed that shutting down factory production was not alarming under the circumstances, and defended Toyota's famed lean manufacturing method as one of its competitive strengths.

"We will gauge how to make up for the lost production in due time," Watanabe said. "What's important is being able to figure out how swiftly we can fix the problem and return to normal."

Car sales in Japan have declined across the board, but Toyota's domestic factories have been working at full speed to satisfy demand overseas. Toyota exports 60 percent of its Japan-made vehicles.

Watanabe conceded that the domestic market remained tough - Toyota's sales fell 10 percent in the first half of the year to 826,000 units - but said he was counting on new car launches and the Tokyo Motor Show in the latter half to jump-start sales.

"We realize that our domestic sales target of 1.72 million units (for 2007) is very challenging, but we've seen some improvement in July and we're not changing our global targets," he said.

Toyota in December set a parent-only sales goal of 8.4 million vehicles for 2007 and 9.34 million units for the group, including Daihatsu Motor Co. and Hino Motors Ltd. Both figures represent a 6 percent rise from 2006.

Margin goal
Toyota, which overtook General Motors Corp. as the world's biggest automaker last year, has been boosting its sales volume and profits steadily driven by its popular, fuel-efficient models such as the Camry and Prius sedans.

Management has set a goal of 10 percent operating profit margin, up from 9.3 percent in the business year ended March 31, and Watanabe said the automaker would keep that target for the mid to longer terms despite intensifying competition, the growing popularity of smaller, cheaper cars and the need to step up spending on developing environmental and safety technologies.

"I think it's a good target that (also) works for the mid to long term," he said.

Toyota already has the highest profit margin among the world's mass-volume carmakers. Domestic rivals Honda Motor Co. and Nissan Motor Co. had margins of 7.7 percent and 7.4 percent, respectively, last year.

As part of its safety activities, Toyota announced on Monday it would include side airbags and curtain shield airbags as standard equipment on all new passenger cars going forward.
(C)Reuters

Toyota Profit Robust, Forecast Cautious

Toyota reported another year of record profit today but signaled a slowdown in the current year because of weakness in North America and increased spending.

While American rivals like General Motors and Ford have reported losses of billions of dollars in recent years, Toyota announced its seventh consecutive year of record earnings, bolstered by the popularity of its fuel-efficient vehicles. Toyota said net profit jumped about 20 percent in the fiscal year ended in March, to 1.64 trillion yen, or about $13.68 billion.

The results showed Toyota to be in robust shape as it prepares to end G.M.’s 76-year reign as the world’s largest automaker this year. Toyota reiterated its forecast of 9.34 million vehicle sales this calendar year for its entire group, which includes the mini-car maker Daihatsu Motor and truckmaker Hino. In terms of annual sales, that would be enough to put it ahead of G.M., which expects to sell 9.2 million vehicles this year.

Yet, despite last year’s strong showing, Toyota struck a cautious note in its forecast for the current fiscal year, which ends in March 2008. The company said it expects a modest 0.4 percent rise in net profit, to 1.65 trillion yen, or about $13.76 billion.

The company attributed the forecast to what it called a “severe market” in slumping North America, where Toyota earns about 60 percent of its profits. Toyota said it expects sales growth this year in North America to slow to 1.6 percent, down from 15.1 percent last year. Toyota also cited increased spending to build factories and develop new vehicles and technologies, like its popular gas-electric hybrids and more futuristic hydrogen-powered fuel-cell engines.

The slowdown in profit growth “is temporary, as we are planting the seeds” of future growth, Toyota’s president, Katsuaki Watanabe, told reporters. “Earnings will improve again.”

But some analysts called the forecast overly conservative. They said that while they expect profit growth to slow this year, Toyota may be giving a low estimate in order to reduce potential political fallout from its strong performance, particularly in the United States.

Analysts pointed out that Toyota is still forecasting strong gains this year in number of vehicles sold, up more than a half million vehicles from 2006, which they said should also lead to higher profits. Moreover, analysts noted that Toyota has made overly conservative profit forecasts before. A year ago, Toyota had said it expected profits to drop in the recently ended fiscal year — the same period for which it announced such robust earnings growth today.

Analysts estimated that net profit in the current fiscal year will most likely be closer to 1.74 trillion yen, or about $14.51 billion.

“Toyota doesn’t see any upside in showing how strong it really is,” said Atsushi Kawai, an analyst at Mizuho Investors Securities in Tokyo. “It wants to avoid inviting jealousy and other negative reactions.”

These concerns have been particularly acute in the United States, where control of Congress has recently shifted to traditionally labor-friendly Democrats. Many in Japan have worried that this could lead to fresh protectionist measures to control America’s ballooning trade deficit.

Because of its size and growth, Toyota has felt particularly vulnerable to any possible trade retaliation. Like many Asian carmakers, Toyota has hired Washington lobbyists and invested billions in new plants in the United States in hopes of avoiding the sort of criticism it faced during the early 1990s Japanese-American trade friction.

Toyota is scheduled to open its eighth North American factory in Mississippi in 2010.
Mr. Watanabe, Toyota’s president, also tried to play down Toyota’s prospects of beating G.M.
“Rather than think about other companies, I feel we must do our best to satisfy our worldwide customers,” he said. “There is still plenty for us to do.”

Still, the results clearly painted a picture that has become all too familiar in the auto industry: Toyota roaring ahead as the Detroit automakers stumble.

In addition to its strong annual earnings, Toyota posted an 8.9 percent gain in net profit in the January-March quarter, to 440.1 billion yen, or about $3.67 billion, as strong sales in the United States and Europe offset declines in Asia.

By contrast, G.M. has already reported losses of $2 billion last year, following a $10.4 billion loss the year before. Ford reported losses of $12.7 billion last year and is not expected to turn a profit in North America before 2009. Chrysler, the unit of DaimlerChrysler, said that its loss was $1.5 billion last year.

Toyota also gained on G.M. by another measure: size of annual revenue. Toyota said revenue last year rose 13.8 percent, to 23.95 trillion yen, or about $199.77 billion, just slightly behind G.M.’s revenue last year of $207 billion. In the current fiscal year, Toyota forecast a 4.4 percent rise in revenue, to 25 trillion yen, or about $208.52 billion.

In North America, Toyota benefited from strong sales of its Lexus luxury line, RAV4 light sports utility vehicle and Camry sedan, the best-selling car in the United States for a fifth consecutive year. Toyota said vehicles sales in North America rose by 386,000 vehicles from the year before, to 2.9 million vehicles.

To keep up with demand, Toyota has added Camry production at the Indiana plant of its affiliate, Fuji Heavy Industries, maker of Subaru. Toyota said it also plans to produce Camrys in Russia for sale there and elsewhere in Europe.

Toyota said it expects sales to pick up this year in Asia outside China and Japan, where they dropped by 91,000 vehicles last year to 789,000. The automaker also said it will increase spending this year to develop new cars and technologies by 5.5 percent to 940 billion yen, or about $7.84 billion.
By MARTIN FACKLER