Posted by: Ian Rowley on November 6, 2008
Yet more grim earnings news in Japan today. Toyota, the last of Japan’s automakers to post its half-year results, has slashed its operating profit outlook by over 70% to $6.1 billion for its fiscal year which ends in March. Given it made $5.9 billion in the six months through Sept. 30, that means it will likely make only around $200 million in the second half of the year. Toyota exec Mitsuo Kinoshita said things were so bad that Toyota has formed an “Emergency Profit Improvement Committee,” headed by CEO Katsuaki Watanabe.
Honda, Nissan and others have already slashed forecasts, albeit by smaller margins, but citing similar problems. Among them: the U.S sales slump, high raw materials costs and, for the Japanese makers, the soaring yen.
Of course, with no one yet projecting losses, the problems aren’t in the U.S. Big Three’s league, as Ford and GM’s results on Nov. 7 will no doubt highlight. Still, that didn’t stop Honda chief Takeo Fukui calling for the Japanese authorities to intervene to weaken the yen earlier today. Speaking at a the launch of the Honda Life, a minicar for the Japanese market, Fukui told reporters the government should step in after the yen’s recent surge against the dollar and other currencies. “Of course (the government) should intervene,” Reuters reported Fukui as saying. Fukui’s comments were before Toyota’s weak forecasts.
To some extent, Fukui, who isn’t against the U.S. government aiding U.S. automakers, has a point. On Oct. 27, the yen surged to 90 to the dollar and is currently at 98. Back in 2003, when it was at a relatively weak 103, Japan stepped in to ease the pain. Against the euro and other currencies the rise has been even more pronounced. And there is little doubt the speed of the current surge is painful. In Toyota’s case, analysts say a one-yen appreciation of the Japanese currency against the dollar reduces earnings by around $450 million; a one yen appreciation against the euro costs $80 million. The numbers aren’t as brutal at smaller Honda but they still have a big impact.
Whether Fukui’s comments were well timed is another matter. As grim as things are getting for Japan’s car makers—not to mention Japan’s economy which will likely experience a recession—most analysts point out that with plenty of cash, ample fuel sippers and profits they’re in a strong position to capitalize from rivals’ woes. And at a time when GM, Ford and Chrysler are all in serious trouble, asking for help in the currency markets is unlikely to go down with customers in the U.S., Honda’s most profitable market.