Will Toyota now make a full year loss?

Posted by: Ian Rowley on December 18, 2008

The awful news in autos is unrelenting. There’s an article in today’s Nikkei newspaper which raises the possibility that Toyota could makes it first ever operating loss (although Toyota once made a pretax loss in 1949).

While Toyota is projecting earnings of about $6 billion (down over 70% on last year), the paper contends that the recent surge in the yen and worsening sales could change all that. If so, that would mean Toyota will make a loss bigger than the $5.8 billion it made in the first half of its fiscal year, which runs April to March.

In the economic current climate it’s hard to say what will happen. On the negative side, Honda just revised its earnings projection down over 60% compared to six weeks ago. And Toyota suffers more from the yen swings. For every one yen strengthening of the yen against the dollar, Toyota’s operating earnings are reduced by over $450 million. Today, the yen is at 89 to the dollar, compared to an average 114 last year. That exchange rate wasn’t help by the Fed cutting its interest target to near zero this week. Toyota’s current profit projections are based on a rate of 100 dollar. The euro has also weakened against the dollar. Meanwhile, sales are plunging in Japan, Europe and the U.S.

Still, that doesn’t mean the loss is guaranteed. Toyota, like all car makers is also undergoing a big program of cost cuts, including delaying new factory openings and other capital investments. If the economic outlook improves, the yen could weaken a little. And the prospect of the Toyota, Japan’s biggest exporter, making a loss will also increase pressure the Japanese government to intervene in the currency markets to weaken the yen.

Reader Comments

Robert Wilson

December 22, 2008 1:01 PM

Well I think that all of the people who've posted that the only reason GM is asking for a loan is because they are mismanaged should read this and understand that the entire global auto industry is being affected by the financial crisis in the United States. This unprecedented financial collapse that was caused by risky lending practices by Bank Management has created a situation that affects us all. Too bad congress didn't ask if those execs flew private jets to Washington for their $700 Billion bailout. And too bad the same people that post here don't realize that this is the root cause of the current crisis in the Auto Industry.

Don't get me wrong the US Auto Industry missed their mark during the 70's, 80's and much of the 90's. To say that that is the same industry that exists today simply shows that people are not as informed as they could be.

Robert Wilson

Paul (Vw)

December 26, 2008 8:29 AM

From a previous reader's comment:

>>> To say that that is the same industry that exists today simply shows that people are not as informed as they could be.

History never repeats itself, but it tends to rhyme at times. Until the Detroit3/UAW change their DNA, one will probably not be surprised by how things unfold.

I came across this in the Washington Post on Christmas Eve:

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/23/AR2008122302475.html?sub=AR

>>> "UAW Vows to Fight Salary Concessions - Labor Leaders Seek to Renegotiate White House Terms on Auto Bailout"

Mere days after the initial bailout, seeking to "renegotiate"? Wow, that was fast.

Happy Holidays.

Robert Wilson

December 26, 2008 9:40 PM

Paul the contract GM negotiated with the UAW significantly changes the structure that had been in place for year. The changes were not due to completely be in place until 2011, but with all of this recent activity they will not likely be moved up to occur in 2009. Negotiate is what they will do.

Whatever this thing is that you call DNA has been changing but will now be accelerated.

Bob

Paul (Vw)

December 27, 2008 8:22 AM

You say "tomato", I say "tomahto".

You say "Negotiate is what they will do." The Washington Post says, "labor officials say they will seek to renegotiate the terms of the bailout rather than make those sacrifices...The White House defended the terms of the auto bailout, saying that every stakeholder in the car companies would have to make sacrifices for the firms to survive"

I interpreted that to mean that the labor officials seek to "renegotiate the terms of the bailout." The "re" in front of "negotiate" must have confused me.

It would be sad if it were the case that the UAW made promises to the current White house only to renege (er, seek to renegotiate) on them days later.

Jeff Humphreys

January 7, 2009 1:21 AM

Robert,
I agree with you. People are slow to change their perceptions and slow to become informed. Its bothersome that the government raked the US auto makers over the coals about mismangament, private jets and not being prepared for 'todays' conditions. I geuss, its OK for AIG to spend hundreds of thousands of dollars on corporate retreats, maintain private jets, bonus managment and run their firm into the ground but not need to defend the firm or provide a plan to be scrutinized by the government. Its also unfortunate that congress has the mind set to criticize the US auto manufactuers for their business practices and suggest that they should be more like Toyota.

Toyota is feeling the pain too (just not as bad). They posted a $1.6 billion dollar loss, are having to close their plants in Japan for 11 days to adjust to lower prodcut demand and have had the car sales fall 37%: More than GM or Ford.

Don't even get me started on the UAW. They need to understand that if they don't adjust to 'market conditions' and cause the very companies that their members work for to go bankrupt then the value of the union is worthless. No job, no union.

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