Toyota's Loss Is Worse Than Expected

The Japanese automaker's first annual net loss in 59 years was larger than the company had projected, and its outlook remains grim

By Ian Rowley

A feature of Toyota's (TM) rise to the top of the auto world in the past few years was its ability to meet and beat seemingly stiff targets year after year. These days, it seems to be just the opposite. On May 8 in Tokyo, Toyota chief Katsuaki Watanabe marked his final annual results presentation as president by announcing the company's first loss since 1950. At $4.4 billion, the red ink was worse than the $3.5 billion loss Toyota had projected in February and a massive $21.7 billion less than the $17.7 billion of profit Toyota booked a year ago, before the global financial crisis took hold. "Both revenues and profits declined severely," Watanabe told reporters.

The outlook for the fiscal year, which ends in March 2010, is even more grim. Despite Herculean cost-cutting efforts that could save around $8 billion, Toyota projects that its net loss will swell to $5.5 billion during the current financial year. Sales, which fell 21% in the year just ended, are projected to fall a further 20%, to $166 billion. Toyota will also cut its dividend to investors. This year, it will pay out a total of 99¢ per share, compared with $1.41 for the year ended March 2008. For the year ahead, Toyota declined to give a forecast. Asked how he assesses his presidency, which includes three consecutive years of record profits before the downturn, Watanabe said Toyota should have responded earlier to the crisis. Had the company been quicker to take action, he said, "maybe we would not be in this state."

That didn't happen, though, and now Akio Toyoda, who takes over from Watanabe in June, is assuming the top job at a difficult time. While automakers the world over are struggling, Toyota's abject year contrasts with archrival Honda (HMC), which posted a net profit of $1.4 billion for the financial year just ended, despite a big loss in the final quarter. Honda expects to stay in the black this year. (Nissan (NSANY), the last of Japan's Big Three to post its results, is expected to show red ink when it reports its numbers on May 12.)

Global Recession Blues

For Toyoda, just as worrying as the profit plunge is the expected continued decline in sales. For the fiscal year just ended, slumping markets in the U.S., Japan, and Europe contributed to a 1.3 million dip in sales, to 7.6 million vehicles. For the current year, Toyota projects vehicle sales will drop another 1.1 million, to 6.5 million. "We've started to see a few signs of recovery in a few countries, such as India and China, but it appears it will take a little longer for the financial markets in Europe and the U.S. to normalize and the global economy to recover," Watanabe said. "We have to brace ourselves—the severe market environment will continue for the time being."

One thing Toyota won't be doing is shutting factories. While General Motors (GM) is laying off thousands of workers, Watanabe says it's too early for Toyota to be closing plants, despite a capacity worldwide to produce 10 million cars a year—3.5 million more than Toyota's sales projection for the year ahead. "It's a time for perseverance," Watanabe said. Some Toyota watchers have suggested that excess capacity in Japan meant that some domestic plants might be ripe for closure once Toyoda becomes the company's president. But Watanabe ruled that out. "We will not be closing plants," he said.

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