Bloomberg News

Toyota to Merge Auto Units in Japan as Yen Strengthens

July 13, 2011

(Updates with analyst comment in fourth paragraph.)

July 13 (Bloomberg) -- Toyota Motor Corp., grappling with a profit-sapping yen, said it will combine its car-making units in northern Japan to boost efficiency.

Japan’s biggest automaker and subsidiaries Toyota Auto Body Co. and Kanto Auto Works Ltd. have agreed to convert the two units to wholly owned subsidiaries through share exchanges in January 2012, the automaker said in a statement. Toyota will pay 0.45 share for each of Toyota Auto Body and 0.25 share for each of Kanto Auto, and may integrate the units with two others by July 2012, it said.

Toyota, which built 43 percent of its vehicles in Japan last year compared with less than 30 percent at both Honda Motor Co. and Nissan Motor Co., is aiming to improve the profitability of its domestic operations. The yen’s strength cuts the value of repatriated earnings from exports.

“The merger is a necessary move,” said Satoru Takada, an analyst at TIW Inc. in Tokyo. “The yen is trading below 80 yen, yet Toyota has kept its domestic output ratio high compared to its Japanese competitors.”

Kanto Auto, Central Motor Co. and Toyota Motor Tohoku Corp. will begin discussions on integrating into Toyota Motor by July 2012, the automaker said.

Toyota has three production hubs in Japan -- Aichi prefecture, where its headquarters are based, Kyushu in southern Japan, and in northern Japan.

No Jobs Affected

Toyota said no jobs will be affected by the merging of its car-making units in northern Japan, according to Executive Vice President Atsushi Niimi in Nagoya, central Japan. The automaker will eventually scrap some antiquated factory lines, though the timing or how many will be shut is unclear at this point, he said.

The carmaker is pushing the merger to help maintain 3 million units of output in Japan, said Niimi, who is in charge of global production. The company is aiming to be profitable at an exchange rate of 80 yen to the dollar and prefers the 85 yen level as a manageable break-even point, he said. The yen climbed to as high as 78.50 yen per dollar today, the strongest since March 17.

“The manufacturing situation is difficult in Japan, but I decided we have to do what we can to secure our future,” said Toyota President Akio Toyoda at a press conference in Nagoya. “We are clenching our teeth in trying to protect manufacturing in Japan.”

While Toyoda has said he aims to protect jobs by keeping at least 3 million units of annual production in Japan, Chief Financial Officer Satoshi Ozawa said in May the carmaker needs to revise the balance of domestic and overseas output.

Toyota built 3.004 million units in Japan last year. Including truckmaker Hino Motors Ltd. and minicar maker Daihatsu Motor Co., the company produced 3.7 million units.

Toyota shares gained 0.3 percent to 3,365 yen as of the 3 p.m. close of trading in Tokyo.

--With assistance from Anna Mukai and Yuki Hagiwara in Tokyo. Editors: Kae Inoue, Chua Kong Ho

To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net 7203 JT <Equity> CN


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