Global Economics

Toyota Trims '09 Outlook, Plans Electric Car


The Japanese auto giant has slashed its sales estimate for 2009 by 7%, but demand for green models will ease the pain

It's a sign of how tough times are for the world's automakers when even Toyota (TM), the world's most profitable automaker and soon to be the biggest, has to slash sales forecasts. In Tokyo on Aug. 28, Toyota President Katsuaki Watanabe said the company now expects to sell 9.7 million vehicles in 2009, down from a previous figure of 10.4 million.

The news should come as no surprise, given high gasoline prices, rising raw material costs, and the lingering impact of the subprime crisis. Even so, the current downturn in the U.S., Europe, and Japan has been worse than the company expected. "We initially thought a greater number of vehicles would be sold," Watanabe told reporters at a wide-ranging press conference. "The economic environment, the crude oil price, and the raw-material cost trends were not accurately forecast." The sales revision follows a 28% slump in net earnings (BusinessWeek.com, 8/7/08), caused by a stronger yen and weak U.S. sales, for the three months ended in June. Toyota had earlier revised down projections for the current year to 9.5 million vehicles from 9.85 million.

Winning the Race

For all the doom and gloom, Watanabe appeared relatively upbeat about Toyota's prospects. Indeed, reiterating the medium-term goal for the company to achieve an operating margin of 10%, he pointed out that 9.7 million would still be 200,000 higher than 2008 and highlighted the growing importance of emerging markets to the company's long-term growth plans. What he didn't say is that 9.7 million vehicles will almost likely make it the world's largest automaker for a second year in 2009. (Toyota, neck and neck with General Motors (GM) in 2007, is expected to unseat the U.S. automaker this year.)

Watanabe also reaffirmed Toyota's commitment to greener motoring, confirming that the company will show two new hybrids at the North American International Auto Show in January. One will be a new version of the Prius that will use the third generation of Toyota's hybrid system. The second will be the first hybrid-only car (BusinessWeek.com, 7/2/08) sold with a Lexus nameplate.

And, for the first time, Toyota confirmed plans to launch a new electric car in the early 2010s. While skimpy on details, Watanabe and Executive Vice-President Masatami Takimoto said that, given the limitations of current battery technology, Toyota's EV would likely be a small vehicle limited to commuting or city driving. For more widespread use, Toyota still is betting on hybrids as a more practical solution to rising demand for environmentally friendly gas sippers; it plans to sell more than 1 million per year in the early part of the next decade. "We consider electric vehicles as one of the candidates for sustainable mobility, [but] for the time being the most realistic approach is to use the electric vehicle for short-distance travel," said Takimoto.

Expansion outside the mature markets of Europe, Japan, and North America is vital for Toyota to achieve its revised sales goals. In China, it overtook Honda (HMC) in 2007 as the biggest Japanese automaker. Toyota is adding a second line to its plant in Guangzhou next year and will open 350 new dealerships (BusinessWeek.com, 1/18/08) between now and 2010, taking the total to 850. In resource-rich Russia, dealerships will be doubled, to almost 150. In Brazil and India, large markets where Toyota trails rivals, it will add new specially designed compact models in 2010 and 2011, respectively.

High on the iQ

By contrast, plans for Europe, Japan, and North America are more concerned with stability and adapting model lineups to fast-changing customer needs. In Europe, that means more models that produce less carbon dioxide, including the launch later this year of the iQ, a tiny city car which produces just 99g/km of CO2. In total, Toyota is planning 18 low-emissions vehicles for launch in 2008 and '09.

In the U.S., where Toyota opened a large Tundra pickup factory in San Antonio in 2006, just before the market for large trucks lost steam, the company is busy reorganizing production. For the first time, its Prius hybrid will be built in the U.S., in Mississippi, while large-truck production is being consolidated at the Texas plant. As part of the shakeup, Toyota is suspending production at three U.S. plants for three months. That's something Watanabe, who will visit Toyota's North American operations next week, described as a "very, very difficult decision to make." In all, the changes affect 4,500 Toyota employees, although none will be laid off. Instead, Toyota is asking them to keep busy by doing everything from training programs to filling in at assembly lines elsewhere or helping out in local communities.

Toyota's new forecast for North American sales in 2009 is 2.7 million, the same number of vehicles it plans to sell this year, but down from a previous target of 3 million. Still, Watanabe is confident the company will benefit in the long term from the changes—not least when the auto market picks up. While unwilling to make forecasts beyond 2009, "in the U.S. it is unlikely for the economy to remain stagnant for long," he says.

Business Exchange related topics:

Asian Automakers

Green Cars

Electric Cars

Hybrid Cars

Diesel Cars


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