Toyota Motor Corp, the world’s second-largest automaker, forecast its first operating loss in 71 years on plummeting demand, prompting Moody’s Investors Service to consider downgrading the company’s top-rated credit.
The carmaker will post a ¥150 billion($1.7 billion) loss in the year through March, it said in a statement on Monday, scrapping a previous forecast of a ¥600 billion profit.
“The environment we’re in is extremely tough,” President Katsuaki Watanabe told reporters on Monday in Nagoya. “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom.”
Moody’s is reviewing the carmaker’s “Aaa” rating on $19 billion of debt, possibly boosting the company’s borrowing costs amid tightening credit markets and the worst US auto sales in 26 years. Watanabe has cut contract jobs, production and executive pay including board-members’ bonuses this fiscal year in a bid to offset slumping demand and a strong yen.
“Toyota’s cost-cutting can’t match plummeting sales,” said Koichi Ogawa, chief portfolio manager at Tokyo-based Daiwa SB Investments Ltd, which manages $28 billion. “Everyone is getting hurt with this situation.”
The automaker lowered its net income forecast 91 per cent to ¥50 billion. The last time Toyota posted an operating loss was in the year ended March 1938, said spokesman Hideaki Homma.
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The company revised its forecast for a second time even after adding in an expected gain of ¥130 billion from cost- cutting measures, Watanabe said. All capacity expansion projects have been postponed, he said.
Toyota rose to 2,919.41 yen as of 11:07 am in Frankfurt from ¥2,895 at the close of Tokyo Stock Exchange trading.
The carmaker’s sales in the US, traditionally its most profitable market, plunged 34 per cent in November. Toyota’s European sales dropped 34 per cent last month, according to the European Automobile Manufacturers Association in Brussels.
The company on Monday cut its vehicle sales forecast 8.5 per cent to 7.54 million for the year ending March 31.
It lowered its North America sales estimate by 10 per cent to 2.17 million vehicles. In Europe, sales may total 1.04 million vehicles and at home it may sell 2.01 million.
Automakers worldwide are cutting production as sales plummet. Toyota, which opened its seventh North American auto- assembly plant earlier this month, said it plans to further reduce production at factories in the US and Canada.
The automaker this year halted production of Tundra pickups at its San Antonio plant for more than three months. Production resumed in Texas in November with a single shift.
Honda Motor Co, Toyota’s closest domestic rival, slashed its earnings forecasts this month after the yen’s 25 per cent gain against the dollar this year. Suzuki Motor Corp, Japan’s second largest minicar maker, on Monday said it will cut domestic production by an additional 30,000 units to 1.16 million vehicles for the year ending March 31. Daihatsu Motor Co, Toyota’s minicar unit, said it will cut Japan production by 16,000 vehicles in the period.
Japan’s exports plunged 26.7 per cent last month from a year ago, the most on record, as global demand for cars and electronics collapsed. Shipments to the US slid an unprecedented 34 per cent, the Finance Ministry said.
“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the US,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad.
Across the industry, US auto sales are down 16 per cent this year, led by declines of 28 per cent for Chrysler LLC, 22 per cent for General Motors Corp and 19 per cent for Ford Motor Co. The three US automakers will shutter about 59 factories over the next month as they struggle to avoid bankruptcy.
Compounding the drop in demand is the stronger yen, which erodes overseas profits for Japanese automakers. Every 1 yen gain against the dollar and euro trims Toyota’s annual operating profit by ¥40 billion and ¥6 billion, according to the company. The carmaker is basing its second-half earnings outlook on ¥93 to the dollar and 123 yen to the euro.
The company expects a stronger yen will cut its operating profit by 200 billion yen for this fiscal year from its November forecast.
Toyota’s ¥150 billion 1.33 per cent bonds maturing in 2012 on Monday traded at 40 basis points above Japan’s government debt, or a 1.015 per cent yield, Japan Securities Dealers Association prices show. The notes traded at 25 basis points more than government bonds at the end of October. A basis point is 0.01 percentage point.