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Toyota confident about production
Publication Date : 07-02-2013
Toyota Motor Corp.'s upward revision of its estimated fiscal 2012 operating profit is likely to help the automaker fulfill its aim of maintaining domestic vehicle production at 3 million units per year.
Toyota on Tuesday said it had revised upward its consolidated operating profit estimates for the business year ending March 31. This was largely due to improved profitability in its exports from a weakening of the yen, apparently in response to "Abenomics", the economic policy of Prime Minister Shinzo Abe.
On a nonconsolidated basis, the company adjusted its fiscal 2012 operating balance from a loss of 20 billion yen to a profit of 150 billion yen, its first annual profit in five years.
But the outlook for the company remains uncertain due to severe price competition among automakers in newly emerging economies.
Exports now profitable
Announcing the turnaround forecasts at a press conference Tuesday, Toyota Senior Managing Officer Takahiko Ijichi said the company was freshly optimistic it could maintain domestic production levels.
Thanks to the decline of the yen, Toyota will likely earn profits even with exports of cars manufactured in Japan.
According to the company, 140 billion yen, or most of the revised parent company-only operating profit increase of 170 billion yen, is due to the recent weakening of the yen.
Referring to its former eroding export profitability due to the excessive rise in the value of the yen, Ijichi said, "For some of our models, there was a time when the more we exported, the more money we lost."
The company stressed the estimated operating profit in nonconsolidated accounting also stems from its cost reduction efforts.
Toyota said it was able to increase its profit forecast by 30 billion yen by reducing production costs by 40 per cent per car in fiscal 2012 compared to fiscal 2008.
In November, Toyota projected an operating loss of 20 billion yen. Toyota said it will be able to return to profitability in fiscal 2012, even without the 140 billion yen gained by the weakened yen.
Overseas sales key driver
Toyota's consolidated operating profit estimates for fiscal 2012 were also revised up thanks to the retreating yen.
A large increase in overseas sales contributed to the upward revision, making up for the 180 billion yen earmarked for settlements and other costs for its large-scale recalls in the United States. Further increases are expected in recovering US and Southeastern Asian markets.
JP Morgan Securities Japan Co. analyst Kohei Takahashi said the increased profit due to the weaker yen can be used to improve the competitive features of new models.
South Korea's Hyundai Motor Co. has been stepping up its marketing efforts, partly helped by the decline of the won, in such markets as North America. But now Toyota, backed by a weaker yen, is set to strengthen its global sales.
The negative effects of deteriorating Japan-China relations on car sales in the Chinese market are also dwindling.
"We initially expected sales volume in China to decline by 200,000 units in the latter half of fiscal 2012, but the drop is likely to be less than that," Ijichi said.
Toyota said at the end of last year, worldwide vehicle sales of its group companies, including Daihatsu Motor Co. and Hino Motors Ltd., were expected to reach 9.91 million units, up 2 per cent from the previous year.
But now observers believe it is possible for the group to hit 10 million units if business continues to be strong.
Competitive edge necessary
However, competition with low-priced models and makers in emerging nations will remain fierce even if Toyota is able to compete more effectively thanks to the weaker yen.
The firm is certain to continue local production in such countries. In addition to improving export-driven profits, Toyota needs to enhance its development strength for such products as hybrid cars to maintain the competitiveness of its vehicles and auto parts manufactured in Japan.
The company said its domestic sales will decline about 300,000 units to 1.4 million in 2013 compared to the previous year. This is due to the end of a government subsidy program for purchases of environmentally friendly vehicles.
The company is reportedly considering revising its sales forecast upward with the prospect of economic recovery thanks to Abenomics.
But some observers believe sales will inevitably remain sluggish on a long-term basis.