Akio Toyoda, the founder of the company's grandson, takes over next month as more losses are predicted.
Toyota Motor Corporation finished off fiscal 2009 with a huge $7.7 billion loss during the fourth quarter of the traditional Japanese fiscal year, which ended March 31. The fourth quarter loss left the Japanese auto giant with a decidedly non-traditional full-year loss of $4.4 billion, the largest in the company’s 71-year history. Net revenues dropped 22%.
Toyota also released guidance that it expects another loss ¥550 billion or nearly $6 billion for the coming year. The company, used to never-ending expansion, is having extreme difficulties managing contraction.
“Both revenues and profits declined severely during this period,” said President Katsuaki Watanabe, who is being replaced next month by Akio Toyoda, the founder of the company’s grandson.
“The negative impact was a consequence of the significant deterioration in vehicle sales, particularly in the U.S. and Europe, the rapid appreciation of the yen against the U.S. dollar and the Euro and the sharp rise in raw materials.”
“It appears that it will take some more time before the financial markets in the U.S. and Europe normalize and the global economy recovers,” Watanabe predicted
The Japanese automaker reported that North American vehicle sales dropped more than 25% to 2.21 million units. The North American unit also finished the fiscal year with a ¥390 billion loss or a -$4.2 billion based on an exchange rate of ¥93 to the dollar
“The decrease in operating income was mainly due to decreases in both production volume and vehicles sold, and increases in the provision for credit losses, net charge-offs and allowance for residual value losses in sales finance subsidiaries in the United States of America,” Toyota said.
In Japan, vehicle sales were 1.95 million units, a decrease of 243 thousand units compared to the last fiscal year. Operating income from Japanese operations decreased by ¥1.68 trillion to a loss of -¥237.5 billion.
In North America, vehicle sales totaled 2.21 million units, a decrease of 746 thousand units. Operating income decreased by ¥695.5 billion to a loss of -¥390.2 billion including-¥73.9 billion of valuation losses from interest rate swaps. Operating income excluding the impact of valuation losses on interest rate swaps decreased by ¥713 billion, to a loss of -¥316.3 billion, mainly due to decreases in both production and vehicle sales.
Toyota also lost heavily in Europe where Watanabe had previously pursued an aggressive expansion plan. Watanabe also said that going forward Toyota plans to accelerate profit improvement activities including the expansion of the hybrid vehicle line-up such as the next generation Prius now on sale and the Lexus HS250h due this July. In Europe, vehicle sales were 1.06 million units, a decrease of 222 thousand units. As a result, operating income decreased by ¥284.8 billion to a loss of -¥143.3 billion.
In Asia, vehicle sales were 905 thousand units, a decrease of 51 thousand units. Operating income decreased by ¥80.3 billion to ¥176.1 billion.
In Central and South America, Oceania, Africa and the Middle East etc., vehicle sales were 1.44 million units, a decrease of 84 thousand units. Operating income for Central and South America, Oceania and Africa decreased by ¥56.3 billion to ¥87.6 billion.
Toyota surprised industry observers by announcing a cut-price version of the Prius in the U.S. in response to a challenge by the Honda Insight, which undercut existing pricing by thousands of dollars. The company is also offering unusual sales incentives in the U.S. and other markets, as sales plummet.
“All totaled, we plan to launch four hybrid models in Japan and three models overseas within this fiscal year. Through the reduction of variable and fixed costs, we estimate our total profit improvement in fiscal year 2010 will be around ¥800 billion,” Watanabe said.
For the mid-term, Toyota will also concentrate on resource-rich and developing countries with the aim of providing high-quality, affordable and attractive models from the customers’ viewpoint.
Toyota will also continue to accelerate commercialization of next-generation technologies in the areas of environment, energy and safety including hybrids, plug-in hybrids, next-generation batteries, bio fuels and fuel cell vehicles,” Watanabe said.
Nevertheless, the rating service Standard & Poors decided to downgrade Toyota for the second time in the past 12 months.
“Since the (Toyota) has been geared for expansion, the expected reversal to sharp production cuts should outweigh expense savings efforts. In addition, yen strength should be a drag on profits and we expect TM losses to widen in FY 10 from FY 09’s,” S&P observed in a note to investors today.
Standard and Poors’ ratings of sub-prime mortgages and other phony financial instruments as AAA paper enabled the financial bubble whose collapse caused the global Great Recession. So it’s not clear if S&P has any credibility left with investors.
TOKYO, May 8, 2009–Standard & Poor’s Ratings Services today lowered to ‘AA’ from ‘AA+’ its long-term corporate credit ratings on Japan-based automaker Toyota Motor Corp. (Toyota) and a number of related entities, including Toyota Financial Services Corp. (TFS), Toyota Finance Corp., and Toyota Motor Credit Corp. (TMCC). At the same time, Standard & Poor’s affirmed its ‘A-1+’ short-term corporate credit ratings on Toyota and the related entities, and its ‘A-1+’ short-term debt ratings (including CP programs) on the related entities. The outlooks on the long-term ratings on the companies are negative.
The rating actions on Toyota and the related entities follow the announcement by Toyota on May 8, 2009, of weak earnings guidance for fiscal 2009 (ending March 31, 2010). The rating actions also reflect Standard & Poor’s view that the deterioration in global auto markets will continue to pressure Toyota’s profitability and cash flow through at least the current fiscal year, and may delay a recovery in Toyota’s operating and financial performance.
On May 8, 2009, Toyota announced its financial results for fiscal 2008 (ended March 31, 2009) and its earnings forecast for fiscal 2009 (ending March 31, 2010). A large decline in sales and the appreciation of the yen against foreign currencies severely impacted fiscal 2008 results, and led to the company’s first operating loss since the fiscal year ended March 1938. The company projects global sales of 6.5 million units for the current fiscal year, down 14.1% from the 7.56 million units sold in fiscal 2008. The company also projects continuous operating losses of ¥850 billion and a net loss of ¥550 billion for this fiscal year.
Toyota’s automotive debt increased to ¥1.79 trillion at the end of March 2009 from ¥1.30 trillion a year earlier, reflecting significantly reduced operating cash flow. Standard & Poor’s believes that Toyota’s capital structure and overall net liquidity position, including cash equivalents and high-quality debt investment securities classified as non-current investments, will remain weaker in fiscal 2009 and possibly in fiscal 2010 than in the past few years. Nevertheless, we also believe that Toyota maintains a minimal financial risk profile, characterized by a strong capital structure with massive liquidity. We currently expect Toyota to significantly reduce negative free cash flow in fiscal 2009, excluding proceeds from sales of and maturity of marketable securities and security investments. Toyota plans to substantially reduce its capital expenditure this fiscal year to meet weakened demand and cash flow in the challenging environment. Standard & Poor’s is also of the opinion that Toyota now has adequate control of its overall inventory and that working capital pressures will likely ease in fiscal 2009.
The negative outlooks reflect Standard & Poor’s view that Toyota’s depressed profitability and cash flows have led to deterioration of the company’s financial profile to a certain extent, and that recovery in the company’s financial profile may be delayed due to the challenging operating environment. We also believe that global auto demand will almost certainly remain depressed throughout calendar 2009, a situation that is likely to continue into 2010, although “scrap incentives” or similar stimulus measures introduced or being planned in major markets, such as Germany, the U.S., and Japan, could support short-term demand to a certain extent.
The ratings on Toyota could come under further downward pressure if prolonged deterioration in the global auto markets were to lead to sustained substantial losses and negative free cash flow, even if the company were to take more rigorous measures in response to the challenging operating environment. The outlook could see upward movement if measures taken by Toyota generate signs of a recovery in profitability and cash flow over the next two years. However, Standard & Poor’s believes this scenario is relatively unlikely, at least in the short term. While Toyota is a leader among global auto manufacturers with a formidable degree of competitiveness and particular strengths in terms of its robust product line-ups, technological leadership, geographic diversity, cost efficiency, and financial strength, recovery in the global auto markets is key for Toyota to fully demonstrate these strengths.