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Toyota slides into the red for the first time in 9 years. “Avoid wasting” stance revives

5, 30. 2008

   Toyota Motor Corp. forecast its consolidated operating profit for the term ending in March 2009 will register the first decrease in nine years of 29.5% against the previous term to 1,600 billion yen. The auto industry has led the way for Japanese business firms to renew their all-time high earnings for the past years. With the sliding into the red of the leading company in the auto industry, the anxiety over the future of the Japanese economy is deepening further.

Sluggish sales of large cars in North America causes major worry

   Toyota's sales for the term ending in March 2009 are forecast at 25,000 billion yen, or down 4.9% from the previous term, and the current profits are expected to be down 27.2% at 1,250 billion yen.

   The economic slowdown in the United States overlapped by rising exchange value of the yen and increasing cost for materials are the "three major factors" for the earning decline. Toyota's earning stems mainly from the sharp rise in the exchange value of the yen. For the term ending in March 2008, the Toyota's account settlement was forecast on the expected exchange rate of 114 yen to the dollar. The yen is 14 yen higher against the dollar in the expected exchange rate for the term ending in March of 2009. Toyota's operating profits would nose-dive as much as 690 billion yen just by this difference in the exchange rate.

   Toyota is gravely affected by the sluggish business in the United States, the company's major money making market, in the wake of the subprime mortgage crisis. Toyota estimates its consolidated car sales for the term ending in March 2009 at 9.06 million units, or up 147,000 units on year. In North America, however, the sales are expected to fall 188,000 units to 2.77 million units. The decline in the sales of large cars, which bring in large profits, is particularly worrisome for the company.

   The sharp rise in materials cost is also creating a tough condition for the company. The auto sheet price is certain to rise by 5-10% over the previous term. The cost is likely to rise by more than 300 billion yen.

Reviewing of expanding economic environment is called for

   The companies registered on the first section of the Tokyo Stock Exchange, excluding financial institutions, are all likely to renew their all-time high current profits for the term ending March 2008 for the fifth consecutive year. The profit rises have been bolstered mainly by carmakers, electric companies and other export-oriented manufacturing firms. While the domestic market was adversely affected by aging society amid decreasing birth rate, the exports of the manufacturing companies have been pushed up by declining value of the yen to such countries as the United States, where consumption is robust, and newly emerging countries, including China. The export-related companies have thus been the major contributor to the good business performance.

   However, the U.S. markets, which the Japanese business relies on, are still continuing to be overshadowed by the subprime loan problems. The economic decline and declining exchange value of the dollar in the wake of the subprime loan problems are ushering in the fast rise in the exchange value of the yen, crude oil price increases and rises in the materials prices. This condition is bring drastic changes in the environment which has hitherto been favorable for the exporting companies.

   The forecast turn to the profit decline for Toyota symbolizes the severe business condition faced by Japanese business firms. Katsuaki Watanabe, president of Toyota, said at the press conference held when the account settlement was announced that the value of his company would be assessed by whether or not it would be able to absorb the affect of the exchange and materials prices problems. The circumstances in which the business results have kept rising must be reviewed and wasting would have to be totally avoided, he said. His remarks show that the Japanese business firms are facing a crucial turning point as a whole.

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