Toyota hit by straightaway straightway fall in revenues. Expansion strategy has grave repercussions
11, 28. 2008
Toyota Motor Corp. revised downward its operating profit forecast for the term ending in March 2009 from 1,600 billion yen to 600 billion yen, down 73.6% from the previous term. This drastic plummet in the forecast was revealed in its consolidated account settlement (in the American accounting standard) for the term announced on Nov. 6, 2008. It would be the first time for the operating profit to dip below 1 trillion in eight terms since March 2001. Toyota Motor is the top domestic business firm that has boasted continuing increase in its profit as a symbol of the Japanese economy. Its sudden fall proves that Japan can not remain unaffected by the global financial crisis and economic deterioration.
Stricter checks for auto loans in the U.S. have impacts
The company's sales forecast was also revised downward from 25 trillion yen to 23 trillion yen, down 12.5% from the previous term. The current term profit forecast was revised downward from 1,250 billion yen to 550 billion yen, down 68% from the previous term. It is the first time to revise consolidated business performance figures downward since the company began to make public its forecast for a whole term in 2006. Furthermore, it is the first time for the company to forecast decreases in its revenue and profit for a whole term in nine terms since the term ended in March 2000. This reflects the severe business condition.
The cause of the sever business condition is the sharp global decline in consumption mainly in the United States and the rise in the exchange value of the yen. Toyota has now revised downward the consolidated sales forecast of cars of the three companies in the group, including, besides Toyota, its subsidiaries Daihatsu Motor Co. and Hino Motors, from 8,740,000 units announced in August to 8,240,000 units. But the sales in the key markets throughout the world are all expected to register decreases. The expected decreases are 530,000 units in North America, 100,000 units in Japan and 70,000 units in Europe.
In the interim account settlement made public in September 2008, the company showed the stagnant group sales of 4,250,000 units, down 51,000 units on year. A sharp decline was registered especially in the United States at 140,000 units. Following the economic slowdown triggered by the subprime mortgage problem, the situation became serious further after September because of the financial crisis. Then the checks for auto loans became stricter, resulting in the spread of sales slowdown to cars.
The car sales increased by 10,000 units on year, but the revenues from exports went down because of the rise in the exchange value of the yen. In the previous term, the exchange rates were 114 yen to the dollar and 162 yen to the euro. As the value of the yen is rising rapidly amid the worldwide economic instability, Toyota has changed its the exchange rates prediction during the second half of the current term to 100 yen to the dollar and 130 yen to the euro.
Expansion strategy may be reviewed
The deteriorating business performance is due largely to such external factors as the unstable movements of the world economy and exchange rates. Mitsuo Kinoshita, Vice-president of Toyota, stressed at the press conference announcing the account settlement that the company was placed in "an extremely severe condition we have never experienced in the past." But blame for the bad business result can not be put only on external factors. There are some basic factors.
Toyota has hitherto kept constructing new plants in various places in the world as part of its expansion strategy. As a result, the company has caught up with the world's top carmaker General Motors, and it is now about to surpass GM in terms of the number of cars sold in the world. But the expansion strategy becomes burden for the company once the world economy starts contracting. This is because it would not be easy to reduce or stop production at the plants or cut down on the employment.
It is now possible for Toyota to review its expansion strategy.