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Source: www.asiaecon.org |


Toyota is sinking into its first operating loss in seven decades. The Japanese auto giant has not reported an operating loss since 1938, its first year in business.

Toyota is sinking into its first operating loss in seven decades. The Japanese auto giant has not reported an operating loss since 1938, its first year in business. Toyota, which overtook GM as the world’s biggest automaker in 2007, has enjoyed strong sales in the past few years, mainly due to its pioneering petrol/electricity hybrid, the Prius, and its wide range  of new popular car models, like the Camry Sedan and Corolla. Now, it is expecting to lose approximately between $1.5 billion and $1.7 billion this fiscal year, this being the latest sign of the global auto industry’s sharp slowdown. Toyota reports earnings on a fiscal calendar beginning in April.

The global financial downturn has taken a major toll on automakers. Global vehicle production fell 16 % in the fourth quarter, according to the firm IHS Global Insight. Although, of course, it has to be taken into account that the starting point of which Toyota began coping with the global crisis is not comparable to the starting points of GM, Ford or Chrysler; since Toyota made a record profit of 2.27 trillion yen in 2007. Toyota -long the world’s most profitable automaker- is not an exempt from the slowdown in the automaker industry, and is being seriously affected by the global financial meltdown. Toyota will sell about 1.4 million fewer vehicles globally in this fiscal year than it did last year, falling in virtually every region. According to Toyota, sales will drop by 250,000 units in North America alone -the world’s largest car market-, forcing the company to lower assembly lines and delay manufacturing projects.

Toyota’s sales are also plummeting  as a result of a strong local currency. Japanese exports have suffered because of currency exchange rates in the last months, cooling the demand both in the United States and Europe. According to the Japanese government, the rising value of the yen caused  Japan’s trade deficit to reach  $2.5 billion in November. Japanese exports plunged a record 27%  in November alone and suffered their biggest year-on-year drop since the current system of statistics went into effect in 1980. Although Toyota often proclaims that it wants to build where it sells, nearly  40% of the vehicles sold by Toyota in the U.S. last year were imported. Toyota expects losses of about $2.2 billion due to currency exchange rates alone.

Toyota is taking several steps to confront this crisis. It will postpone all projects to expand capacity, move 16 of its 75 global assembly lines to a single shift, and cancel directors’ bonus payments for this year, among a wide range of steps aimed at improving near-term profitability. But the sales decline has been so dramatic that production has to be reduced  and Toyota may be forced to take unusual steps. The most significant change that Toyota may be facing is the modification of their so-called “just-in-time” (JIT) manufacturing system in an effort to avoid possible supplier bankruptcies disrupting production. Toyota may have to accumulate inventories if it wants to mitigate the effects of a collapse among its suppliers.

Despite the likely operating loss, Toyota expects to post a $557 million net profit for the fiscal year. Toyota is still profitable because of the surplus derived  from their investments, fringe benefits, and all the other financial activities outside of their core business.

Source: www.asiaecon.org |

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