Toyota expects record net profit as weaker yen offsets US discounting

A production line at the Toyota factory in Derby, central England. The company’s sales rose 1.7 percent in Europe to help lift global profits by 31 percent. (Reuters)

TOKYO: Toyota Motor Corp. expects a weaker yen to lift net profit to a record high this year, offsetting sluggishness in the US, the carmaker’s biggest market where it has been grappling with lower sales and steeper discounting.
Japan’s biggest carmaker on Tuesday forecast a 31 percent profit jump for the year through March to 2.4 trillion yen ($22.02 billion), on the back of an expected 10 percent rise in operating profit to 2.2 trillion yen — up from previous forecasts of 1.95 trillion yen and 2.0 trillion yen, respectively.
A year after a strong domestic currency wiped out nearly 1 trillion yen from Toyota’s operating profit, the automaker this year sees a positive currency impact of 240 billion yen, softening the blow of expected lower sales in Japan, North America, and Asia.
Reducing development costs by increasing integration between design and engineering teams, and lower expenses for quality-related issues including product recalls, were helping to cut overall costs, but Executive Vice President Koji Kobayashi said more work needed to be done to buffer against yen moves.
“We need to become more resilient to currency volatility,” Kobayashi told reporters at a briefing.
“Even though we have upgraded our forecast ... excluding the currency impact, our operating profit would be down 55 billion yen on the year. That’s unacceptable.”
For the third quarter, Toyota posted 673.6 billion yen in operating profit, a 54 percent jump from a year earlier and its best quarterly operating profit in two years.
On a consolidated basis, Toyota sold 2.29 million vehicles globally in October-December, largely flat from a year earlier. Sales in Japan rose 3.3 percent but fell 1.3 percent in North America, where the carmaker is struggling with heavy discounting as it tries to produce and sell larger vehicles.
Central and South America and other regions were a bright spot for sales, which rose 6.2 percent, while in Europe they rose 1.7 percent.
Operating profit in North America tumbled 73.3 percent.
Toyota has had a bumpy ride in the US, its biggest market where it trails only General Motors and Ford Motor in terms of sales, as carmakers continue to angle for higher market share as overall sales retreat from a record high hit in 2016.
Profitability in the US market is key for Toyota to help generate funds as it invests heavily in new technologies, including self-driving functions, electric cars and mobility services.
As US drivers continue to gravitate toward larger pick-up trucks and SUVs over sedans and hatchbacks, Toyota, best known for its Camry and Corolla sedans, has been scrambling to shift more production from cars to trucks.
Meanwhile, it sold its sedans at hefty discounts for much of 2017 to bolster demand for models like the Camry, while also raising incentives on its SUVs and trucks including its popular RAV4, to remain competitive in the US market.
This has lifted overall marketing costs per vehicle by 10 percent in 2017 from 2016, according to figures from Autodata, and with marketing costs a key drag on the company’s profits.