Although genetically adverse to saying the L-word, the Japanese will have to famiriarize themselves with it: “Plunging sales worldwide and the yen’s sharp appreciation will likely push Toyota Motor Corp. into its first-ever operating loss” in their 2008 fiscal year, writes an aghast Nikkei (sub) today. In earthquake-prone Japan, this resembles a 9 on the financial Richter scale. Once, Toyota came close: In ancient 1949, when Japan was a chaotic mess after World War II and was ruled by a benevolent dictator called McArthur, Toyota had a pre-tax loss. But they never posted an operating loss since Toyota began releasing earnings figures with fiscal 1940. This announcement will leave Japan shell-shocked. They have a different attitude towards losing money than in What-me-worry Land.
In November, Toyota’s new-car sales dropped 30 percent in the three major markets of Japan, the U.S. and Europe. Nikkei: “The downturn is continuing in December, with sales in North America, in particular, worsening as approval standards for auto loans are tightened. The severe global sales slump is estimated to depress the firm’s profits by more than 200 billion yen in the current fiscal year.”
What is also depressing Toyota’s books is the yen which has risen sharply against major currencies. The exchange rate alone will cost Toyota roughly $2b on their balance sheet.
Then, there are the toxic loans: “When loss reserves for its auto-financing business are added to the mix, the nearly 600 billion yen in profits that Toyota earned in the April-September half are now unlikely to be enough to keep the automaker in the black for the full year,” the Nikkei says.
Toyota posts loss? That’s unpossible!
At that rate they’ll be broke at the end of the Century.
No large business can suffer an almost instantaneous 30%+ drop in demand without loosing money. These crazy times of oil shooting up above $140/barrel and then back below $40/barrel within the space of a few months are impossible for individuals or businesses to do any kind of decent planning around.
They should drag the leadership before Parliament and browbeat them about not building enough green cars and yell at their union leaders.
With all the volatility and chaos in the carmaking industry today, it’s hard to see what the fundamentals of the industry are.
But those who look at carmaking from an academic viewpoint have been critical. Books like Time for a Model Change and The Second Century point out how carmaking might be dying, even for those carmakers that seem in good health.
It will be interesting to see what the future holds.
No company is immune — I don’t see what the big news here is. Only strange outliers (namely, Audi) seem to have been capable of skirting the market’s motion. And that’s only temporary.
Considering OPEC’s recent production slash, and the inevitable return of $3/gallon gas, Toyota will obviously be just fine in the long run.
tesla deathwatcher — I’m curious what their whole thesis is — if they believe that car manufacturers are going to be obsolete, how will people get around? Public transportation makes sense for denser areas, but there will always be a need for individual transportation elsewhere.
I wonder if they’re forseeing a more modular system where each component comes separately and it’s just a matter of packaging existing subsystems designed to easily integrate with each other.
It’s a downturn in the economy, and a big one at that. This is normal, especially considering how punch drunk we’ve been on easy credit. I’m glad the hangover has finally arrived, so that we can start to sober up.
Very clever first line.
I’m confused because another story I read interprets their loss as a decline in profits:
http://www.google.com/hostednews/ap/article/ALeqM5jTG7SuUsayqE6bO9GPluAfU5blewD955I3P80
“Toyota is forecasting a 550 billion yen ($6.2 billion) profit, less than a third of what it racked up the previous fiscal year, on 23 trillion yen ($258.4 billion) sales, down 12.5 percent on year.”
Regardless of my confusion, if they only make $6 billion, or lose $2 billion, I find it fairly impressive given the greatly reduced sales, weak yen, and “toxic” loans. Plus some still value their credit rating as AAA while others dropped it to “just” AA. I understand even the best borrowers can default, but I wasn’t aware Toyota Financial Services came close to loaning money to “anyone with a pulse” or 30% above msrp in neg equity.
They have 4 or so months to correct most of their problems, and have already nixed the 2nd Prius plant). Unless economy gets DRAMATICALLY worse, I don’t see them doing worse than breaking even next fiscal year. If it does get worse, I think they can avoid the bankruptcy bug at least a few years.
maniceightball, you have the basic idea. I hesitate to distill the thoughts I have seen into too concentrated a summary. But here’s a shot at it.
Most seem to think that the carmakers should move to being “systems integrators,” focusing on brand, marketing and distribution. All engineering should be done by the tier one suppliers. A Dell model applied to cars. And like Dell does it with computers, cars should be built to order.
Without that focus on customers, a streamlined retail sales chain, and the engineering work divided up and spread over more specialized firms, carmaking may crumble as an industry.
As you point out, we’ll still need cars, and some company will make and sell them. But carmaking may become like the airline industry. (It’s funny to hear what Warren Buffett has to say about investing in airlines.)
That is, carmaking may become even more of a black pit that sucks in money and talented people and wastes them. And less a vibrant industry that produces profits and good jobs.
@RayH: The Nikkei – who I hold as more authoritative on matters Japanese than the AP – writes: “Toyota Likely To Post 1st-Ever Op Loss In FY08 – NAGOYA (Nikkei)–Plunging sales worldwide and the yen’s sharp appreciation will likely push Toyota Motor Corp. (7203) into its first-ever operating loss in the current year ending March 31, The Nikkei learned Thursday.”
The AP report reiterates that: “Toyota’s mainstay vehicle operations are likely to post their first ever loss for the fiscal year through March 2009, Japanese media reports said Friday, highlighting the dire conditions faced by global automakers.”
I don’t know where AP’s $6b profit comes from, although it is at the bottom of their story, contradicting the top.
I don’t think any company is immune to a loss, no matter how well run. One of the warning signs of fraud is NO losses over a long period of time. Bernard Madoff only had I think 4 quarters of losses in like 20 years or something like that.
In other news, I was on toyotas website yesterday. Anyone have comments (outside of it being stock boring) on the corolla? Might be a nice non-exciting vehicle for the wife. Seems to get great gas mileage.
Basically there quite a lot of carmakers, that are capable of built to order. Ford of Europe is one of them. It think that most Europeans order new cars by the booklet and the companies built it like the customer wants them.
I realise tho that in the US things are a little bit different.
This is less about gas prices and more about the absolute collapse of the US market. Throw in the yen, and Toyota is probably losing money on every Camry sold right now.
Detroit Todd called it!
Toyota will post a loss next month. Honda, and every automaker, is cutting production. While the Big 3’s products pile up at parking lots across the Midwest, the imports are being warehoused at the ports.
We are in a major recession, approaching a depression.
https://www.thetruthaboutcars.com/gm-death-watch-223-pianos-and-pinheads/
Or, maybe not. As snarked upthread, perhaps the Japanese government “should drag the leadership before Parliament and browbeat them about not building enough green cars and yell at their union leaders.” Sure, they could scold them about the gas-hogging Tundra / Sequoia / Highlander / 4Runner, and bring up the engine sludge issue, too, as reasons people aren’t buying their products. Toyota death-watch, anyone?
Nah, that would be stupid, wouldn’t it?
The meltdown in the credit markets and the US recession have the Japanese yen at a historic high, USD -> 89 JPY – which further cuts into Toyota’s profits when their US sales are still far larger than in their home market.
Don’t underestimate the affect of exchange rates on their bottom line. Much of their product is still imported and fewer yen per unit sold will be returning home.
Not to worry, Toyota still has lots of cash and the Japanese treasury is once again buying USD dollars in an attempt to keep the yen an artificially low. The only trouble is no single player will likely be able to match the Fed’s expansion of the US money supply.
Furthermore, when I look into my crystal ball, I don’t see US auto sales coming out of the tank anytime in the next six months, maybe longer.
I disagree with some comments about Toyota, they maybe not buying any vehicle in the USA ie the Consummer but its nothing to do with any maker, its the economy eh! Here in Canada Toyota vehicles are selling well as of yesterday I was in my local dealer and they are still selling new vehicles, not as many as last year but sales this month are still ongoing.
Is it not what the Detroit three are saying, that people cant get Credit, therefore that’s why they need a Government loan! and get the Banks to extend Credit.
Happy Christmas to all of you on this Blog!
Hopefully this will help the American public see that the problems the US makers are facing are bigger than simply using poor business practices. This is a worldwide econmomic downturn and if the fault for the troubles American manufacturers are facing were all their own doing it would not explain why every maker worldwide is facing problems. Money is tight and it is hurting all auto manufacturers.
@ tesla deathwatcher
If only we could scrap state franchise laws, then I could order a vehicle directly from the manufacturer with or without the packages that I want, but more importantly with a manual transmission and in the color I want.
It so isn’t going to happen, but in this day of computerized inventory tracking, manufacturers could respond to changes in consumer demand sooner and reduce their inventory of unsold vehicles.
Part of Toyota’s profit problems likely stem from their sales mix as much as their sales volume.
Toyota, like the Detroit manufacturers rode the wave of trucks and SUV’s to post big profits, not to mention large luxury vehicles over at Lexus.
Now they are still selling lots but they are selling the likes of the Yaris, Corolla, Matrix and Prius.
The margin on these cars are signfigantly lower and again, like the Detroit automakers, Toyota does not make a lot (or might even be taking a loss with incentives) on small cars.
Same goes for dealers, their sales volume may be great but I would suggest the sales mix is eroding their profits as buyers go for cheap cars as opposed to more lucrative vans, SUV’s and trucks.
Any bets that this current North American winter will do much to remind people about the joys of a large 4×4 or AWD vehicle? If it does, I will savour the irony after all of this Global Warming hysteria helped drive these vehicles off of consumer lists and it will be real, tanglible weather that makes them catch back on.
This link from Bloomberg helps to clarify the story: http://www.bloomberg.com/apps/news?pid=20601209&sid=anLypq1IR2_w&refer=transportation
According to this, Nikkei is speculating that Toyota may report a loss for the fiscal year, which ends in March.
Toyota did not deny the report, but is still projecting an operating profit.
The fiscal year is not over yet, so either way, you won’t know who’s right until later this year.
And Toyota’s balance sheet and ability to adjust to the market should be strong enough that this will be a blip, not a death rattle. This is not the mismanaged, dysfunctional mess that you find elsewhere (hint, hint.)
maybe Toyota should just belly up to the bailout bar.
“All the big players in the auto industry will post a loss this year?!? Inconceivable!”
“I do not think that word means what you think it means.”
Now they are still selling lots but they are selling the likes of the Yaris, Corolla, Matrix and Prius.
Not really. The problem Toyota is facing is that they’re not selling much of anything. No one is. This isn’t like the domestics’ sales cratering when gas went up to $1.50/L and they had nothing with low fuel consumption that was worth buying. No one is buying, either because they’re in “batten down the hatches” mode, or because their bank is.
The margin on these cars are signfigantly lower and again, like the Detroit automakers, Toyota does not make a lot (or might even be taking a loss with incentives) on small cars.
That is true. Small, no-frills cars don’t make a lot of margin. Either you need to sell them in huge volumes, or you need to offset them. GM et al were doing only one (offsetting), Toyota was doing both. Now no one is doing either. Nothing is selling, be it Yarises or LX570s.
Well, Yarises may be selling at slightly better than a rate of nothing, but not enough to supply Toyota with the cash it needs to turn a profit. This is the problem with being big: you have big costs to meet. If you’re not selling big volumes, it’s harder to meet those costs.
This would be the perfect time for Chinese and Indian makers to get in the door. Like eletronics and textiles before them, economic downturns tip the scales towards low-buck goods that otherwise might not get a toehold. The Chinese can sell more car at less margin than just about anyone else. If they can get a compelling product on our shores and get people buying, this could be their hour.
Not that it’s a good thing, it’s just possible.
Any bets that this current North American winter will do much to remind people about the joys of a large 4×4 or AWD vehicle? If it does, I will savour the irony after all of this Global Warming hysteria helped drive these vehicles off of consumer lists and it will be real, tangible weather that makes them catch back on.
That’s unlikely. You don’t need a large, four- or all-wheel-drive vehicle to cope with winter; if you do, there are Scandinavians, Canadians and Alaskans who are probably laughing at you now.
Studded tires and working heater and defroster? Certainly. An Expedition or Tahoe? Why? It’s not like they’re going to be better than, say, a Toyota Matrix with stability control and good tires unless, say, you need to push a snowplow. I feel you’re trying to make a point about the green movement, and you’re stretching the logic beyond the breaking point.
Toyota posting a loss is not the unthinkable; the unthinkable is GM ever posting a future profit without Chapter 11.
Detroit Todd:
Even a really well managed company might have a negative quarter in a recession, shocking.
However, Toyota has so much cash, and has been so quick to react, that they will not even come close to needing to beg any government for any money.
Congress should not have invited the big-3 executives to DC to beg for money, Congress should have just stayed out of it and let them go bankrupt. Just like Circuit City, United Airlines or the Tribune Company.
Loosing money during a recession is one thing; GM managed to consistently loose money during the economic boom.
RayH, the article explains that it is the Toyota car division that is going to lose money, but other subsidiaries of the corporation (Daihatsu and Hino Motors) will make enough profit so that the company as a whole will be profitable.
Good!!
Here’s to many more! (glasses clink)
@tesla deathwatcher:
The future vehicle product mix will get wider, not narrower. Think ball point pens. Go to any store and you will find 20-30 options that fit “paper writing utensil”. They will vary in price, features, and style. Same with vehicles.
No one wants to be driving the same car as their neighbor. Look at any manufacturer’s offerings and the volume of each offering over the past 20 years. In each case the individual vehicle volumes have (at best) remained steady or in most cases they have been severely eroded.
It used to be that a run of over 250,000 annual vehicles sales was a “hit”. Now it’s somewhere between 100-150k.
This follows exactly what you would expect in a mature market: customer demands splinter large volume sales into smaller and smaller groups. The customer becomes more, not less, important over time to the remaining vehicle providers. Non-car people have a hard time understanding this, however, because the emotional aspect of car purchasing is discredited and quickly pushed aside in their analysis.
Boy, Jim Press got out of Toyota in the nick of time!
Wow! It might be time for Toyota to plead with Japanese government to assist them with competitive advantages! Oh wait, they already do!
They probably would’ve broke even if they abandoned their involvement in F1.
Misery loves company, I suppose.
J Horner,
What you say is true, only it’s not. Yes, modern corporations can’t manage whipsaws in the economy because they have used finance techniques and business strategies to maximize profits which they are almost forced to use because everyone else does. However, very conservatively run businesses could easily deal with these issues. The only problem is that they have mostly been bought out or put out of business by those who more highly leveraged their businesses.
The free lunch of all this creative financing is now being paid for. When all the governments stop fixing the game in favor of large employers then these problems will be reduced.
Thanks for this non-news story. The key word in the article is Toyota will likely post a loss. As respected as Nikkei is, they are simply speculating. There is NO guarantee that Toyota will definitely post a loss. Toyota’s latest projections still call for profit in this quarter and the next.
I’ll believe it when I see it. If Toyota posts a loss, and TTAC posts a link to Toyota’s website showing that, then we can talk.