Toyota will end their fiscal year ending in March badly bruised. Financial Times reports that ToMoCo’s losses will be three times larger than previously forecast. The worst industry slump in decades has put a painful crimp in an amazing run. Last year, Toyota earned a record operating profit of $30b. In the same year, they became officially the world’s largest automaker, a title many had said should have been given to Toyota a year before. In November 2008, Toyota still projected a profit of $6.6b. Then, carmageddon caught up with them.
In December, Toyota gave the entire global auto industry a sobering wake-up call: for the first time in history, they would close the year with an operating loss of $1.7b. That’s less than the monthly cash burn of GM. But a loss is a loss, a major dishonor in Japan. Sweeping reforms were instated. Top management was changed. Akio Toyoda, the grandson of Toyota’s founder, assumed the company’s presidency.
Toyota now projects an operating loss of $5b. Toyota warned that for the first time it would fall into a loss at the net level as well. A net deficit of $3.9b is expected.
While a strong yen has hurt the books at Toyota’s HQ, the revision is almost entirely caused by declining sales. To maker matters worse, Toyota today lost its AAA rating from Moody’s, which cut its Aaa senior unsecured long-term rating on the company to Aa1 and warned that further downgrades could follow.
The canary in the coal mine is looking plenty peaked.
,,,and the truck’s still drivable!
Bertel, you haven’t said what toyota’s reserves are. I know they can cover this. But the big question will be, do they restructure quickly and deeply to get out of this depression? I believe without GM’s executives and unions, they will get back on solid ground way before they run out of money ala Detroit. I also feel they can turn it around in a year. This will tell us if the old spirit that made them number one is still with them. I am personally neutral about toyota but feel they still are significantly different than their US counterparts.
A Toyota deathwatch series?
Toyota welcomes the UAW and Obama hands them billions?
As someone pointed out on another thread, this loss comes after profit in the first two quarters of fiscal year 2009. So Toyota is bleeding money as fast as the Detroit Big Three, if not faster.
I am no accountant, but it seems that a $6.6 Billion profit in November to a $5 Billion loss only five months later puts Toyota’s Cash burn over $2Billion a month at this point. Assuming the figures you gave us.
A couple of months ago gearheads went sick on Honda for dropping out of F1 and praised Toyota for staying in.
Toyota spends about $445 million a year on this losing endevor.
Full financial year for GM will be horrific.
Toyota’s numbers will look great.
Toyota have deployed the parachute at 5000ft, while GM are on a ripped (Government made) reserve with 300ft to go.
Chrysler don’t have a parachute, while Ford has a tether to both a few hundred feet above GM/Chrysler, but are desperately trying to cut it.
That is a misleading title. Toyota is still in the black for FY09. Any of the Big Three would literally murder for a balance sheet like this. Go to the source and read their financial reports. An amazing company, indeed. It will literally be the last car manufacturer that goes under, the last one. It will outlive all European and American Manufactures. Here is their financial statements website.
http://www.toyota.co.jp/en/ir/financial_results/2009/index.html
And no, I am not a Toyota fan. I drive 7 series and my wife has a Z4. Toyota is boring, but they sure know what they are doing. I rented the Prius and was shocked at the quality and technology. While I am not trading my 7 any time soon (just love the size and the heft of the German big sedans) I now realize what a tech marvel that little car is. The back seat had almost as much room as my 7!
RE jerry weber :
I believe without GM’s executives and unions, they will get back on solid ground way before they run out of money ala Detroit. I also feel they can turn it around in a year.
Toyota’s plants are over capacity, as with everyone else in the industry. Unless the economy turns around, there is no turning around for any brand. The only way they’ll survive, as every automaker, is to start cutting costs (I’m looking at you, Mr. Joke of a F1 team) and cutting people (byebye assembly plants).
It’s only a matter of time folks…
Looks like even the (previously) mighty Toyota in trouble. Cash burn seems to be alsmost out of control. Will they survive?
The real point is even a cash machine like Toyota is now getting a little bit of red ink stain on it’s fingers, not that they’re still better-off than GM. It shows anybody that will pay attention that we’re nowhere near the bottom of this financial crisis.
It doesn’t matter if Toyota used to make profits every year, all that matters is the current situation, they are losing a ton of money and have to react.
Toyota is not in trouble of going bankrupt anytime soon, but they have been hit hard.
Previous profits have been spent on growing their market share (new factories, new models, etc. are not cheap) and paying out dividends. They do not have a ‘bank account’ with 100’s of billions of dollars of previous profits sitting away some where.
Depending on how long the carpocalypse continues for, Toyota will eventually have to borrow money to fund their daily activities from financial institutions (that don’t won’t to give out any). If they needed cash, they can’t just sell factories (who could buy them?), so all they could do is start closing factories to decrease their expenditures.
Honda isn’t in as bad a shape because they haven’t been expanding at anywhere near the same rate as Toyota, so their overhead isn’t as high.
The canary in the coal mine–that would be Chrysler.
The truth is that if you’re tooled up and staffed up for a certain sales level, and then sales fall by 30+ percent, you lose buckets of money in this industry. Simple math.
The key questions are how quickly costs are brought in line with the new volumes, and to what extent they can be. Toyota hasn’t laid off anyone yet, have they? And what penalties must they pay suppliers if they can’t meet any volume commitments, and for how long?
With the Japanese Govt paying healthcare and pensions for most of their workers around the world and the Japanese Govt working daily to control the value of the yen you would think that Toyota would never lose money. Welcome to the world of being the largest car maker, it might be more difficult that they thought.
RE: Michael Karesh
My understanding is that all assembly workers at Toyota start as a contract worker, leaving them plenty of “flexible” labor.
Add that to their practice of imported migrant labor(read SLAVE LABOR, another Ex. Here), and they have a lot of “invisible” workforce they can eliminate. Given the circumstances, I’m sure they’ve already started cutting these people.
I’ve got friends at Toyota NA, and one guy told me they started random drug testing, L O L.
Toyotas arrogance is catching up with them with there expanded truck factories and over capacity. I have seen pictures of airports loaded with Priuses and other Japan made Toyotas that dealers have no room for. Yes they actually are renting Airport space to store those awesome super high selling Priuses. Funny you never see this sort of stuff on the news or on sites that cover these things.
Of course not, ponchoman49. Everyone knows Toyota and Honda are the brilliant Jesus Car Companies and never do anything wrong or have any problems.
I swear if the new Malibu said TOYOTA on it people would go crazy over it.
People like to hate Toyota and Honda, but all they have done is provide durable products. I had a 1984 CRX w/320K miles – sold it; a 1991 Toyota Van with over 300K miles – sold it too – Original owner on both. Take a look at Toyota’s financial statement for 2007/08 – a holistic approach to making money, something the US companies just cannot understand… I don’t even buy Japanese anymore and still have respect for what they have been able to do.
Honda isn’t in as bad a shape because they haven’t been expanding at anywhere near the same rate as Toyota, so their overhead isn’t as high.
Honda has been very careful to pick market segments and doesn’t compete in every segment. Honda likes to go its own way. For a long time Honda was not favored by Japan’s MITI because Mr. Honda insisted on getting into the car business and they wanted Honda to only build bikes. Also, the Toyoda family is an established and aristocratic and Soichiro Honda was a mechanic and engineer.
BTW, does anyone know of a good book about the Toyodas? There are plenty of books about the Fords.
The most important measure of a company’s fiscal health is operating income. For the most recent quarter, it was negative $3.9 billion for Toyota. If you peruse their financial statement, you will find that their cash position actually improved to around $18.8 billion. But if you dig deeper you find that Toyota reported proceeds from issuance of long term debt of $17.2 billion and an increase of short term borrowings of $16.8 billion. Folks, that’s a whole lot of borrowing, not something a company that’s as healthy as Toyota is believed to be does. As I stated earlier, Toyota reported profits in the first two fiscal quarters of $9.7 billion. So in the process of wiping out those gains and posting a negative $4.5 billion for the fiscal year, they will lose $14.2 billion for these last two quarters if my math and logic are correct.
Toyota made some very bad moves and that is hurting them. I will not buy a truck from them because the Tacoma is to me a full size truck. The big question is how big their reverses are. The Priuses never made any sense in that you spend 20+ grand to save fuel. It was an image car.
From the conference call:
Q1 2009 production will be very low to get inventory back to normal levels. That means big losses in that quarter. Later in 2009 will be better (assuming sales don’t deteriorate further).
Cost reductions in the order of $3B and falling raw material prices will help a lot later in the year.
Regarding loan losses: they took 1.5% loan losses and loan loss reserves in Q4 2008 with only a modest loss due to declining residuals.
Toyota has more than $30B in available cash and marketable securities.
They still maintain their policy to have no layoffs.
They reduced their temporary work force from 9000 to 3000 and will probably not reduce that further.
The dividend is subject to review.
The Financial Times story is based on Toyota’s fiscal year 2009 third quarter (through December 31, 2008) financial numbers, which were released today. As DimaK says, the numbers show a company that is still in great financial shape.
But as gm-uawtool points out, there are some real trouble signs too. Toyota had an operating loss of over $3.5 billion in that third quarter. Since it still has an operating gain of over $2.2 billion for the nine months ending December 31, Toyota expects to lose $6.7 billion in the current quarter (January 1 to March 31). Not a pretty picture.
But I don’t see in the figures the borrowing that gm-uawtool does. I see long-term borrowing actually decreasing, with short-term borrowing increasing. They essentially net out. Toyota will lose money. But their balance sheet will handle it pretty easily.
Carmaking is definitely in crisis. But Toyota seems to be weathering the storm fairly well. At least investors seem to think so. As I type this, Toyota’s stock is up 0.5%, to over $69. That gives it a market cap of over $108 billion.
Investors think differently about GM. GM’s stock is down slightly, to $2.82. That gives it a market cap of under $1.75 billion.
Here’s Toyota’s financial statement from the latest quarter: http://www.toyota.com/about/our_business/investor_relations/financial_data/2009/20090206FinancialSummary.pdf It goes into more detail than the link posted earlier by dymak. Page 14 details the borrowing acitivity for the first nine months of the fiscal year that I alluded to. No matter which way you slice it, those are alarming numbers and an extremely abrupt turnaround for any business. Shows how much gravy they got from the weak yen as well.
gm-uawtool, did you notice the payment of long-term debt that more than balances out the proceeds from new long-term debt?
Toyota has, and will be, drawing down on its liquid assets as its losses mount. This financial report shows Toyota sold some securities to get cash, and increased its short-term borrowings. That definitely does weaken its balance sheet.
But I don’t see the alarming numbers in this financial report that you do. It seems like you are trying to paint Toyota as being as troubled as GM. That’s not a picture I see in these financials. Investors haven’t seen it either.
There’s one big thing that people are missing though;
Based on 2007 results, Toyota had a swing of almost $35 billion dollars. To go from $30 billion in profit one year, to $5 billion in losses the next is HUGE.
Toyota is still not as sick as the domestics financially, but they aren’t exactly healthy right now either. (they’ll recover, but it isn’t going to be pretty in the short term)