Toyota Motor Corp. has spent billions of dollars over decades to develop "American" credentials. Now the auto maker is finding out just how difficult it is to be American.
Toyota, duking it out with General Motors Corp. for the title of the world's largest auto maker, issued a grim outlook yesterday, forecasting that profit will plunge by as much as 30 per cent this fiscal year, driven down in part by a slump in the U.S. market it has spent so much money and effort to conquer.
"We are facing a severe business environment," Katsuaki Watanabe, Toyota's president, said in a statement.
The company has moved from strength to strength in North America in recent years, gaining market share, opening new assembly plants and expanding its reach by offering vehicles in all segments of the market.
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While that growth spurt helped vault the company into second spot in the key U.S. market behind GM, it also means Toyota, probably for the first time, is in the same boat as its Detroit-based rivals when large segments of the U.S. market go into a tailspin.
"They've become a lot more vulnerable to the vagaries of the consumer and the economy," said veteran industry analyst Joseph Phillippi, who heads Auto Trends Consulting Inc. in Short Hills, N.J.
Sales of its full-sized Tundra pickups are one example. They fell last month for the first time since a major redesign last year, and production has been scaled back at the two factories in Texas and Indiana where they're made.
GM, Chrysler LLC and Ford Motor Co. are facing exactly the same problem, as they get whacked by soaring gas prices and the collapse in the U.S. real estate market.
Even as it's in the midst of building new factories in Woodstock, Ont., and Mississippi, Toyota forecast yesterday that its sales in Canada and the United States will slide to 2.77 million vehicles this year from 2.96 million last year.
North America generates about 50 per cent of Toyota's profit, which fell in the fiscal fourth quarter to ¥316.8-billion ($3.05-billion U.S.). Nonetheless, full-year profit surged to a record ¥1.72 trillion, or $16.54-billion (U.S.).
Profit is forecast to fall this year to fall to the equivalent of $12-billion.
Toyota also singled out the rise in the value of the yen and soaring costs for raw materials as other reasons for the weaker outlook. "It's now time to readjust our structure after having years of constant growth," Mr. Watanabe told reporters in Toyko. He also described the headwinds as "a valuable opportunity" to turn Toyota into a more flexible and stronger company.
It's the first time in seven years that Toyota has predicted a drop in profit and its sales have not fallen in the U.S. market since the mid-1990s, another period when the yen was soaring in value.
To put Toyota's forecast in perspective, GM lost more than $3-billion in its first quarter and Ford eked out a surprise profit of $100-million, just 15 months removed from reporting an annual loss of $12-billion.
But this kind of news from Toyota is likely to send a shudder throughout the entire industry in North America.
"It's probably a pretty damn good indication of how grim the market's going to be," Mr. Phillippi said.
By the numbers
U.S. sales last year
2.96 million vehicles
U.S. outlook for 2008
2.77 million vehicles
U.S. Sales to April 30, 2007
816,312
U.S. sales to April 30, 2008
789,448
Some key vehicles
Camry
143,774 (Jan. 1 to April 30, 2007)
147,018 (Jan. 1 to April 30, 2008)
Corolla
120,484 (same period as above in 2007)
99,482 (2008)
Prius
52,738 (2007)
64,664 (2008)
Lexus RX
30,094 (2007)
28,608 (2008)
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