American auto companies have been bashed repeatedly for their failure to sell cars, but the gem of the auto world is proving it is not immune to the same pressures after Toyota Motor Corp. divulged Monday it likely will suffer its first operating loss since 1937.
Japan’s flagship company, under pressure from collapsing demand for vehicles at home and abroad, is steaming into unchartered waters. A soaring yen and worldwide recession have sunk its homeland’s exports by the largest amount since the government began reporting the data in 1980.
Meanwhile, the Japanese economy, which has already declined during the second and third quarters, is likely to register a huge plunge during the fourth quarter. That will deepen and prolong its recession, reducing demand for U.S. exports, which had been the most robust factor in the sagging U.S. economy until they began declining in October.
“The change in the world economy is of a magnitude that comes once every hundred years,” Katsuaki Watanabe, Toyota’s president, told a news conference in Tokyo. “We are facing an unprecedented emergency. Unfortunately, we can’t see the bottom.”
Mr. Watanabe announced that Toyota was postponing all capacity-expansion projects. While the company will be completing a plant under construction in Mississippi, it recently said it has no plans to install tooling and other equipment in the facility until further notice.
The projected operating loss for Toyota, whose market capitalization is the largest of any Japanese company, “confirms that there is nobody left untouched by today’s global economic malaise,” said Aaron Bragman, a U.S. auto analyst at IHS Global Insight. In North America, “where Toyota has been on a building spree for the last 20 years,” the company now faces an overcapacity problem, Mr. Bragman said in an interview.
In the face of collapsing U.S. demand for vehicles, Toyota has been temporarily shuttering some North American plants, reducing the number of shifts in others and laying off temporary workers. Toyota has endeavored to keep its full-time employees busy by retraining them and even “outsourcing” them for community-service projects.
For the fiscal year 2009 ending in March, Toyota said it expects its operating loss will be almost $1.7 billion. As recently as six weeks ago, Toyota, which earned more than $25 billion last year, was projecting an operating profit of about $6 billion. Because of interest income and dividends from its affiliates, Toyota said it would likely eke out a relatively small net profit of about $550 million this year.
Toyota’s vehicle sales have been plunging in Japan, Europe and the United States. Toyota’s U.S. sales in November plummeted 34 percent compared with a year earlier, despite the fact that the company offered interest-free financing for 11 of its vehicles.
By comparison, General Motors’ sales fell 41 percent in November, Chrysler’s plunged 47 percent and Ford’s declined 31 percent. Honda’s U. S. sales were off 32 percent last month, and Nissan’s tanked by 42 percent.
The Japanese automakers also have been hammered by a soaring yen, which makes their vehicles relatively more expensive for consumers and erodes the firms’ overseas profits. The yen is trading at a 13-year high against the dollar. The greenback lost 14 percent of its value against the yen during the 12 months ending in November and has shed nearly 30 percent of its value since it peaked against the yen in early 2002.
The strong yen and the worldwide economic downturn have severely afflicted the export-dependent Japanese economy.
The government reported Monday that Japanese exports fell by 26.7 percent in November from year-earlier levels. It was the first time in 28 years that exports declined two months in a row.
Japan’s two-month trade deficit, which was mostly composed of falling exports of autos and auto parts to the United States and Europe and computer chips to China, signaled that fourth-quarter economic activity will likely register a jaw-dropping descent.
Toyota sells more vehicles in the United States than it does in Japan or Europe. Like Detroit’s Big Three, Toyota and other Japanese auto companies have been clobbered by increasingly tight-fisted U.S. consumers, whose inflation-adjusted spending declined during the third quarter for the first time since 1991 and by the steepest amount since 1980.
During the fourth quarter, as U.S. unemployment has spiraled upward and credit availability has plunged, consumer spending on long-lasting goods such as autos has essentially collapsed.
Toyota, of course, is in much better financial condition than U.S. automakers, two of which - GM and Chrysler - staved off possible bankruptcy by becoming eligible last week for more than $17 billion in federal government loans through March.
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