Tuesday, December 23, 2008

2008: first time Toyota loses money since 1938

Toyota, the Japanese auto giant, forecast its first operating loss in 70 years on Monday, more fallout from the severe slump in vehicle sales that has nearly claimed two Detroit automakers and raised questions over when the US market, Toyota's largest, will hit bottom.

Despite the setback, the automaker is still poised to pull ahead of its main US rival, General Motors to become the No. 1 world carmaker in 2008. Toyota reported it sold 7.05 million cars worldwide during the first nine months of the year, compared with 6.66 million for GM for the same period.

Toyota, which is committed to zero layoffs, will continue cutting production to weather the downturn. The automaker also lowered its global vehicle sales forecast for the second time this year and said it was putting ambitious expansion plans on hold, in large part because of a precipitous drop in demand in the US.

Sona Iliffe-Moon, a spokeswoman for the automaker's US arm., said the company has not had any layoffs since the 1950s. "As a result of that experience, it became a part of our culture to ensure employment and stability for employees," Iliffe-Moon said

Toyota had reported strong growth in recent years, boosted by heavy demand for its fuel-efficient models like the Camry sedan and Prius gas-electric hybrid. But a severe drop in demand, especially in North America, which accounts for one-third of vehicle sales, and profit erosion from a surging yen were too much. Overall US auto sales fell to their lowest level in 26 years last month.

Toyota said it expects an operating loss of $1.66 billion for the fiscal year ending in March, compared with an operating profit $25.2 billion a year earlier.

The company said it had no intention of drifting from its practice of avoiding layoffs for full-time employees either globally or for its 14 US factories located in the South and Midwest. Instead, it assigns other tasks for employees when it idles plants, such as training or community service. Employees can also take unpaid time off.

This practice has helped the automaker resist unionization at its factories, saving it from the high labor costs plagued its US counterparts. Earlier this month, the automaker announced production cuts at factories in Indiana, Kentucky and Canada, on top of other reductions in November, when Toyota also cut several hundred contract workers.

Toyota employs about 36,600 full-time employees in the US, a market that accounts for about a third of the 8.9 million vehicles it sold in its fiscal year ended in March.

The announcement Monday reflected a dramatic change of fortune for the iconic company, which in recent years had outlined ambitious expansion plans and weathered an industry slowdown much better than its US rivals.

Toyota, which started in business as a loom maker, began making trucks and passenger cars in 1937. Its first and only operating loss came the following year, before it started reporting formal results.

At the time, Toyota was still far behind the American automakers. With World War II, Toyota started a side business making aircraft engines, but that group company switched to making auto parts and sewing machines after the war.

In its forecast Monday, Toyota lowered the number of vehicles it expects to sell globally this calendar year to 8.96 million, down 4 percent from last year. Earlier this year, Toyota had projected worldwide sales of 9.5 million vehicles.

US auto sales aren't expected to start recovering until late 2009, and the dollar - already at a 13-year low against the yen - could lag further, he said. A strong yen hurts results because overseas profits must be converted into the Japanese currency.

Toyota is a relatively old-style Japanese company that offers lifetime employment, and only in recent years has hired and let go of temporary workers to adjust production. It said it was reviewing overseas jobs but had not reached a decision.

The automaker will focus on hybrids and small cars, and invest in environmentally-friendly technology to prepare for long-term growth.

While Japan's automakers are in far better financial shape than their cash-strapped American counterparts, the global slowdown is hitting them hard. Last week, Japan's No. 2 automaker, Honda, also lowered profit and sales forecasts and declined to give a vehicle sales goal for 2009.

Toyota's US sales plunged by a third over 2007 in November, when overall sales fell to their lowest level in more than 26 years. And there is little hope for a quick fix as consumers hold back big purchases amid a credit crunch, rising unemployment and fears about the future. (info from The Associated Press)

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