Toyota Says Record Run of Annual Profits to End
Toyota Motor Corporation has forecast a larger than originally expected tumble of 35% in its net profit for the ongoing year due to the steep appreciation of the yen, which will end three consecutive years of annual record profits that have been driven by the weak currency.
The automaker based in Japan said Wednesday that profit for the year, which ends March of 2017 would drop to just over 1.5 trillion yen or $13.81 billion from the prior year of 2.31 trillion yen. The forecast came up short of Wall Street estimates of over 2.55 trillion yen.
Lower profits are going to make it hard for the automaker, the most valuable one in the world, to maintain investing in new products and technologies even as the competition in the marketplace intensifies in areas like autonomous driverless as well as alternative energy vehicles.
Toyota said it based its estimates on the U.S. dollar averaging this year 105 yen, versus the much more favorable last year price of 120 yen.
Losses in foreign exchanges would have a 935 billion yen negative impacts on the operating profit in 2016, said Toyota officials.
Akio Toyoda the CEO and President of the automaker said the earnings results over the last couple of years have largely been helped by the exchange rates of foreign currency.
However, since the beginning of 2016, the tide began to change.
The sudden strength in the yen is creating a difficult business environment for the automaker.
Volatility in the value of the yen can have a huge impact on the earnings of Toyota, as last year it exported close to half of its domestic production.
Each single yen move in the rate of the dollar/yen affects the Toyota operating profit by as much as 40 billion yen, said officials.
Toyota did not release specific measures that could counter the yen’s strengthening, but did say it would continue investing in its growth.
The company is expecting operating profit, which does not include earnings from China, to drop by 40% during the year to just over 1.7 trillion yen.
That does not include any impact that could be caused by stoppages in production that followed the earthquakes last month in southwestern Japan.
Toyota, which during the quarter was overtaken by Volkswagen as the top selling maker of cars in the world, said it was expected its global sales to reach 10.15 million overall vehicles during the year through March of 2017, from last year’s 10.09 million.