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Toyota’s First Operating Loss Since 1938 Spells Trouble for Japanese Economy
Money Morning asked:
Joining a chorus of ailing U.S. automakers, Toyota Motor Co. (TM) yesterday (Monday) forecast its first operating loss in 71 years on plummeting demand and sharp appreciation of the Japanese yen. The announcement prompted Moody’s Investors Service to consider downgrading the company’s top-rated credit.
But the news may have bigger implications for Japan’s entire economy, as the country’s exports continue to take a beating from sagging worldwide demand for its products.
Japanese exports plunged 26.7% in November from a year ago. Shipments to the U.S. slid an unprecedented 34%, Japan’s Finance Ministry said. A strong yen, which makes Japanese goods more expensive, combined with deflated consumer spending, is hammering Japanese exporters.
Toyota will post a $1.7 billion (150 billion yen) loss in the year through March, it said in a statement, scrapping a previous forecast of a $6.6 billion. The last time Toyota posted an operating loss was in the year ended March 1938, spokesman Hideaki Homma told Bloomberg News.
The environment we’re in is extremely tough,” President Katsuaki Watanabe told reporters in Nagoya. “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom.”
U.S. auto sales are down 16% this year, led by declines of 28% for Chrysler LLC, 22% for General Motors Corp. (GM) and 19% for Ford Motor Co. (F), Bloomberg News reported. The three U.S. automakers will close about 59 factories over the next month as they struggle to avoid bankruptcy.
It is difficult to envision any swift recovery from the present damage in the U.S., Toyota’s core market, and we anticipate increasing cuts in overseas local production,” wrote Barclays Capital (BCS) analyst Tsuyoshi Mochimaru in a research note on Dec. 19, according to MarketWatch.
Compounding the demand problem is a surging yen, which erodes overseas profits for Japanese exporters. The yen has gained 25% against the dollar this year.
But Toyota’s problems may just be the tip of the iceberg for Japan’s economy. The November export plunge was the biggest drop on record, as global demand for cars and electronics collapsed.
Earlier this month, Sony Corp. (ADR: SNE) announced it was cutting 8,000 jobs, or about 4% of its worldwide workforce. Sony recently blamed a 72% profit plunge in the third quarter partially on a resurgent yen. Electronics company Sanyo Electric Co. (OTC: SANYY), facing tough market conditions around the globe, agreed Friday to sell itself to rival Panasonic Corp. (PC).
“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad, he told Bloomberg News.
Like the U.S. Federal Reserve, The Bank of Japan has been hacking away at interest rates in an attempt to stanch the economic bleeding. Japan’s central bank lowered rates to 0.1% on Friday. But the rate cuts haven’t been enough to kickstart the Japanese economy, as the yen has remained stubbornly strong.
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Joining a chorus of ailing U.S. automakers, Toyota Motor Co. (TM) yesterday (Monday) forecast its first operating loss in 71 years on plummeting demand and sharp appreciation of the Japanese yen. The announcement prompted Moody’s Investors Service to consider downgrading the company’s top-rated credit.
But the news may have bigger implications for Japan’s entire economy, as the country’s exports continue to take a beating from sagging worldwide demand for its products.
Japanese exports plunged 26.7% in November from a year ago. Shipments to the U.S. slid an unprecedented 34%, Japan’s Finance Ministry said. A strong yen, which makes Japanese goods more expensive, combined with deflated consumer spending, is hammering Japanese exporters.
Toyota will post a $1.7 billion (150 billion yen) loss in the year through March, it said in a statement, scrapping a previous forecast of a $6.6 billion. The last time Toyota posted an operating loss was in the year ended March 1938, spokesman Hideaki Homma told Bloomberg News.
The environment we’re in is extremely tough,” President Katsuaki Watanabe told reporters in Nagoya. “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom.”
U.S. auto sales are down 16% this year, led by declines of 28% for Chrysler LLC, 22% for General Motors Corp. (GM) and 19% for Ford Motor Co. (F), Bloomberg News reported. The three U.S. automakers will close about 59 factories over the next month as they struggle to avoid bankruptcy.
It is difficult to envision any swift recovery from the present damage in the U.S., Toyota’s core market, and we anticipate increasing cuts in overseas local production,” wrote Barclays Capital (BCS) analyst Tsuyoshi Mochimaru in a research note on Dec. 19, according to MarketWatch.
Compounding the demand problem is a surging yen, which erodes overseas profits for Japanese exporters. The yen has gained 25% against the dollar this year.
But Toyota’s problems may just be the tip of the iceberg for Japan’s economy. The November export plunge was the biggest drop on record, as global demand for cars and electronics collapsed.
Earlier this month, Sony Corp. (ADR: SNE) announced it was cutting 8,000 jobs, or about 4% of its worldwide workforce. Sony recently blamed a 72% profit plunge in the third quarter partially on a resurgent yen. Electronics company Sanyo Electric Co. (OTC: SANYY), facing tough market conditions around the globe, agreed Friday to sell itself to rival Panasonic Corp. (PC).
“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad, he told Bloomberg News.
Like the U.S. Federal Reserve, The Bank of Japan has been hacking away at interest rates in an attempt to stanch the economic bleeding. Japan’s central bank lowered rates to 0.1% on Friday. But the rate cuts haven’t been enough to kickstart the Japanese economy, as the yen has remained stubbornly strong.
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Toyota to Slash 2009 Sales Outlook, Cut Costs
Money Morning asked:
Toyota Motor Corp. (ADR:TM) may not need a government bailout, but it’s hurting badly.
The world’s top automaker said it will announce a revised 2009 sales forecast at its end-of-the-year news conference Dec. 22. The company is expected to slash at least 1 million cars from its original forecast of 9.7 million units, Reuters reported.
It’s also expected to outline cost cutting measures that could include laying off employees, suspending plant operations, delaying the opening of new plants, and cutting the budget for research and development.
According to several Japanese media outlets, Toyota plans to eliminate bonuses for its executives and is expected to post a second-half loss.
One analyst believes the company’s dividend also could be on the chopping block.
“We anticipate that even Toyota could see its post-dividend cash flow turn negative should it keep its dividends at 140 yen,” Morgan Stanley (MS) analyst Noriaki Hirakata wrote in a report. “Thus, in this perfect storm, we expect the firm to cut its dividend to 100 yen per share for this business year.”
That’s a gigantic step backwards from last year, when Toyota took the crown from General Motors Corp. (GM) as world’s largest automaker by selling 9.37 million cars worldwide.
But like all automakers – and nearly every major industry – Toyota has been crippled by a worldwide dearth in demand, brought on by a whirlwind of job losses, devalued property, lack of credit and falling stock markets.
From January to October this year, Toyota sold 7.74 million vehicles. And during its fiscal first half – six months ended September 30 – net revenues fell 6.3% compared to the same period last year.
Year-to-date, Toyota’s New York-listed ADR shares have fallen about 38%, still much better than GM and Ford Motor Co.’s (F) respective stock declines of 83% and 53%. But recently, Toyota’s ADR shares have been moving forward in hopes that the U.S. government will bailout Detroit’s Big Three – GM, Ford and Chrysler LLC – because that would shore up the auto industry’s underpinnings: Dealerships and parts and supply manufacturers.
The United States is also the largest market for most foreign automakers. Allowing one or all of the Big Three to go under would add millions to the running unemployment numbers and deepen the recession, making the U.S. market less likely to buy their cars.
News and Related Story Links:
Reuters:
Toyota to cut sales goal and outline cost cuts
Money Morning:
Auto Bailout Awaits Congressional Approval with Millions of Jobs at Stake
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More on this topic (What’s this?)
Are US automakers doomed? (Intelligent Speculator, 12/15/08)
European Automakers Dispute Assumptions of ‘Let GM/Chrysler Go Bankrupt” Case (naked capitalism, 12/15/08)
Unsold Goods Piling Up at Long Beach (naked capitalism, 11/18/08)
Vote on Auto Bailout Sure to Spark Debate (The Razor’s Edge, 12/10/08)
Read more on Toyota Motor, Auto Makers at Wikinvest
IMF Quietly Creating Three 100%+ Winners
The International Monetary Fund is about to pump $100 billion into a few select countries. This “no strings attached” bailout is creating three 100%+ gainers in the coming days – if you know how to play it. Get all the details in this report: The Trigger Event Strategy: The Only Proven Way to Make Money in an Insane Market. Just go here…
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Toyota Motor Corp. (ADR:TM) may not need a government bailout, but it’s hurting badly.
The world’s top automaker said it will announce a revised 2009 sales forecast at its end-of-the-year news conference Dec. 22. The company is expected to slash at least 1 million cars from its original forecast of 9.7 million units, Reuters reported.
It’s also expected to outline cost cutting measures that could include laying off employees, suspending plant operations, delaying the opening of new plants, and cutting the budget for research and development.
According to several Japanese media outlets, Toyota plans to eliminate bonuses for its executives and is expected to post a second-half loss.
One analyst believes the company’s dividend also could be on the chopping block.
“We anticipate that even Toyota could see its post-dividend cash flow turn negative should it keep its dividends at 140 yen,” Morgan Stanley (MS) analyst Noriaki Hirakata wrote in a report. “Thus, in this perfect storm, we expect the firm to cut its dividend to 100 yen per share for this business year.”
That’s a gigantic step backwards from last year, when Toyota took the crown from General Motors Corp. (GM) as world’s largest automaker by selling 9.37 million cars worldwide.
But like all automakers – and nearly every major industry – Toyota has been crippled by a worldwide dearth in demand, brought on by a whirlwind of job losses, devalued property, lack of credit and falling stock markets.
From January to October this year, Toyota sold 7.74 million vehicles. And during its fiscal first half – six months ended September 30 – net revenues fell 6.3% compared to the same period last year.
Year-to-date, Toyota’s New York-listed ADR shares have fallen about 38%, still much better than GM and Ford Motor Co.’s (F) respective stock declines of 83% and 53%. But recently, Toyota’s ADR shares have been moving forward in hopes that the U.S. government will bailout Detroit’s Big Three – GM, Ford and Chrysler LLC – because that would shore up the auto industry’s underpinnings: Dealerships and parts and supply manufacturers.
The United States is also the largest market for most foreign automakers. Allowing one or all of the Big Three to go under would add millions to the running unemployment numbers and deepen the recession, making the U.S. market less likely to buy their cars.
News and Related Story Links:
Reuters:
Toyota to cut sales goal and outline cost cuts
Money Morning:
Auto Bailout Awaits Congressional Approval with Millions of Jobs at Stake
ShareThis
More on this topic (What’s this?)
Are US automakers doomed? (Intelligent Speculator, 12/15/08)
European Automakers Dispute Assumptions of ‘Let GM/Chrysler Go Bankrupt” Case (naked capitalism, 12/15/08)
Unsold Goods Piling Up at Long Beach (naked capitalism, 11/18/08)
Vote on Auto Bailout Sure to Spark Debate (The Razor’s Edge, 12/10/08)
Read more on Toyota Motor, Auto Makers at Wikinvest
IMF Quietly Creating Three 100%+ Winners
The International Monetary Fund is about to pump $100 billion into a few select countries. This “no strings attached” bailout is creating three 100%+ gainers in the coming days – if you know how to play it. Get all the details in this report: The Trigger Event Strategy: The Only Proven Way to Make Money in an Insane Market. Just go here…
Investing News
Caffeinated Content