The awful news in autos is unrelenting. There’s an article in today’s Nikkei newspaper which raises the possibility that Toyota could makes it first ever operating loss (although Toyota once made a pretax loss in 1949).
While Toyota is projecting earnings of about $6 billion (down over 70% on last year), the paper contends that the recent surge in the yen and worsening sales could change all that. If so, that would mean Toyota will make a loss bigger than the $5.8 billion it made in the first half of its fiscal year, which runs April to March.
In the economic current climate it’s hard to say what will happen. On the negative side, Honda just revised its earnings projection down over 60% compared to six weeks ago. And Toyota suffers more from the yen swings. For every one yen strengthening of the yen against the dollar, Toyota’s operating earnings are reduced by over $450 million. Today, the yen is at 89 to the dollar, compared to an average 114 last year. That exchange rate wasn’t help by the Fed cutting its interest target to near zero this week. Toyota’s current profit projections are based on a rate of 100 dollar. The euro has also weakened against the dollar. Meanwhile, sales are plunging in Japan, Europe and the U.S.
Still, that doesn’t mean the loss is guaranteed. Toyota, like all car makers is also undergoing a big program of cost cuts, including delaying new factory openings and other capital investments. If the economic outlook improves, the yen could weaken a little. And the prospect of the Toyota, Japan’s biggest exporter, making a loss will also increase pressure the Japanese government to intervene in the currency markets to weaken the yen.