Toyota Raises Forecast as U.S. Recovers, Asia Gains

Toyota Motor Corp., the world’s largest carmaker, raised its full-year profit forecast as sales in Asia grow more than expected and demand in the U.S. recovers following the recall of more than 8 million vehicles.

Toyota may post net income of 340 billion yen ($3.98 billion) in the year ending in March, compared with an earlier estimate of 310 billion yen, it said in a statement today. For the fiscal first quarter, the company swung to a 190.47 billion yen profit from a year-earlier loss.

The automaker raised its sales outlook for all regions except Europe amid a rebound in demand that prompted rival Honda Motor Co. to also lift its earnings forecast last week. Sales in Japan, Indonesia and Thailand are helping President Akio Toyoda, grandson of the company’s founder, counter the impact of a stronger yen and the lingering effects from the record recall of vehicles for problems related to unintended acceleration.

“Toyota is now at a point where they feel comfortable giving good news,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management in Tokyo. “The recall issue has settled down in the U.S. and China.”

Toyota’s first-quarter sales gained 36 percent in North America, its biggest market. While deliveries fell 3.2 percent in July, the North American market may improve from the third quarter, Toyota’s Senior Managing Director Takahiko Ijichi said today.

Stronger Yen

Shares in Toyota fell 1.6 percent to close at 3,090 yen in Tokyo trading before the earnings announcement. The stock has declined 20 percent this year, compared with an 11 percent drop at Honda and a 23 percent gain at Hyundai Motor Co.

Toyota raised its global vehicle sales forecast to 7.38 million units for the year ending in March 2011 from an earlier estimate of 7.29 million.

The company left its forecast for the yen against the dollar unchanged at 90 yen, 5 percent weaker than the rate of 85.52 as of 9:29 am in London. A stronger yen, which traded near an eight-month high against the U.S. dollar today, may erode profit gains by reducing the repatriated value of overseas sales.

Toyota revised its assumption for the Japanese currency against the euro to 112 yen from 125 yen and cut its forecast for Europe to 770,000 units, about a tenth of its global sales, from 860,000 units.

Consumer sentiment in Europe is weakening after the Greek debt crisis, and the difficult situation in the region will continue for some time, Ijichi said.

First-Quarter Profit

Toyota’s profit in the three months ended June 30 compared with a loss of 78 billion yen a year earlier. Sales rose 27 percent to 4.87 trillion yen from 3.84 trillion yen.

Sales in Asia, particularly in Thailand and Indonesia, “are growing with great momentum,” Ijichi said. Government subsidies for fuel-efficient models in Japan have also made the Prius, the world’s best-selling hybrid model, the most popular car in Japan so far this year.

“In Japan, Prius sales are solid because of subsidies,” said Mamoru Kato, a Nagoya, Japan-based analyst at Tokai Tokyo Research Center. “Sales in emerging countries are also doing well.”

Toyota is posting profit gains after the global recession hammered earnings a year earlier and after the recalls that began late last year.

As Toyoda, 54, tries to regain customers’ trust after the acceleration-related problems, the company has continued to recall models for separate faults.

Lexus Recalls

Last month, Toyota said it was preparing a global recall of about 480,000 Avalon sedans and Land Cruiser sport-utility vehicles to repair steering parts after other recalls of Lexus SUVs and sedans in April and May.

The automaker, which said in July it added 1,000 engineers to an expanded quality assessment group, is extending vehicle development time by about four weeks on average and is opening new regional offices in the U.S. and Canada to more quickly investigate customer complaints.

While Toyota’s U.S. sales dropped in July, industrywide sales increased 5.2 percent. Hyundai, which introduced a revamped Sonata sedan in February, posted a 19 percent sales gain in the nation, and U.S.-based carmakers reported a combined sales increase of 5.5 percent for the month.

Toyota’s average incentives surged 44 percent to $2,235 per vehicle in the first quarter from a year earlier, the highest amount for the period since at least 2001, according to auto industry researcher Edmunds.com in Santa Monica, California.

“Recovery in North America is less than stellar,” said Naoki Fujiwara, a fund manager who helps oversee about $6 billion at Shinkin Asset Management Co. in Tokyo. “I’m worried that Toyota’s sales incentives in the U.S. are ballooning.”

The company has been cutting back on incentive spending in the U.S. since July and will continue to do so through the fiscal third quarter, Toyota’s Ijichi said today.

In Japan, Toyota plans to cut production as government subsidies for car buyers end in late September, Ijichi said, declining to specify the scale of reduction.

To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net

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