Toyota Reaps Abenomics Rewards From Keeping Japan PlantsMa Jie and Masatsugu Horie
Staying at home is paying off for Toyota Motor Corp.
The nation’s largest manufacturer, which produces almost half its vehicles in Japan, yesterday raised its full-year net income forecast by 13 percent as the weaker yen boosted earnings from exported Prius and Lexus vehicles. Profit last quarter jumped 70 percent, led by growth in Japan and Europe.
With most Japanese companies having reported earnings this season, Toyota helped ease creeping concerns about the health of Japan Inc. as companies from Nissan Motor Co. to Sony Corp. and Canon Inc. lowered their profit forecasts amid slowing demand from emerging markets. Nissan and Sony lost almost $7 billion in combined market value the day after they reported results.
“The weak yen triggered by Abenomics has helped auto companies including Toyota, especially because they can fully enjoy the benefit of it,” said Kazuyuki Terao, the Tokyo-based chief investment officer of Allianz Global Investors Japan Co. “The effects from the weak yen didn’t work on Sony or Canon because they have moved most of production overseas already and the demand for products at such hi-tech companies, PC, TV, digital cameras is very weak.”
Toyota fell 1.1 percent to 6,280 yen as of the midday trading break in Tokyo. Credit Suisse Group AG said its impressions of yesterday’s results were neutral, though the carmaker’s 65-yen-a-share interim dividend was lower than the brokerage’s estimate of 90 yen.
Toyota, which earned more profit than General Motors Co. and Volkswagen AG combined last quarter, has benefited from the 12 percent slide in the yen against the dollar this year, helped by Prime Minister Shinzo Abe’s monetary-easing policies.
The tailwind may be tapering. The yen has been less volatile in recent months, with the exchange rate stabilizing to between 97 and 99 against the dollar.
“The impetus from the weaker yen is now gradually fading,” said Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo. “If the yen weakens further, that will further boost profits of exporters but the prospect for that really depends on the U.S.”
The world’s largest automaker makes almost half of its vehicles in Japan, twice the proportion at Nissan and Honda Motor Co. The Toyota City, Japan-based automaker has reiterated its commitment to maintain 3 million units of vehicle production at home.
Having more production at home than its competitors hasn’t always paid off for Toyota.
Before Abe, the Japanese currency hobbled exporters for years, appreciating to a postwar high of 75.35 to the dollar in October 2011 from about 115 four years earlier. Natural disasters the same year in Japan also hurt Toyota more than its competitors, which bounced back faster from the supply disruption because they had more production abroad.
The yen’s strength prompted Nissan, which made more than half its cars in Japan a decade ago, to scale back its reliance on its home market to less than a quarter of total production by March 2013.
While Toyota also reduced its Japan reliance, it did so less aggressively -- at the expense of profit, which in some years dwindled to below those of South Korea’s Hyundai Motor Co.
Things started to turn as the yen began tumbling in late 2012 as polls showed Abe, who called for unprecedented monetary-easing policies that would weaken the currency, was going to be Japan’s next head of government.
Toyota said yesterday net income will probably rise to 1.67 trillion yen ($17 billion) in the year ending March 31, though the average of 22 analyst estimates called for it to be even higher -- a record 1.82 trillion yen. Profit in the fiscal first half climbed to a record 1 trillion yen.
The yen’s benefits were most visible in Toyota’s earnings from Japan, the company’s biggest export base. Operating profit from its home country more than doubled to about 374 billion yen, beating the 363.3 billion-yen average estimate of analysts surveyed by Bloomberg.
“In the past couple of months we could say the weak yen has pushed up profits of the carmaker,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. “I don’t think it will keep weakening, and we may even see a strong yen if the U.S. economy doesn’t improve very much.”
The automaker is also getting a short-term boost in Japan as consumers rush to buy cars before an increase in the consumption tax in April, according to Koji Endo, an auto analyst at Advanced Research Japan in Tokyo.
In North America, Toyota’s operating profit rose 23 percent to 79.6 billion yen last quarter. Still, that was 17 percent below the average analyst estimate, as the company cranked out more incentives to fend off mounting competition from Detroit automakers.
In the U.S., deliveries rose 12 percent in the period as the weaker yen gave Toyota room to offer higher incentives for its best-selling Camry model. The company outsold Ford Motor Co. for the first time in 15 quarters.
Operating profit in Europe jumped to 20.1 billion yen, more than double the average analyst estimate, amid mounting signs that the region is recovering from its record six-quarter recession. In September, European car sales rose the most in more than two years.
In Asian markets -- excluding Japan -- operating profit slipped to 91.4 billion yen, dragged down by a slump in demand in Thailand. Toyota’s deliveries plunged about 30 percent to 96,000 units in the Southeast Asian country as government rebates ended for first-time car purchases.
Toyota sales in China, the world’s largest auto market, rose at the fastest pace in five quarters as it rebounded from last year, when nationwide protests erupted in opposition to Japan’s purchase of a group of islands claimed by both countries.
“There’s some room for upward surprise in China, as long as there’s no escalation of tensions,” said Ashvin Chotai, managing director of Intelligence Automotive Asia in London. “The overall market is growing faster than people expected in the beginning of the year so the pie is bigger. Still, for Japanese carmakers there’s a long road ahead.”