Toyota on Cusp of Record Profits After Years of Crisis

Toyota Motor Corp. President Akio Toyoda has put the company his grandfather founded on the road to record earnings after years of battling one crisis after another. The shares gained the most in almost eight months.

The carmaker climbed 6 percent, the most since June 10, adding 1.14 trillion yen ($11 billion) in market value as of the close in Tokyo trading. Toyota yesterday reported profit quintupled last quarter and raised its forecast for the year ending March 31 to an unprecedented 1.9 trillion yen.

The scion, who has steered the company back from vehicle recalls and natural disasters, has now positioned Toyota to invest in new technologies and expand production after amassing a cash pile exceeding $35 billion. In 2013, the world’s largest automaker earned about as much as what analysts estimate to be the combined profits at the next two biggest automakers, Volkswagen AG and General Motors Co.

“Akio Toyoda should be proud of how he has come out of it,” said Ashvin Chotai, managing director of Intelligence Automotive Asia in London. “His credibility has been enhanced now. This will provide him with much greater confidence to take even more decisive actions in the future.”

Toyoda’s getting some help from Prime Minister Shinzo Abe, whose monetary easing policies are weakening the yen, making it more lucrative for the carmaker to export Prius and Lexus vehicles out of Japan.

Profit Surge

Toyota’s net income rose to 525.5 billion yen in the three months ended Dec. 31, beating the 434.3 billion yen average of eight analyst estimates compiled by Bloomberg.

The shares have declined 9.2 percent this year, compared with the 13 percent drop in the benchmark Nikkei 225 Stock Average.

The company last month set a target to sell a record 10 million vehicles this year, after leading GM and Volkswagen in global auto deliveries for a second straight year.

“It was good for Toyota to have a president like Akio who is from the founding family right after the hardest time as he could help unite the company,” said Yuuki Sakurai, president of Fukoku Capital Management Inc. “They have been reviewing and streamlining their product lines and factories and have launched vehicle models that are developed for specific emerging markets.”

Toyota has accumulated cash as it refrained from building new factories to avoid a repeat of over-expansion. The automaker will use its existing plants more efficiently before considering new capacity, Toyota Managing Officer Takuo Sasaki said at a briefing in Tokyo yesterday.

Emerging Markets

The automaker is closely monitoring the sell-off in emerging markets and will “take actions accordingly,” though it’s difficult to gauge the duration of the instability, Sasaki said, without being more specific.

Before Abe’s election, the Japanese currency hobbled exporters for years, appreciating to a postwar high of 75.35 to the dollar in October 2011, from about 115 in a four-year period. The yen began tumbling in late 2012 as polls showed Abe, who called for unprecedented monetary-easing policies, would lead his Liberal Democratic Party to a win in the nation’s parliamentary elections.

The yen last year weakened against every major currency, except for the South African rand, helping boost exporter earnings and fueling a 56 percent rally in the Nikkei, the index’s biggest surge since 1972.

Yen Tailwind

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 surged 20-fold to 331.3 billion yen.

While the weaker yen became a bigger tailwind for Toyota than other carmakers because of its reliance on Japanese production, the company plans to cut domestic output by 5 percent this year as it projects local demand to shrink by the same magnitude with the increase in the sales tax in April.

In North America, Toyota reaped 112.5 billion yen in operating profit last quarter, versus a loss a year earlier.

U.S. sales of Toyota, Lexus and Scion models rose 7.4 percent to 2.24 million in 2013, second only to the record set in 2007 in its largest market. This year, Toyota’s U.S. sales will probably increase by 100,000 units, helped by new or updated models including Corolla, RAV4 and Tundra, Jim Lentz, head of Toyota’s U.S. operations, said Jan. 12.

Deliveries got off to a slow start as Toyota’s U.S. sales fell 7.2 percent last month from a year earlier, after the coldest January in 20 years contributed to a drop in deliveries for most Asia-based automakers and the industry.

In China, Toyota had a record year in 2013, boosting deliveries 9.2 percent to 917,500 units after it recovered from the consumer backlash triggered a year earlier by a territorial dispute between Asia’s two largest economies.

Geopolitical Tension

Toyota is expecting sales to exceed 1.1 million units in the country this year, counting on the new Vios and Yaris sedans that are tailored for Chinese consumers to drive demand.

Like other Japanese carmakers, Toyota remains vulnerable to the geopolitical tensions as illustrated by Abe’s recent visit to Tokyo’s Yasukuni Shrine, which includes World War II soldiers convicted of Class-A war crimes. In 2012, consumers shunned Japanese products over the islands dispute, sending Toyota sales down by 4.9 percent.

In Asian markets outside of Japan, operating profit rose to 110 billion yen.

Thai Unrest

While the end of government incentives sent vehicle deliveries in Thailand, where Toyota is the biggest carmaker, down 32 percent in the October-to-December quarter, carmakers face further headwinds as Thai Prime Minister Yingluck Shinawatra endures anti-government street protests that have already lasted three months.

Overall demand in Thailand will probably fall 14 percent to 1.15 million units in 2014, Kyoichi Tanada, Toyota’s Thai unit president, said Jan. 20. Toyota’s sales may drop 10 percent, after falling 14 percent in 2013, Tanada said.

Thailand was partly responsible for Honda Motor Co. reporting quarterly net income that missed analysts’ estimate last week. The carmaker cut its forecast for global deliveries by 1 percent for the fiscal year ending March, citing slowing demand in Thailand amid the political turmoil.

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