Toyota Braces for U.S. Trade Tension, Raises Profit Forecast

  • Third-quarter operating profit drops 39%, missing estimates
  • President Donald Trump has criticized Toyota on Mexico

Weaker Yen a Key Factor in Toyota Forecasts

Toyota Motor Corp. raised its full-year forecasts -- albeit falling short of analysts’ estimates -- as the carmaker sought to navigate rising protectionism under U.S. President Donald Trump and as the yen’s volatility weighed on prospects for exports of its Prius and Lexus models.

Operating profit will probably be 1.85 trillion yen ($16.4 billion) in the year through March, up from its previous forecast of 1.7 trillion yen but about 10 percent lower than what analysts projected. The Toyota City, Japan-based automaker on Monday reported a 39 percent decline in third-quarter operating, also missing estimates.

Even with the benefits of a weaker yen boosting repatriated profits, Toyota must contend with possible trade tensions after Trump criticized the automaker’s plans to build a Corolla plant in Mexico. The attack broadened with the U.S. leader rebuking Japan for sending the U.S. hundreds of thousands of cars from what he said were “the biggest ships I’ve ever seen” while American carmakers struggle to sell their vehicles in Japan.

‘It’s difficult to give any impact forecast from Trump’s administration at this point,” Tetsuya Otake, a Toyota managing officer, said in a briefing in Tokyo on Monday. “Toyota will cooperate with its group as it watches the moves from Trump’s administration.”

Toyota exports more vehicles to the U.S. than its two largest Japanese peers, Nissan Motor Co. and Honda Motor Co. The carmaker makes most of the Lexus luxury cars in Japan even as U.S. is the brand’s largest market. It also ships the Tacoma pickup trucks from Mexico to the U.S. In comparison, most major carmakers produce the majority of the vehicles sold in China locally, due partly to the tariffs China levies on car imports.

Trade Tension

Japanese carmakers face a “significantly greater risk” from frictions over the trade imbalance with the U.S. than from revisions to the North American Free Trade Agreement with Mexico and Canada, Takaki Nakanishi, an analyst at Jefferies Group LLC., wrote in a report last month.

Prime Minister Shinzo Abe met with Toyota President Akio Toyoda on Friday, where they discussed current affairs, according to the automaker chief.

Abe, who is scheduled for a summit with Trump in Washington on Feb. 10, told the U.S. leader in a phone call that 75 percent of parts in the Toyota Camry model sold in the U.S. are made locally, which is a higher proportion than the ‘Big Three’ U.S. manufacturers.

The yen has weakened about 6 percent against the U.S. dollar after Trump swept to victory in the U.S. presidential elections and traded at 112.71 yen against the dollar as of 4:38 p.m. in Tokyo. Toyota has based its full-year earnings forecast on 107 yen per dollar and 118 yen per euro. In November it had based the full-year earnings forecasts on 103 yen per dollar.

U.S. Spending

Toyota will invest $10 billion in the U.S. over the next five years, maintaining its pace of spending during the last half decade, joining other manufacturers in highlighting projects in response to pressure from Trump to create jobs in America. The spending includes a $600 million investment to expand its Indiana plant, adding 400 jobs, the carmaker said last month.

Toyota last year lost its global No.1 sales title to Volkswagen AG due mainly to its performance in the U.S. and China. Toyota sold 2.4 million vehicles in the U.S. last year, down 2 percent from 2015.

While sales of SUVs surged on lower gas prices, demand for the Prius hybrid car fell 26 percent. Demand for the current Camry sedan has also fallen ahead of the introduction of a redesigned model later this year.

Sales in China expanded at a slower pace than the overall market and fell behind Honda for the first time.

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