Steane Klose | Dec 15, 2008

If you needed proof that the financial crisis gripping the world is serious, then this is it. The Japanese press is reporting that Toyota Motor Corp is likely to further cut its earnings forecasts and possibly report an operating loss of 100 billion yen ($1 billion) for the October-March period. The world’s largest automaker is suffering on two fronts, the decimated North American new car market and a soaring yen.

Toyota is yet to comment on the claims, however analysts are suggesting that dramatic falls in new car sales, and a rising yen, is likely to see Toyota slide into the red in the second half of the October-March period. The yen has recently risen to a 13 year high of 88.10 yen versus the US dollar.Goldman Sachs reported last week that it has lowered its full-year operating profit forecast for Toyota to 208 billion yen, down from 624 billion yen. If Goldman Sachs is to be believed, then Toyota will report a loss of 374 billion yen in the second half. That would be the first loss for a six-month period for the Japanese giant since it took to reporting under US accounting rules back in 1999.

Toyota’s own take on the situation is a little rosier, having only last month cut its operating profit forecast to 600 billion yen (a reduction of 1 trillion yen) for the year to March 31, 2009, signaling a second half profit of 20 billion yen.

To put all of these figures in some perspective, Toyota posted a 2.27 billion yen operating profit last year, following eight consecutive years of profit growth. With an astonishing USD$18.5 billion in cash reserves, and very little debt, 2008 and 2009 will inflict some bruising and may cause some restructuring in Toyota's North American and Chinese operations, but its position is very well-protected. Its 'green' product lines and successful smaller cars will also give it the resilience and flexibility to ride out the global recession.

Of course, currently hurting it most is the collapse of the North American market, made worse there by the timing of Toyota's 2007 release of its 'full-size' (read gargantuan) Tundra Pick-up. Also, the high yen against the USD makes a weakened profit position even weaker by dragging down the value of Toyota's earnings in the US.

This year is 'annus horribilis' for all automakers. Only US tax-payer dollars will save GM and Chrysler, with Ford little better off. The global economic crisis is biting deeply into sales and operating costs of all manufacturers. Even the 'juggernaut' - Toyota - has discovered it is not immune.

Toyota's share price, predictably ended Friday down 10 percent on 2,760 yen.

[Source: SBS.com.au]

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