Toyota sees 80% profit drop as virus wipes $14 billion off car sales

[Tragic Bronson]

Toyota sees 80% profit drop as virus wipes $14 billion off car sales

Toyota Motor Corp said on Tuesday it expects profit to drop by 80% to its lowest in nine years, as Japan's biggest automaker grapples with the impact of the novel coronavirus which has sapped global demand for vehicles.

www.reuters.com

TOKYO (Reuters) - Toyota Motor Corp (7203.T) said on Tuesday it expects profit to drop by 80% to its lowest in nine years, as Japan’s biggest automaker grapples with the impact of the novel coronavirus which has sapped global demand for vehicles.

The expected damage to Toyota’s bottom line highlights how carmakers will struggle to recover from the virus in the coming months as they gradually restart factories after curbs on public movement prevented workers in many countries from commuting.

The industry expects limited output due to fractured supply chains and social distancing measures at plants, along with weak demand as job losses and concern about an economic downturn weigh on consumer spending on major purchases like cars.

Toyota, one of the world’s most profitable automakers, expects to take a whopping 1.5 trillion yen ($13.95 billion) hit from a fall in global vehicle sales this year due largely to the virus, yet it still expects to eke out an operating profit of 500 billion yen in the year to March.

“The coronavirus has dealt us a bigger shock than the 2008 global financial crisis,” Toyota President Akio Toyoda said at a livestreamed media briefing.

“We anticipate a big drop in sales volumes, but despite that we are expecting to remain in the black. We hope to become a leader of the country’s economic recovery.”

Toyota sees its operating profit in free fall from 2.44 trillion yen in the year just ended, to its weakest profit since the 2011/12 financial year.

The automaker forecast global sales of 8.9 million vehicles - a nine-year low - versus 10.46 million in the year just ended. It expects sales to recover to 2019 levels next year.

Toyota’s outlook came as rivals including Honda Motor Co Ltd (7267.T) and General Motors (GM.N) have refrained from issuing forecasts, citing uncertainty about the coronavirus.

On Tuesday, Honda posted its weakest annual profit in four years, after a 28% drop in fourth-quarter vehicle sales plunged the automaker into an operating loss of 5.2 billion yen, its first quarterly loss since the March 2016 quarter.

Japanese automakers are bracing for a year of falling car sales as economists anticipate a slow and patchy recovery from the pandemic.

As a result, some analysts see a cut in annual global vehicle sales by around a third, compared with an 11% fall in 2009/10 after the global financial crisis.

Toyota expects sales to remain weak through December, before returning to 2019 levels sometime next year.

DEMAND SLUMP

In the year ended March, Toyota said it took a 160 billion yen profit hit from the virus due to a cut in annual sales of 127,000 vehicles from a record high of 10.6 million last year.

For interactive charts on Toyota's financial performance, click here tmsnrt.rs/3fHr4QA.

The impact was felt hardest in North America, a key market, where sales fell 8% during the March quarter, resulting in an operating loss there.

Despite the profit slump and a sharp cut to margins, Toyota said it would pour more than 1 trillion yen each into capital expenditure and R&D investment, keeping spending largely unchanged from last year.

“We cannot stop investing in the future,” Operating Officer Koji Kobayashi told reporters.

 

[Motorsnwheels]

It is quite the hit and will put a pinch on manufacturers and customers who aren’t as willing to spend money on cars. I do find some relief in them saying it won’t stop them from investing in the future, and they will keep up with future product development.

 

[Will1991]

Still managing to turn some profit with all of this happening shows how efficient they do things.

 

[Tragic Bronson]

Still managing to turn some profit with all of this happening shows how efficient they do things.

Toyota is doing better than others, but I'm sure the bean counters did raise their eyebrows at $14B. Worrying about profit in this current climate is probably the wrong mindset.

 

[LexsCTJill]

Looks like some of Toyotas decisions to hold back on Tundra, LC, or 4Runner redesigns will now pay off....same with GS....those would be very expensive productions they would be losing on if those models were in the 2nd or 3rd year. I always thought Toyota was waiting for a economic downturn as for their rationale for delaying those models....(not a pandemic of course)

 

[suxeL]

Looks like some of Toyotas decisions to hold back on Tundra, LC, or 4Runner redesigns will now pay off....same with GS....those would be very expensive productions they would be losing on if those models were in the 2nd or 3rd year. I always thought Toyota was waiting for a economic downturn as for their rationale for delaying those models....(not a pandemic of course)

Status of each division

Toyota health on future plans:
First indicator will be on May 18th with those two hybrids

Lexus health on future plans:
Lexus 4IS launch in the summer

 

[Tragic Bronson]

Looks like some of Toyotas decisions to hold back on Tundra, LC, or 4Runner redesigns will now pay off....same with GS....those would be very expensive productions they would be losing on if those models were in the 2nd or 3rd year. I always thought Toyota was waiting for a economic downturn as for their rationale for delaying those models....(not a pandemic of course)

Timing can work for you or not. Its also working for GM, Ford and FCA since people are buying trucks. For the IS, the fact that their cars were becoming less popular was probably why they put more $$ to update the cars than they did in 2016.

 

[Joaquin Ruhi]

Hans Greimel of Automotive News' commentary on Toyota's finances for the first quarter of 2020 includes these notable excerpts:

(A) return to normal business, in the U.S. at least, could take the rest of 2020, (Toyota Chief Financial Officer Kenta) Kon said.

"Our assumption is that April will be the bottom, and little by little we will recover," Kon said of operations in the key North American market. "By the end of the year and the beginning of the new year, we believe we will be in normal operation mode."

Kon said the company will delay some new model plans because of the pandemic slowdown.

"When we look at future, new model plans, there there will be some projects that will be delayed," Kon said. "There will be some delays in development activities. And for new model launches we are going to take this time as an opportunity to review what we have done in the past as business as usual. So, for our full-model changes, minor changes and small-change projects, we are doing a total review of whether we should do it or not."

Kon declined to provide details on what changes were in store but said they would not be significant.

Despite the deteriorating environment, President Akio Toyoda said the company had no plans to scale back on its big investments in next-generation technologies, such as the Woven City, town of tomorrow it is building in the foothills of Mount Fuji. Toyota will keep its R&D investment stable at 1.1 trillion yen ($10.2 billion). As a percentage of revenue, R&D outlays will increase to 4.6 percent, from 3.7 percent.

“Recently, we have planted the seeds of a new Toyota,” Toyoda said. “And for this kind of new projects, we will continue pushing the accelerator pedal.”...

U.S., Europe results
Toyota’s North American operation widened its quarterly operating loss. North America booked a regional operating loss of 39.0 billion yen ($361.7 million) in the period, as regional wholesale volume fell 8.3 percent to 600,000 units.

In Europe, wholesale volume declined 3.7 percent to 259,000 vehicles in the latest quarter. European regional operating profit decreased 9.1 percent to 31.0 billion yen ($287.5 million).

Bob Carter, head of sales for Toyota Motor North America, said sales departments of roughly one-third of the 1,482 Toyota and Lexus dealers in the U.S. were closed in April because of the pandemic, though almost all continued selling cars online with home delivery.

He said the "vast majority" of the automaker's 84,694 sales in April were online.

https://europe.autonews.com/automak...-impact?utm_source=dlvr.it&utm_medium=twitter

 

[Tragic Bronson]

Lockdown leads Toyota chief to question core tenet

CEO Akio Toyoda said the automaker is starting to question the assumptions behind "Genchi-Genbutsu," a Japanese phrase that translates roughly into "go and see for yourself."

europe.autonews.com

Lockdown leads Toyota chief to question core tenet

Toyota CEO Akio Toyoda says he is starting to question long-ingrained practices at the automaker after cutting travel by 80 percent and spending less time in meetings as part of measures to guard against the spread of COVID-19.

The grandson of Toyota’s founder, who has spent recent weeks at a Toyota training facility, said on Tuesday he is now questioning “Genchi-Genbutsu,” a Japanese phrase that translates roughly into “go and see for yourself.” The principle was built on the idea that problems can be solved more quickly and efficiently by going to where they exist and analyzing root causes.

“We’re taking a fresh look at the assumptions of ‘Genchi-Genbutsu’,” Toyoda, 64, said after announcing Toyota’s financial results and forecast for an 80 percent decline in operating profit for the fiscal year through March. The outbreak has forced automakers to shut factories and showrooms, leading to a plunge in vehicle sales.

Toyoda said it’s still important to see things for yourself, but for the right reasons and at the right times. But it’s also becoming clearer that people shouldn’t be traveling all the time just to attend meetings, he said. Underscoring the point, the CEO said he spends 30 percent less time in meetings, and cut related paperwork by a half.

“Until now, when employees met me, they would prepare briefing materials, or have someone else prepare them, and then use information that’s one or two weeks old for discussions,” Toyoda said. “Now, I can just get on a video conference without any materials and deal with any issues then and there.”

Japan places great emphasis on face-to-face meetings and paper documents. That may have to change as the government urges businesses to let employees work from home. Even “hanko” seals for official documents are being questioned, with many people working remotely.

While the outbreak has accelerated shifts in Japanese work habits, the need was already clear before the health crisis. Such inefficiencies in white-collar work have come under criticism in recent years, with the emergence of new technologies to communicate and transact, and a labor shortage exacerbated by the aging population.

For Toyota, any saved time would be better used thinking about the future of the 87-year-old automaker, the CEO said. Toyoda, however, stopped well short of calling for an end to one of the 13 tenets of the Toyota Production System, the carmaker’s guiding principles. Instead, he called for a return to the main idea behind Genchi-Genbutsu, by being smarter about seeing things in person and when to see them remotely. Obtaining information outside what is presented, and making apologies in person are still critically important, the CEO said.

“We need to be bold about what we should stop doing, and what we should change.”

 

[Will1991]

Maybe they will manage to don’t kill so many models with almost finished products.

1 meeting, yes or no and that’s it, go with it until the end.

 

[ssun30]

Meanwhile Toyota/Lexus had the best April so far in China with a V-shape recovery. ES cracked 10k units again. The macroeconomics is not expected to recover anytime soon but the pandemic has caused market share to further concentrate into a few big manufacturers. Toyota is again riding on the momentum generated by a constant stream of TNGA products against competitors that are now in a new product drought.

Asia in general has dealt with the pandemic way better so market recovery will be more V-shaped.

It's actually quite refreshing to see Toyota going against the traditional way in Japan and embracing the more efficient 'start-up style' management. I wish more Japanese companies do the same as the tradition has been hurting their efficiency and global competitiveness for decades. Anyone who have worked with Japanese business knows how ridiculous they can be when it comes to formality, often requiring two to three times more paperwork to achieve the same thing.

IMO Akio Toyoda's biggest accomplishment is introducing the more efficient way of running a business which could have long lasting effect on the culture of the nation itself, which is in dire need for change.

 

[shizhi]

Toyota has planned to increase its remaining production in China by 10% this year to make up for the drop in sales caused by the shutdown in January to March. For Toyota, only the Chinese market is likely to see sales growth this year.
Under the strict control of China, there are still sporadic cases found, so our life will be changed before the vaccine arrives. Now Wuhan is doing a comprehensive screening. All citizens in Wuhan are required to carry out nucleic acid and antibody tests to determine the actual scale of virus transmission.

 

[CRSKTN]

I'm also curious about the impact of this trend on Japanese work/life culture.

The head scion of the Toyoda family, and the head of TMC, is actively working on cutting down on work and unnecessary behavior for the sake of work, and is saying so publicly.

Every senior manager who didn't agree with working their people needlessly to death, but did it anyways, suddenly has a plausible reason to hide behind, as does every employee who proposes changes for the sake of cost savings, adaptability, and efficiency.

It won't happen right away, and there will be resistance, but this may very well be an inflection point in a lot of ways.

Also regarding the state of the market: Don't trust current levels. Markets are made by people who tend to be relatively sheltered about how bad things can really get. The market rally has been the closest thing to literal animal spirits I've ever seen. Give it a couple of quarters of results disclosures, as people run out of creative accounting and liquidity.

Moving and utilizing a human being just got more expensive. That's the reality of it when we think of it from a human capital point of view. This also means there's a new argument for solutions that let people travel privately in comfort in case of infectious disease or climate issues like heat that otherwise stop people from enjoying nature.

Governments need to incentivize companies to spend more on people than machines. That means tax deduction coefficients based on things like % of workforce being local, letting you deduct automation system expenses at e.g. 10 cents on the dollar, vs $2 on the dollar for a company that spends mostly on salaries (adjusted for additional factors like benefits, inequality of pay, etc).