Toyota to Take First Ever Loss - December 22, 2008

More than a feeling?.....It is now reality. The world’s largest automaker, Toyota Motor Corp. (TM) confirmed reports early this morning that the Japanese car company had forecasted its first yearly operating loss as the recent jump in the price of the yen, and lack of demand, solidified their first loss in their 70-year history.

Over the past several months, Japan’s Economy has been battered just like most of the world’s industrialized nations. Some of their demise is directly linked to the devastating crash of the U.S. auto industry.

Toyota’s announcement today ends a string of nine consecutive years of global vehicle sales growth. However, with the surge in oil and gas prices of the summer, the maker of fuel-efficient and hybrid vehicles could not overcome the dismal sentiment of car buyers.

Like the major U.S. automakers, Toyota has confirmed reports to idle assembly plants throughout the world in order to scale back expenses during this economic downturn.

Of their 75 assembly lines worldwide, Toyota plans to cut 16 of those plants to a single shift, down from their normal three. The company has also made it clear that bonuses would not be issued this year for the company’s directors.

As for the company’s current projections for a yearly loss, through March 2009, the end of their fiscal year, Toyota predicts an annual net income loss of $555M. That compares in sharp contrast to the previous year’s earnings of $18.87B.

Overall, the company expects an operating loss for the year of $1.66B. The last time the company had recorded a loss was their first year of operation, 1938. In the previous year, Toyota had posted a yearly profit from operations of $25.2B.

Today’s announcement marks the second time this year that Toyota has reduced their yearly forecast. In November, the company lowered their projections from $13.9B to $6.1B, before the announcement made earlier. Toyota also reduced their sales forecast as well, lowering it by 18% and now expects that figure to come in at $239B.

One of the biggest contributing factors to the company’s expected loss, besides the lack of demand and sales within the auto industry, comes from the exchange rate. In recent weeks, the Japanese yen has climbed to 13-year highs against the Dollar, and currently is trading at 90:1 ratio against the greenback.

The adverse exchange rates will result in a reduction of earnings for Toyota of nearly $2.2B. The company will also take on an additional hit of $6.3B due to Toyota’s increased marketing programs to help entice customers amidst their declining sales totals.

During the early afternoon session, shares of Toyota (TM) slipped more than 5% to trade at $60.90 per share. Over the past 52-weeks, shares of the world’s largest automaker have traded in a range between $55.41 and $117.59 per share.

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