Akio Toyoda, president of Japan's auto giant Toyota Motor. PHOTO |TORU YAMANAKA | AFP
Summary
- Toyota's top executive repeated that it was getting harder for Japan's biggest automaker to keep profits buoyant as sales top out around 10 million vehicles annually.
- Toyota's unit sales dropped in Central and South America, Africa and the Middle East.
- Weakness in the yen inflates the value of profits that Japanese firms earn abroad.
Toyota on Wednesday reported its first
drop in annual net profit for five years, while it unexpectedly warned
that earnings would fall again owing to pricey US customer incentives
and a forecast pick up in the yen.
The company's top
executive also repeated concerns that it was getting harder for Japan's
biggest automaker to keep profits buoyant as sales top out around 10
million vehicles annually.
The downbeat prediction underscores how the country's automakers have relied heavily on a slump in the yen in recent years.
But
the currency's sharp gains in 2016 — largely driven by Brexit and
tumbling world equity markets — took a bite out of Toyota's latest
results.
On Wednesday, the Corolla and Prius hybrid
maker warned it expected more forex pain, pushing down profits again in
the current fiscal year to March.
Meanwhile, customer incentives in the lucrative North American market hammered Toyota's operating profit in the region.
US
auto sales have been sputtering, forcing automakers to boost incentives
to land customers — something Toyota's top US executive has warned is
unsustainable.
"Incentives are trending upward and competition is
becoming extremely fierce," Executive Vice President Osamu Nagata told a
press briefing in Tokyo.
"We don't want to get involved in excessive incentives."
Overall,
Toyota posted a net profit of 1.83 trillion yen ($16 billion) on
slightly lower revenue of 27.6 trillion yen in the recently ended year
to March.
That is down more than 20 per cent from a record 2.31 trillion yen net profit the previous year.
Toyota,
which lost its crown last year to Volkswagen as the world's top-selling
automaker, expects a net profit of 1.5 trillion yen in the year to
March 2018 — way off market expectations of around 1.9 trillion yen.
Cash cow
Toyota's latest annual vehicle sales ticked up to 10.25 million units from 10.09 million units.
Demand in North America remained flat, while Toyota registered a sales pick-up in Europe, Japan and the rest of Asia.
Unit sales dropped in Central and South America, Africa and the Middle East.
The
company launched an internal restructuring last year to make it leaner
and boost profits, but CEO Akio Toyoda said Wednesday the firm had far
to go in overhauling itself.
"The main problem is that
Toyota has become too big...Profits are set to decline for two years so
we've lost twice in a row," he told reporters.
Separately,
the automaker announced it would buy back as much 250 billion yen ($2.2
billion) of its own shares, which tends to boost a stock's value.
"Japan's
auto sector saw ups and downs in its earnings as the yen fluctuated
this fiscal year — foreign exchange will continue to be a major factor
for the industry," said Satoru Takada, a Tokyo-based analyst at research
firm TIW, before the results were published.
"There is also a concern that demand in the cash cow North American market may have peaked as competition there intensified.
"The Chinese market is growing thanks to tax cuts but the pace is slowing," he added.
Weakness in the yen inflates the value of profits that Japanese firms earn abroad.
This
past fiscal year has seen sharp moves in the currency, with it surging
after Britain's shock vote to exit the European Union boosted demand for
the safe haven asset.
The trend briefly reversed
course after billionaire Donald Trump's November US presidential
election win boosted the dollar against the yen and other currencies.
Japan's
auto industry is facing uncertainty over Trump's drive to support US
firms over foreign imports, a stance that has raised fears of a global
trade war.
He has targeted Toyota with strong criticism
of its ongoing project to build a new factory in Mexico, threatening it
with painful tariffs.
Nissan reports its annual earnings on Thursday.
Honda
last month said its annual net profit jumped nearly 80 percent, largely
owing to a drop in costs tied to a massive recall of airbags made by
key supplier Takata.
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