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

FILE PHOTO: Employees wearing protective masks work at the Toyota Motor Manufacturing France plant as it resumes its operations after five weeks of closure during a lockdown amid the coronavirus disease (COVID-19) outbreak, in Onnaing, France, 23 April 2020 - Reuters

Tokyo (Reuters): 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.

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 and General Motors 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.