TM Toyota Motor Corporation

Earnings decline 23%, spotlighting reliance of Japan's car makers on favorable currency rate

By Sean McLain 

TOKYO -- Toyota Motor Corp. reported a sharp decline in quarterly net profit despite selling more cars, as a relatively strong yen ate into repatriated earnings.

Toyota's results Monday highlighted its and the Japanese auto industry's dependence on favorable exchange rates, a point President Donald Trump has raised when criticizing Japan. Toyota's profit took a hit for most of 2016 when the yen was stronger against the dollar, but the company on Monday raised its profit forecast for the year ending March 2017 after the yen's recent weakening.

Mr. Trump has targeted Japanese car makers for driving a trade imbalance with the U.S. that he says is unfair. The White House is considering a 20% import tax on products from countries with which the U.S. has a trade deficit.

Toyota President Akio Toyoda met with Japanese Prime Minister Shinzo Abe on Friday ahead of the Japanese leader's meeting with Mr. Trump this week. The two declined to say what was discussed, but it came a week before Mr. Abe's trip to the U.S.

"We believe that it will be very important to have a relationship built on trust between the two countries," said Shigeru Hayakawa, Toyota's senior managing officer.

Tariffs on imports could upend Toyota's business, despite its manufacturing base in the U.S.

"We are very close to full capacity [in our U.S. plants] at the moment," said Toyota Managing Officer Tetsuya Otake. Adding more factories would be expensive and may take years to put in place.

Toyota is building a $1 billion plant for Corolla sedans in Mexico. Mr. Trump's threats of a "substantial tax" on imported cars also put pressure on Toyota's policy of maintaining a large production base in Japan, Toyota says.

The company builds around three million vehicles in Japan and said it had no immediate plans to change that. "We will have to look at supply and demand change, and our basic policy is to produce in the markets where we are competitive," said Mr. Otake. "We will have to enhance the competitiveness of Japanese production."

A trade spat with the U.S. would come as Toyota faces headwinds to growth. It is no longer the world's largest car maker by vehicle sales, recently relinquishing a title held since 2012.

The company on Monday reported a 23% year-over-year decline in net profit to Yen486.53 billion ($4.3 billion) for the December quarter. Toyota raised its full-year profit outlook to Yen1.7 trillion yen from Yen1.55 trillion yen to account for a weaker yen and cost-cutting efforts.

The company has struggled to maintain sales growth in the U.S. as low gas prices make trucks and sport-utility vehicles more attractive to American consumers. Toyota's two pickup-truck factories are operating at capacity. A $600 million investment to ramp up Highlander SUV production in Indiana won't bear fruit until 2019.

In Japan, the Prius gas-electric hybrid has been knocked off the top of the sales charts by Nissan Motor Co.'s Note electric car, which took the No. 1 spot in two of the past three months.

Toyota has belatedly moved to produce a fully electric car after years of dismissing them for their short range and long recharging time. Toyota prefers hydrogen fuel cells, but governments in most of the markets where it sells prefer battery-powered vehicles.

The company is also reaching out to other car makers, looking to forge alliances to shoulder the costs of developing new technologies. On Monday, Toyota announced that it was getting closer to a tie-up with Suzuki Motor Corp. to jointly develop new vehicle technologies and share production costs.

Write to Sean McLain at sean.mclain@wsj.com

(END) Dow Jones Newswires

February 07, 2017 02:47 ET (07:47 GMT)

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