Japan Car Makers Fight Jam in U.S. -- WSJ
May 11 2017 - 3:03AM
Dow Jones News
With gas prices low in U.S., buyers there cut sedan demand and
opt for larger vehicles
By Sean McLain and Chester Dawson
TOKYO -- Japanese car makers such as Toyota Motor Corp. are
painting a bleak picture for the current financial year as they
find themselves on the wrong end of a shift in U.S. car-buyer
demand away from the sedan market they have long dominated.
Toyota, which last year relinquished the title of the world's
top-selling auto maker to Volkswagen AG, reported on Wednesday a
21% drop in profit for the year ended in March and predicted net
profit would fall by one-fifth to Yen1.5 trillion ($13.2 billion)
in the current fiscal year. That would be the second straight drop
after three years of record profits buoyed by a weak yen.
Toyota President Akio Toyoda made it clear that he wasn't happy.
"In sports, booking two consecutive years of losses means you are
failing. I hate to lose," Mr. Toyoda told reporters.
Profits slid in every major region last fiscal year, and in the
most recent quarter Toyota posted its first operating loss in North
America in five years. The company, which has been slow to adapt to
a shift away from sedans and toward crossovers and sport-utility
vehicles, incurred a Yen71 billion loss in North America for the
three months to March.
One reason is higher spending to lure car buyers. Toyota
increased U.S. incentives by an average of $250 a vehicle last
year, Tetsuya Otake, a senior managing director, told analysts in a
conference call. Auto industry incentives now average $4,000 per
vehicle, according to J.D. Power.
Mr. Otake said Toyota is working to boost production of
crossovers, SUVs and pickup trucks, and is optimistic a new version
of its stalwart Camry sedan due out later this year in the U.S.
will help stem the profit slide. "The [sedan] segment is shrinking,
but we think this will be a super-competitive model," he said.
Japanese car makers have historically relied more heavily on
sedan sales than their U.S. rivals. But last year, Toyota sold more
light trucks than cars in the U.S. for the first time, and that
trend will likely continue. In the year to date, overall U.S. sales
of midsize sedans like the Camry fell 15% compared with a year
earlier, while crossover and SUV sales rose 8.1%, according to
Autodata Corp.
That comes amid a cooling of demand for new vehicles in the U.S.
market after record sales last year. Toyota's woes in the U.S.
contrast with the mood in Detroit. General Motors Co., Ford Motor
Co. and Fiat Chrysler Automobiles NV are better positioned than
many of their foreign rivals to meet demand toward larger vehicles,
which is being fueled by low gasoline prices and rising income
levels.
Toyota said it plans to retool production lines to make fewer
sedans and more crossovers, such as its new C-HR compact. Subaru
Corp., which earlier this week posted lower full-year earnings
results, is considering production cuts to deal with an erosion in
profit margins in the U.S. Honda Motor Co., which makes the Accord
sedan, last month forecast a 16% drop in operating profit for the
current fiscal year and said it is also adjusting production and
increasing incentives.
Japanese car makers must contend with a stronger yen, which they
predict will near an exchange rate of Yen100 to the dollar this
year, affecting bottom lines. Yen exchange rates weighed down
Toyota's operating profit by Yen940 billion for the year ended in
March.
While it expects a softer impact in the current year, Toyota
will have to take a hard look at how it does business, Mr. Toyoda
said. That means getting better at building cars outside of
Japan.
The company has long been committed to building at least three
million vehicles a year in Japan, in part out of a desire to
provide jobs in the country, Toyota has said. That was an easier
decision when a dollar bought Yen120 two years ago. It is a harder
commitment to uphold when the currency is of equivalent value.
Toyota says that its goal is to improve the competitiveness of
factories located outside its home market.
But increased trade tensions between Washington and Tokyo might
make it more difficult for Toyota and other Japanese car makers to
cut back production in the U.S. President Donald Trump has blamed a
trade imbalance with Japan on car imports and singled out Toyota's
plans to build a new factory in Mexico for criticism. Mr. Toyoda
has vowed to continue building the plant in Mexico, and Mr. Trump
has praised Toyota for its multibillion-dollar U.S. investment
plans.
For now, the Toyota president said his company will provide a
lift to sales by allowing incentives to rise. Toyota's incentives
are a little over half the market average, which might partly
explain why it is getting beat by rivals in the hot crossover
market in the U.S. Both Honda's CRV and Nissan Motor Co.'s Rogue
outsold Toyota's RAV4 in the first four months of the year.
Toyota's efforts will be complicated by the glut of lease
vehicles hitting the used-car market, causing prices to crater.
These low-mileage used cars are a drag on new-car demand and
sticker prices. Even Nissan, the only large-volume car maker to
post sales growth this year, recorded fewer sales in April. Nissan
is scheduled to report its full-year results on Thursday.
Corrections & Amplifications Toyota Motor Corp.'s net profit
declined 21% in the year ended in March. An earlier version of this
article incorrectly stated net profit declined 20%(May 10,
2017)
Write to Sean McLain at sean.mclain@wsj.com and Chester Dawson
at chester.dawson@wsj.com
(END) Dow Jones Newswires
May 11, 2017 02:48 ET (06:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Toyota Motor (NYSE:TM)
Historical Stock Chart
From Jun 2024 to Jul 2024
Toyota Motor (NYSE:TM)
Historical Stock Chart
From Jul 2023 to Jul 2024