TM Toyota Motor Corporation

Car business rolls along, but company's cross-holdings weigh on its bottom line

By Sean McLain 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 7, 2019).

TOKYO -- Toyota Motor Corp. said its car business was holding up against headwinds in the U.S. and China, but it sharply cut its full-year net profit projection because its shares in other companies lost value.

Japan's largest car maker now expects to earn Yen1.87 trillion ($17 billion) for the year ending March 31, down from a previous projection of Yen2.3 trillion.

The value of Toyota's shareholdings dropped by about $3.6 billion in the October-December quarter when global stock markets were falling. Toyota, like many Japanese companies, often owns shares in its suppliers and business partners. Those companies may own shares in Toyota as well. These cross-shareholdings are seen as a symbolic sign of the partnerships, but can affect the bottom line in times of stock-market weakness.

Particularly damaging for Toyota was a sharp fall in KDDI Corp., one of Japan's big three mobile-phone service providers, which has faced pressure from the government to cut prices. Toyota held 11.7% of KDDI as of Sept. 30, 2018. Also, Toyota owns about one-sixth of fellow auto maker Subaru Corp., whose stock price fell sharply because of recalls and lower profit margins in the U.S.

Toyota said it wasn't inclined to unload shareholdings to reduce risk. "There is significance to owning shares," said Masayoshi Shirayanagi, Toyota's head of accounting. "We might hold it for the long term, for policy reasons."

In the October-December quarter, revenue was up 2.6% over the same period a year earlier, while net profit fell 81% because of the stock-market losses and the absence of a one-time gain in the earlier period connected to U.S. tax-law changes.

For the year ending March 31, Toyota expects revenue of Yen29.5 trillion and operating profit -- the money it makes from selling cars -- of Yen2.4 trillion, both roughly the same as the previous year.

In the U.S., Toyota is looking at ways to shore up its sales. The company expects to sell around 2.4 million vehicles in North America, a decline of roughly 50,000 units year-over-year.

Unsold cars are building up on U.S. dealer lots as the new-car market slows down. The industry expects new-car sales this year to drop below 17 million for the first time since 2014, leading some auto makers to trim production.

Toyota didn't provide forecasts for North American production, but it produced slightly fewer vehicles in the region in the April-December period compared with the previous year. Toyota said the decrease was partly due to a shutdown at its factory in Canada to prepare for the new RAV4 sport-utility vehicle.

Toyota said sales were holding up in China, where the car market has reached a plateau after years of rapid growth. But another Japanese auto maker, Mazda Motor Corp. pointed to the risks of China's slower-growing economy, saying sales there fell by about 20% in the April-December period.

Mazda expects profit for the full fiscal year ending in March to fall by about half compared with the previous year. Executives said Wednesday the company had to use incentives to stay competitive in the U.S. and cut output for the Chinese market to prevent inventory from piling up.

--Chieko Tsuneoka contributed to this article.

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

(END) Dow Jones Newswires

February 07, 2019 02:47 ET (07:47 GMT)

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