2012 Earnings: First Quarter

In August 2012, Toyota announced a hefty profit in the first quarter and said that it aimed to build a record-breaking 9.76 million cars in 2012, leading a recovery by Japanese automakers after a year of natural disasters and a punishingly strong currency.

Though the strong yen continues to weigh on Japanese exporters’ bottom lines, many other things are going right for Japanese automakers. Supply chains that were severed are now up and running, and manufacturers like Toyota and Honda are racing to meet pent-up demand and are fast regaining lost ground in profitable markets like the United States. Japanese government incentives on fuel-efficient cars have revived markets at home.

Toyota said net profit for the April-to-June quarter had risen to ¥290.3 billion, or $3.7 billion, from ¥1.1 billion in 2011, after the number of vehicles it sold nearly doubled.

The brisk sales growth prompted the carmaker to raise its global sales target 180,000 cars to 9.76 million cars in 2012, which would be a 23 percent increase from 7.95 million in 2011.

Together with group companies that make trucks and light vehicles, Toyota expects to produce 10.05 million vehicles in 2011, which would make it the first automaker to break through the 10-million mark. The new targets could allow Toyota to win back its standing as the world’s largest automaker; in the first six months of 2012, Toyota has led General Motors by 300,000 units.

Reflecting uncertainties ahead Toyota has modest forecasts for the year. Despite the strong first-quarter showing, Toyota said it would leave its annual profit forecast unchanged at ¥760 billion on ¥22 trillion in sales.

Still, the robust earnings and global clout of Japan’s automakers are providing some comfort to a country that has seen its consumer electronics companies lambasted by foreign competition.

And after four years in the doldrums, the all-important North American market is finally rebounding, helping to pick up some of the slack posed by a slowdown in some emerging markets.

Ultimately, Japanese automakers will have to face up to a problem that refuses to go away: the strong yen, which makes Japanese exports more expensive overseas and erodes overseas earnings when they are converted into the home currency. Toyota, which still makes about 40 percent of its cars in Japan and has said it is committed to keeping a sizable production base in the country, is especially exposed to foreign exchange swings: for every ¥1 gain against the dollar, the company loses about ¥35 billion in annual profit.

Takahiko Ijichi, the senior managing officer, said the company had few options but to shore up profit by cutting costs further, selling a better mix of more expensive cars and in some cases, moving more production overseas.

*Courtesy of The New York Times.com