Toyota may post first parent operating loss in 71 years

TOKYO Fri Dec 19, 2008 8:42am EST

The company sign of Japanese car maker Toyota is seen at the showroom of TM-Auto, the official dealer of Toyota in Sofia November 17, 2008. REUTERS/Oleg Popov

The company sign of Japanese car maker Toyota is seen at the showroom of TM-Auto, the official dealer of Toyota in Sofia November 17, 2008.

Credit: Reuters/Oleg Popov

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TOKYO (Reuters) - Toyota Motor Corp, the world's biggest automaker, is likely to report its first annual parent-only operating loss in 71 years, hit by plunging sales and the soaring yen, Japanese media reported on Friday.

Toyota is set to issue revised forecasts for its parent-only and consolidated profits for the business year to March 31, 2009, at a year-end news conference scheduled on Monday, the Chunichi Shimbun and Kyodo news agency said.

Toyota last posted an operating loss at the parent level, which doesn't include its subsidiaries, in its first year of operation in 1937/38.

A Toyota spokeswoman declined to comment on the reports.

Toyota made a parent-only operating profit of 140 billion yen ($1.6 billion) in the first half after incurring currency losses of 300 billion yen, making a full-year loss a near certainty if the current dollar rate of about 89 yen persists.

Toyota is assuming a more favorable dollar rate of 100 yen in the second half, after it averaged 106 yen in the first.

Shares of Toyota lost 2 percent to end at 2,900 yen in mixed trade for auto stocks, as conflicting reports emerged.

The Nikkei business daily predicted Toyota would also report an operating loss at the consolidated level, including subsidiaries, for the full year, while the Mainichi newspaper said the company would not issue a profit warning this month.

The Nikkei this week incorrectly reported that Japan's No.2 automaker, Honda Motor Co, would lower its annual operating profit forecast to about 300 billion yen, instead of the actual 180 billion yen.

"Toyota has been expected to post (consolidated) losses for the second half, but it would be a surprise if the loss became so big that it would more than wipe out the first-half profits," said Koji Endo, auto analyst at Credit Suisse.

JPMorgan analyst Takaki Nakanishi, meanwhile, wrote in a note to clients that there was a "strong possibility" that Toyota's forecasts could prove as grim as the Nikkei preview.

Toyota made a consolidated operating profit of 582 billion yen in the first half, and last month slashed its full-year forecast by 1 trillion yen to 600 billion yen.

PRESSURE IS ON

Automakers everywhere are under huge pressure to cut costs as a global recession and tight credit strangle demand.

Detroit's General Motors Corp and Chrysler LLC are seeking emergency loans as part of a U.S. government aid package to stay afloat in the short term, making progress on Thursday to secure a deal, people familiar with the talks said.

Japanese carmakers, while healthier, are feeling the extra pain from a weak dollar/yen.

Credit Suisse's Endo said the pressure would only grow on the automaker to cut costs, including procurement.

"Negotiations with Nippon Steel Corp and others will begin early next year, and how much (in price cuts) Toyota can secure from raw material suppliers will determine whether it will post losses for the next business year," he said.

Toyota said in early November it would do everything it could to meet the new group operating profit forecast of 600 billion yen for the year, setting up an Emergency Profitability Improvement Committee to secure short-term cash.

But sales trends and currency rates have turned far more severe and unpredictable. A company source said Toyota may alter its plans and refrain from announcing sales and production forecasts for the 2009 calendar year.

"We can't even see where demand is headed in the very near term," the source said. "Is there really any sense in providing projections for 2009?"

Toyota had been expected to lower its 2009 global sales forecast, with various media estimating the figure at anywhere between 8.0 and 8.7 million units, down from the record 9.37 million in 2007 and well below the company's most recent forecast of 9.7 million.

($1=87.33 yen)

(Reporting by Taiga Uranaka and Chang-Ran Kim; Editing by Edwina Gibbs)