Tough times loom for new Toyota chief

Toyota Motor Corp executive vice president Akio Toyoda walks past a logo of Toyota during a news conference to unveil its new seven-seater compact vehicle ''Passo Sette'' in Tokyo December 25, 2008.

TOKYO (Reuters) - Akio Toyoda takes charge at Toyota Motor Corp this week with the company facing its biggest ever loss, but few expect his appointment to bring about the changes needed to drive the world's No.1 automaker back into the black.

Amid a global recession that has hammered car sales, Toyota's factories are severely underused. Making matters worse, Toyota builds about half of its vehicles in Japan, which works against it with the dollar squarely below 100 yen.

But unlike bankrupt U.S. rivals Chrysler and General Motors, which have closed plants, slashed jobs and shuttered dealerships in an effort to survive, Toyota has said it plans to ride out the downturn with its production capacity intact, arguing global vehicle demand will eventually recover.

"Erasing the losses is an urgent task but fundamentally, this company does things with a medium-term vision," said Tsuyoshi Mochimaru, an auto analyst at Barclays Capital.

"They're not going to suddenly change the way they do things to satisfy the short term. I expect the new management's strategy to be an extension of the previous one's," he said.

Shunning Western-style restructuring, Toyota has chosen to use the down-time to train workers. Already known as a lean operator, it is trying to squeeze costs further so it can be profitable using just 70 percent of its production capacity.

"A V-shaped recovery is actually not that difficult if you slash capex and jobs, for instance. Toyota could probably get a restructuring impact of close to 1 trillion yen. It's not that they can't do it -- they won't do it," Mochimaru said.

WITHER THE "DRASTIC MEASURES?"

Toyoda, long seen as a candidate to head the company founded by his grandfather in 1937, is set to be confirmed as Toyota president following the annual shareholders' meeting on Tuesday.

Toyoda has said he will steer the company "back to the basics" from a run of expansion in the past decade that outgoing President Katsuaki Watanabe conceded may have been too fast.

Chairman Fujio Cho admitted in January that there was some hesitation about handing the baton to the relatively young Toyoda at such turbulent times, but said ultimately that a younger leader and the Toyoda name were the best hope for taking the "drastic measures" needed during the crisis.

But neither Cho nor Toyoda specified what those measures would entail, and analysts said they could be elusive anyway.

"A drastic reform at Toyota would involve cutting back its domestic production base," said Kurt Sanger, a Tokyo-based auto analyst at Deutsche Securities.

"But that probability is low. And with 50 percent of its production in Japan and the dollar at 95 yen, even if the U.S. market returns to 16 million units tomorrow, they'll still be making less profit than before."

Facing annual U.S. industry sales of around 10 million units, Toyota is expecting last year's first-ever operating loss to balloon to 850 billion yen ($8.8 billion) in the year to March 2010.

While analysts see Toyota's loss projection for this year as too cautious -- consensus forecasts put the loss at 495 billion yen -- they said returning to profit would be tough, and dependent on an economic recovery.

Even then, Toyota could face tougher competition as long as the yen stays relatively firm.

With most of its high-end Lexus cars produced in Japan, Toyota will either have to raise prices or accept lower margins. In contrast, a drop in the Korean won has made Hyundai Motor Co's cars more attractive and profitable.

The new, low-priced Prius hybrid launched last month has reversed the sales decline for that model, but risks eating into sales of its other, more profitable cars.

In contrast, analysts say Honda Motor Co's new low-cost Insight hybrid is relatively profitable, probably yielding higher margins than its Fit subcompact.

OLD VS NEW

Toyoda and his new management team are scheduled to hold a news conference in Tokyo on Thursday and few expect them to throw away the playbook that has made Toyota a model of management success for decades.

Supporting the 53-year-old Toyoda will be five vice presidents -- four of them new -- while two key company elders, Honorary Chairman Shoichiro Toyoda -- Akio's father -- and Senior Adviser Hiroshi Okuda, will resign from the board. Eight new officials will join the 29-member board.

In a move seen as an attempt to balance the newly promoted with seasoned veterans, Toyota will bring back Yoshimi Inaba, an outspoken heavyweight who left as executive vice president in 2007.

Inaba is expected to take charge of Toyota's North American operations, while Takeshi Uchiyamada, chief engineer of the first-generation Prius, will switch to R&D and corporate planning from manufacturing.

Senior managing directors Yukitoshi Funo, Atsushi Niimi, Shinichi Sasaki and Yoichiro Ichimaru will be promoted to executive vice presidents.

In a fresh strategy, each vice president will also be assigned a major region to oversee on top of their other areas of responsibility, a source familiar with the plan said. Under the current structure, Toyoda was in charge of Japanese and all overseas operations.

($1=96.58 Yen)

(Editing by Lincoln Feast)