Toyota vulnerable after chasing fast growth

By Chang-Ran Kim, Asia autos correspondent - Analysis

TOKYO (Reuters) - Toyota Motor Corp's shock profit warning shows its strategy of breakneck expansion has left it especially exposed to an industry crunch brought on by the global financial crisis.

As recently as last year, Toyota was riding high after eight years of earnings growth, during which time profits more than tripled and sales mushroomed to make it the world's biggest carmaker ahead of General Motors Corp.

But Thursday's grim warning that profits would shrink by three-quarters this year was proof that even the mightiest are at risk from the current turmoil, raising the need for increased flexibility and, some say, more prudent investment from the Japanese giant.

"Toyota has become used to carrying excessive investment, and this has left it vulnerable in a downswing," said JPMorgan Securities analyst Takaki Nakanishi, who has a neutral rating on the company.

"It's important to recognize that the current steep decline in Toyota's earnings is not only a cyclical problem -- the downturn has been exacerbated by its own structural problems."

The worst financial crisis since the Great Depression has sent car sales tumbling in the developed world and slammed the brakes on growth in emerging markets, dealing a blow to automakers everywhere.

Japanese automakers have also been crippled by a soaring yen, which makes exports less competitive and diminishes the value of earnings made overseas.

Even so, the 63 percent cut in Toyota's operating profit forecast to 600 billion yen ($6.1 billion), a 13-year low, was far beyond the most bearish forecasts and highlighted the severity relative to its domestic rivals.

Japan's second-ranked Honda Motor Co, for instance, lowered its operating profit forecast by just 13 percent to 550 billion yen -- within reach of Toyota's new figure.

TRUCK-SIZED PROBLEMS

Toyota's troubles surfaced last year when its entry into the full-sized pickup truck segment in the United States coincided with a climb in gasoline prices to record levels.

At the time, Toyota's Tundra model was welcomed as an overdue addition to a segment that had grown to around 15 percent of the U.S. market. Similarly, some chided Honda for not venturing into the market dominated by GM, Ford Motor Co and Chrysler.

But demand for gas-guzzling vehicles evaporated, and Toyota is now trying to repair the damage, deciding this year to build the popular Prius hybrid instead of the Highlander SUV at a planned new factory in Mississippi.

It is also trying to find ways to build fuel-efficient compact cars more profitably, while speeding up the rollout of hybrid vehicles, starting with four fresh models next year.

On Thursday, it announced further measures, setting up an emergency committee chaired by President Katsuaki Watanabe to look at costs ranging from labor to R&D in a bid to improve short-term profitability.