June 22, 2011 / 10:14 AM / 7 years ago

Toyota could offset high yen with product mix

TOKYO (Reuters) - Toyota Motor Corp (7203.T) could offset some of the pressure on profits from a strong yen by making a higher-priced mix of vehicles in Japan, including top-of-the-line luxury Lexus models, a senior executive said on Wednesday.

Toyota Executive Vice President Yukitoshi Funo, who was speaking at the Reuters Rebuilding Japan Summit in Tokyo, said a U.S. dollar below 80 yen would put additional pressure on the profitability of the automaker’s exports from Japan.

“For us in the private sector, that level would be tough,” he said, adding that Toyota could respond by rejigging production to focus more on higher-end models in Japan, in addition to cutting operating costs.

Toyota, which relies on home output more than its two main domestic rivals, Nissan Motor (7201.T) and Honda Motor (7267.T), is feeling that pressure more as the dollar hovers just above 80 yen.

The yen’s strength has raised questions about the rationale of Toyota’s commitment to producing at least 3 million cars in Japan each year.

President Akio Toyoda said in May that while he wanted to stick to that goal, his desire alone may not be enough to justify the loss-making proposition. Chief Financial Officer Satoshi Ozawa, meanwhile, has distanced himself from Toyoda’s stance, stressing that producing in Japan at the current scale was untenable with the dollar at 80 yen.

Japanese automakers have traditionally been reluctant to raise prices, but Funo said Japan’s top automaker saw room to sell a higher-priced mix of cars made in Japan in overseas markets.

“It’s not just a cost-side problem. It’s a revenue-side issue too,” Funo said.

Funo, who also sits on Toyota’s board and oversees its marketing, said he was confident consumers overseas would buy those pricier cars, insisting the automaker’s image in the U.S. market had not been seriously damaged by a wave of safety recalls in 2010.

“It has not affected our customer confidence,” he said. “I think it’s fair to say we have not lost that at all.”

Toyota, however, still faces years of litigation after having recalled several million vehicles for problems since late 2009. On June 10 a federal judge in the U.S. chose a Utah crash that killed two people as the first bellwether trial, slated to start in 2013, in nationwide litigation over it made defective vehicles that sped up unexpectedly.


For now, Funo said Toyota’s Japanese plants remained competitive with its overseas production hubs including its flagship U.S. factory in Kentucky, despite pressure from the yen and relatively high electricity costs and corporate taxes.

Toyota has also bounced back faster than initially expected, he said, from the production disruption caused by the loss of parts from suppliers after the March 11 earthquake.

    The automaker announced plans this week to hire another 4,000 contract workers in Japan to ramp up production, which it expects to rebound to pre-quake levels by July.

    “That’s a very large number but that’s how fast we are scaling back up,” he said.

    In North America the Japanese carmaker expects production to rebound to 100 percent in September, with eight of the 12 models Toyota builds there returned already at 100 percent production.

    Nonetheless, Toyota this month forecast a bigger-than-expected 35 percent fall in operating profit for the business year to March 31, 2012, expecting to lose almost half-a-million vehicles in potential sales from the quake-driven output disruption.

    Funo said Toyota would rethink areas of its supply chain, including its purchasing of parts like microcomputers that were hit hardest by the supply disruption after the quake.

    “Over the years I think we should address how to manage these risks,” Funo said, adding that Toyota would look to diversify its supply base by adding suppliers and production locations. “That is what we have to look into more closely for the future.”

    Toyota expects to build 3.03 million vehicles in Japan this year, out of a total 7.39 million, with nearly 60 percent slated for export. The company has said it wants to achieve an operating margin of 5 percent on parent-only sales of 7.5 million vehicles and a dollar rate of 85 yen well before 2015.

    ($1 = 80.440 Japanese Yen)

    Editing by Edmund Klamann and Chris Gallagher

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