7 key automakers lift earnings forecasts

TOKYO, Nov 06, 2009 (The Yomiuri Shimbun - McClatchy-Tribune Information Services via COMTEX) -- TM | Quote | Chart | News | PowerRating -- Seven of the nation's eight major automakers, including Toyota Motor Corp. and Honda Motor Co., revised their earnings forecasts upward for the business year ending March 2010 in their interim consolidated settlement of accounts for September, which was released Thursday.

All of the companies have implemented thorough cost-cutting measures, and demand for their automobiles was supported by increased demand in China and other emerging nations as well as by government-backed car purchase-incentive schemes in many countries.

Profits at all seven of the companies remain low compared with the level before the financial crisis that began last autumn. Other concerns also remain, such as the high value of the yen and a possible decline in vehicle sales when government incentives end at home and abroad.

Total combined sales of the eight companies listed in the interim consolidated settlement of accounts for September was about 19 trillion yen, down 30 percent from the same period last year. The sum of their operating profits plunged from about 1.2 trillion yen last year to 14.5 billion yen.

However, all of the firms except Mitsubishi Motors Corp. revised upward their earnings forecasts for the business year. The revised forecast for their combined consolidated operational profits was 19 billion yen, up from an initial forecast of a 985 billion yen deficit.

For each of the seven companies that forecast a profit, cost-cutting measures softened the blow caused by the strong yen and decline in earnings. Among them, Nissan Motor Co. took drastic restructuring measures, with almost no new hires to be taken on next spring and regular employee numbers being reduced by 4,000 across its group companies.

Recovery in emerging economies such as China and India also boosted production at the seven firms.

In the revised forecast, Honda increased its projected sales figures in China, India and other Asian countries for the business year by 70,000 units, and Nissan raised its prospected sales figure in China for the forecast period by 30 percent.

Suzuki Motor Corp. forecast an operating profit in and around India, but excluding China, of 25.4 billion yen, up by 23.1 percent from the same period last year.

In addition, sales of new vehicles have lifted on the back of car-purchase incentive schemes in many Asian countries, including the eco-car tax breaks in Japan.

However, it is unclear whether the recovery will continue, as it is widely expected the yen will become stronger in the second half of the business year.

Honda has raised the yen-dollar exchange rate figure it is using for its calculations for the business year to 90 yen from the 91 yen figure it was using in July.

"If the appreciation of the yen continues, we may consider transferring our production base overseas," Honda Executive Vice President Koichi Kondo said.

Strong concern also exists over government incentives for car purchases.

"A fall in demand is expected once the incentive measures come to an end," Nissan Chief Operating Officer Toshiyuki Shiga said.

Government subsidies for car purchases have already finished in Germany and the United States, while in Japan eco-car tax breaks will finish at the end of March.

"I strongly doubt that sales will continue to grow like this," Suzuki President Osamu Suzuki said.

While Toyota has significantly trimmed its consolidated operating losses forecast for the year, suggesting a recovery, its operating losses forecast is still the largest among the eight major automakers.

For the July-September quarter, Toyota's operating profits returned to the black, but the figure was based on the strength of financial arm -- its core automobile business remains very much in the red.

The automaker is forecasting an operating loss of more than 200 billion yen for the October-March period. If the current situation continues, Toyota is expecting an operating loss of 400 billion yen for the whole business year.

In light of this situation, Toyota President Akio Toyoda, who assumed the firm's presidency in June, will likely be required to take more measures to achieve his goal of returning the automaker to the black by fiscal 2010.

Explaining that the company needed to make decisions on which areas in needs to focus on and which areas it needs to withdraw from, Toyoda said he decided to stop production at the New United Motor Manufacturing Inc., or NUMMI, in California, a joint venture launched with General Motors Co.; to scrap Toyota's brokerage unit; to spin off its housing business; and to withdraw from Formula One.

However, the recovery in Toyota's key domestic production earnings has been sluggish. While Toyota forecast a consolidated operating loss of 350 billion yen this business year, it expects to incur a 520 billion yen loss in unconsolidated operating earnings, which are heavily dependent on exports. Therefore, if the strong yen continues, it will become more difficult for the automaker to improve its earnings.

Meanwhile, amid escalating competition in developing environmentally friendly technology, there is little scope for the firm to cut costs in research and development or investment in equipment.

Toyota plans to continue domestic production to maintain employment levels. But it remains to be seen what kinds of reforms the firm can carry out to return the company to profitability.

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