Watch Out GM, Toyota Profit Rises 34%

[Marc]

From the New York Times:

Toyota's Profit Rises 34% on Strong Global Sales
By JAMES BROOKE
Published: February 8, 2006

TOKYO, Feb. 7 — Toyota posted a record quarterly profit for the end of December, an increase of 34.1 percent over the previous year, placing Japan's largest automaker within striking distance of overtaking General Motors this year for the title of world's largest automaker.

Net income for the last three months of 2005 reached 398 billion yen ($3.4 billion) on record quarterly sales and help from the weakening of the yen, which fell to 117 yen to the dollar, from 106 yen to the dollar during the October-to-December quarter. Currency depreciation added $1.1 billion to Toyota's operating profits of $4.1 billion for the period.

Last week, Nissan Motor and Honda Motor, Japan's second- and third-largest automakers, also reported an increase to otherwise tepid earnings from a weaker yen against the dollar. Dwarfed by Toyota's huge profit, Nissan's earnings were $114 million in net profit in the quarter that ended Dec. 31, and Honda's were $113 million.

"Toyota is taking advantage of the currency effect," Kioyohide Nagata, senior fund manager at Invesco Asset Management Japan. This currency fluctuation, he said, is helping Toyota pay for its record $12 billion capital expenditure budget this year.

With General Motors on the threshold of losing the title of the world's largest automaker, this symbolic blow to American pride may set off protectionist sentiment against Japan. During the first nine months of the year, 44 percent of Toyota cars sold in North America were made in North America.

According to analysts' estimates here, Toyota's annual operating profit gains about $170 million for every drop of 1 yen in the value of the currency against the dollar. Likewise, in the last year, Toyota's market value rose by 50 percent, to about $186 billion, making Toyota the world's 12th-largest company by that measure, according to Bloomberg News.

With a market value 14 times greater than G.M.'s, Toyota is investing in new car plants with an eye on overtaking the automaker in sales this year or next. In 2005, Toyota is believed to have sold about $171 billion worth of cars, just short of the $193 billion sold worldwide by General Motors.

"We are expanding all at once to meet the strong global demand for our vehicles," Takeshi Suzuki, senior managing director of Toyota, told reporters here Tuesday. "This year's capital expenditure is at the peak."

Separately, Toyota announced Tuesday that it was increasing the size of a plant under construction in Woodstock, Ontario. With a total investment of nearly $1 billion, the factory will employ 2,000 people and have the capacity to build 150,000 small sport utility vehicles a year when it opens in 2008.

In December, Toyota announced plans to increase worldwide production by 10 percent in 2006, to more than nine million vehicles. In North America, sales from April to December were up 11.6 over the same period a year earlier.

Toyota, which is already strong in fuel-efficient cars, is expected to replace about half of its model lineup by 2008, a move expected to further increase sales.

With sales shrinking slightly in Japan last year, Toyota plans a 60 percent increase next year in sales in China, a large market for General Motors. In Central America, long a bastion of American car sales, Toyota is moving to take advantage of a new free trade pact between Japan and Mexico. Sales to Toyota's other markets, which include Central America, jumped 23 percent last year.

A consensus forecast of 22 brokerages puts Toyota's group operating profit at about $15 billion for the year, ending March 31, 2006, up 4.7 percent from the last business year.

But profits, aided by a weak currency, may fuel protectionist sentiment in Congress, where members representing rural areas already are angry over Japan's decision last month to close its doors to imports of American beef.

In recent weeks, General Motors and Ford Motor Company have announced large job cuts and factory closings for the coming decade.

General Motors reported a $4.8 billion net loss for the final quarter of 2005 and $8.6 billion in losses for the calendar year. Ford Motor, overtaken in 2004 by Toyota as the world's second-largest carmaker, reported a $2 billion profit for 2005, down 42 percent from the previous year.

"The currency certainly does help," Kurt Sanger, Japan automotive analyst for Macquarie Securities Japan, said here Tuesday. But, perhaps foreseeing American protests, he cautioned: "We are closer to the long-term yen-dollar rate than we were last year."