Toyota slashes net profit forecast by 54 per cent

Japanese auto giant Toyota has revised its annual net profit forecast for fiscal 2012 by 54 per cent, citing the extensive flooding in Thailand, its manufacturing hub, and a strong yen.

The company slashed profit outlook to 180 billion yen ($2.3 billion) from an earlier estimate of 390 billion yen. The world's leading automaker had earned a net profit of 408.1 billion yen in the fiscal ending March 2011. Its revenues for fiscal 2012 are expected to be around 18.2 trillion yen, down from an earlier projection of 19 trillion yen.

And with global vehicle sales expected to dip to 7.32 million units – from an earlier forecast of 7.6 million – the company will be pushed to second rank by General Motors, the US carmaker, which has recovered this year. Last year, the American auto major had sold 7.48 million units.

The disaster in Thailand, which resulted in the death of 600 people, besides flooding hundreds of factories and destroying millions of homes, hit Toyota badly, disrupting its supply-chain. It also resulted in a production shortfall of 230,000 vehicles.

The floods came months after the March earthquake and tsunami in Japan, which disrupted production in Japan. The natural disaster was preceded by a recall of nearly nine million vehicles by Toyota in 2010 following brake and accelerator defects.

The biggest challenge for Toyota and other Japanese carmakers is the strong currency; the yen has risen by eight per cent during the year (currently trading at 78 to the US dollar), making its vehicles expensive for consumers around the world. Japanese manufacturers are hoping that the yen would fall to 100 against the dollar, which would  give the auto maker a competitive advantage in terms of pricing.

''The current exchange rate has really made it difficult to be profitable making cars in Japan,'' said Akio Toyoda, CEO, Toyota. ''In terms of the business environment in Japan, it is not really viable. Due to the strong yen, it is not possible to produce so much in Japan.''

The Toyota CEO, who took over in June 2009, said at the recent Tokyo Motor show that after the quality issues, he thought there was light at the end of the tunnel. ''Two days after that, the earthquake happened and I was afraid we wouldn't be able to produce any cars until next year. And then just when we had recovered from that, we had the Thailand floods.''