Tokyo: Toyota Motor Corp said its biggest-ever safety recall would cost it up to $2 billion this quarter, but raised its outlook for the financial year ending in March after a forecast-beating third quarter.
Toyota’s recall of more than 8 million vehicles due to problems with unintended acceleration has punished its share price, dented its reputation and overshadowed what until just two weeks ago had been expected to be an upbeat story of improving earnings.
Automakers enjoyed a boost in demand in the latter part of 2009, thanks largely to government incentives designed to spur sales and improving access to credit as the global economy recovered.
Toyota was one of the biggest beneficiaries of the US cash-for-clunkers scheme but has faced a firestorm of criticism in recent weeks for its handling of recalls centred there.
“There are more doubts about Toyota’s ability to make sure clients are content with the quality of its cars,” said Benedicte Mougeot, fund manager of HSBC GIF Japanese equity fund, in Hong Kong. “Taking into account the increased risk and reduced profitability, we will review our investment.”
With less than two months left in the current financial year, Toyota slashed what most analysts had considered an excessively conservative operating loss forecast to ¥20 billion ($220 million) from a predicted ¥350 billion loss.
That compares with a ¥38 billion annual loss forecast in a survey of 19 brokerages by Thomson Reuters.
Starmine SmartEstimates, which predicts earnings by putting more weight on recent forecasts of top-rated analysts, has Toyota posting an operating profit of ¥26 billion for the year to 31 March, and improving to ¥647 billion next year.
Toyota said the new forecasts for this year took into account an estimated ¥100 billion in costs set aside for the recalls and a further ¥70-80 billion in lost sales, based on an expected hit of 100,000 vehicles in sales globally from the recall saga. The figure was in line with analysts’ estimates.
Toyota posted an operating profit of ¥189 billion for October-December, easily beating the ¥99 billion yen estimated by Thomson Reuters. It was its strongest profit in six quarters.
How Long Will It Last?
Investors are now focused on how long and far the recall damage could go, with Toyota’s sales in its most important US market already falling 16% in January — enough to knock it to third place, below Ford Motor Co.
Toyota raised its forecast for group global sales to 7.18 million vehicles from 7.03 million for this financial year, and also raised the amount of money it expects to save under emergency profit measures introduced earlier this year to ¥1.59 trillion from ¥1.25 trillion.
The big question mark for the new year, starting on 1 April, is how long and how badly sales will be affected as a result of bad publicity and a scarred brand image, as well as the unknown scope of litigation and other costs.
“Right now it is difficult to gauge the impact on our sales for next (financial) year,” senior managing director Takahiko Ijichi told a news conference in Tokyo.
“But we will do everything we can to regain consumers’ trust to limit any impact.”
In what could, however, deal a further blow to Toyota’s quality record, the automaker is now on the hook to deal with dozens of complaints about insufficient braking under certain conditions on the third-generation Prius.
In a separate briefing, managing officer Hiroyuki Yokoyama, who oversees quality, said Toyota had reworked a software programme that was causing the anti-lock brake system (ABS) to briefly clash with the regenerative braking on the Prius hybrid under limited circumstances, including on frozen surfaces.
Yokoyama said depressing the brakes further would activate normal braking on the car, meaning the glitch was not legally considered a safety hazard.
But Toyota will notify drivers of its plans for specific steps in the near future to respond proactively and ease consumers’ minds, he said. He declined to say whether that would exclude an official recall.
“This issue shows that we may have fallen short of the standards expected of us by our customers,” Yokoyama said.
Shares in Toyota have lost as much as 23%, or $30 billion, in the two weeks since it announced a multi-million-vehicle recall for sticky accelerator pedals in North America, which has spread to most regions in the world.
“The problem with its Prius is also very worrying,” said Kazutaka Oshima, chief executive of Rakuten Investment Management in Tokyo.
“We are not certain about how Toyota’s damaged reputation will affect its earnings in the future. There are simply too many uncertainties surrounding Toyota at the moment. The best thing to do now is not to hold Toyota shares,” he said.
The new Prius, which went on sale in mid-2009, is at present Japan’s top-selling model -—a first for a gasoline-electric car.
Toyota’s shares slid to a 10-month low on Thursday after the Obama administration stepped up pressure on the world’s largest carmaker to address a range of safety issues.