Toyota to report first operating loss

Toyota said tough times hit harder than expected.

NAGOYA, Japan (AP) — Toyota Motor Corp. said Monday it will report the first operating loss in 70 years, acknowledging that after a decade of rapid growth it can no longer escape the slowdown plaguing the global auto industry.

The Japanese auto giant also lowered its global vehicle sales forecast for the second time this year and said it was putting ambitious expansion plans on hold, in large part because of a precipitous drop in demand in the key U.S. market.

“The tough times are hitting us far faster, wider and deeper than expected,” Toyota President Katsuaki Watanabe told a gloomy news conference at the company’s Nagoya headquarters. “This is an unprecedented crisis requiring urgent action.”

Toyota had reported strong growth in recent years, boosted by heavy demand for its fuel-efficient models such as the Camry sedan and Prius gas-electric hybrid.

But Watanabe said a severe drop in demand, especially in the U.S., which accounts for one-third of vehicle sales, and profit erosion from a surging yen were too much for Japan’s No. 1 automaker. Overall U.S. auto sales fell to their lowest level in 26 years last month.

“The change that has hit the world economy is of a critical scale that comes once in 100 years,” Watanabe said.

Toyota said it expects an operating loss of 150 billion yen ($1.66 billion) for the fiscal year ending in March, compared with an operating profit of 2.27 trillion yen ($25.2 billion) a year earlier.

Toyota said it would still post a small net profit of 50 billion yen ($555 million), thanks to outside dividend income, down from year-earlier earnings of 1.7 trillion yen ($18.89 billion). But operating income is seen as the best reflection of its core business.

The outlook was a dramatic change of fortune for the iconic company, which in recent years had outlined ambitious expansion plans and weathered an industry slowdown much better than its U.S. rivals.

In its forecast, Toyota lowered the number of vehicles it expects to sell globally this calendar year to 8.96 million, down 4 percent from last year. Earlier this year, Toyota had projected worldwide sales of 9.5 million vehicles.

Initially, it had an even more aggressive target of 9.85 million, and expectations had been growing that the tally would reach 10 million in coming years — allowing Toyota to dethrone General Motors Corp. as the world’s top automaker.

Tsuyoshi Mochimaru, auto analyst for Barclays Capital in Tokyo, warned that the worst may be ahead.

U.S. auto sales aren’t expected to start recovering until late 2009, and the dollar — already at a 13-year low against the yen — could lag further, he said. A strong yen hurts results because overseas profits must be converted into the Japanese currency.

“The problem is next year,” said Mochimaru. “It’s unmistakable that things are extremely tough for Toyota.”

Watanabe and other Toyota executives repeated a recent announcement that expansion plans will be on hold, including a new plant in Mississippi and projects in India.

Toyota said there were no plans to lay off any full-time employees, although it plans to cut the number of temporary workers at its Japanese plants in half to about 3,000.

Toyota is a relatively old-style Japanese company that offers lifetime employment, and only in recent years has hired and let go of temporary workers to adjust production.