Toyota hit by 80% profit drop as virus wipes $14bn off car sales

Toyota plans to maintain R&D spending despite plunging profits. (AFP)
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Updated 13 May 2020

Toyota hit by 80% profit drop as virus wipes $14bn off car sales

  • Toyota forecast global sales of 8.9 million vehicles — a nine-year low — versus 10.46 million in the year just ended

TOKYO: Toyota Motor Corp said it expects profit to drop by 80 percent to its lowest in nine years, as Japan’s biggest automaker grapples with the impact of the novel coronavirus which has sapped global demand for vehicles.

The expected damage to Toyota’s bottom line highlights how carmakers will struggle to recover from the virus in the coming months as they gradually restart factories after curbs on public movement prevented workers in many countries from commuting.

The industry expects limited output due to fractured supply chains and social distancing measures at plants, along with weak demand as job losses and concern about an economic downturn weigh on consumer spending on major purchases such as cars.

Toyota, one of the world’s most profitable automakers, expects to take a whopping 1.5 trillion yen ($13.95 billion) hit from a fall in global vehicle sales this year due largely to the virus, yet it still expects to eke out an operating profit of 500 billion yen in the year to March.

“The coronavirus has dealt us a bigger shock than the 2008 global financial crisis,” Toyota President Akio Toyoda said at a livestreamed media briefing.

“We anticipate a big drop in sales volumes, but despite that we are expecting to remain in the black. We hope to become a leader of the country’s economic recovery.”

Toyota sees its operating profit in free fall from 2.44 trillion yen in the year just ended, to its weakest profit since the 2011/12 financial year.

The automaker forecast global sales of 8.9 million vehicles - a nine-year low - versus 10.46 million in the year just ended. It expects sales to recover to 2019 levels next year.

Toyota’s outlook came as rivals including Honda Motor and General Motors have refrained from issuing forecasts, citing uncertainty about the coronavirus.

On Tuesday, Honda posted its weakest annual profit in four years, after a 28 percent drop in fourth-quarter vehicle sales plunged the automaker into an operating loss of 5.2 billion yen, its first quarterly loss since the March 2016 quarter.

Japanese automakers are bracing for a year of falling car sales as economists anticipate a slow and patchy recovery from the pandemic.

As a result, some analysts see a cut in annual global vehicle sales by around a third, compared with an 11 percent fall in 2009/10 after the global financial crisis.

Toyota expects sales to remain weak through December, before returning to 2019 levels sometime next year.

In the year ended March, Toyota said it took a 160 billion yen profit hit from the virus due to a cut in annual sales of 127,000 vehicles from a record high of 10.6 million last year.

The impact was felt hardest in North America, a key market, where sales fell 8% during the March quarter, resulting in an operating loss there.

Despite the profit slump and a sharp cut to margins, Toyota said it would pour more than 1 trillion yen each into capital expenditure and R&D investment, keeping spending largely unchanged from last year.

“We cannot stop investing in the future,” Operating Officer Koji Kobayashi told reporters.


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”