Toyota sees record earnings

Prediction for year made after automaker reports 34% second-quarter profit increase

November 08, 2006|By The Detroit News

While Detroit's automakers retrench to stem their losses, Toyota Motor Corp. is expanding its competitive advantage as it rakes in the profits.

Toyota predicted yesterday that it would earn a record $13 billion for the year after reporting a 34 percent surge in its second-quarter profit, reflecting strong vehicle sales and a weaker yen.

Toyota's U.S. shares jumped after the company said it earned $3.4 billion in the three months to Sept. 30, the second quarter of the Japanese fiscal year, beating analysts' expectations.

The earnings come in sharp contrast to Detroit's automakers, which lost a combined $7.4 billion in their third quarter. Ford Motor Co. lost $5.8 billion and DaimlerChrysler AG's Chrysler Group lost about $1.5 billion. General Motors Corp., which has started to rebound after losing $10.6 billion in 2005, posted a $91 million third-quarter loss yesterday.

The Japanese automaker also announced that it was buying a 5.9 percent stake in Isuzu Motors Ltd., formerly one of GM's partners in Japan, for $373 million.

A year ago, Toyota bought part of GM's stake in Fuji Heavy Industries Ltd. as the struggling U.S. giant sold assets, including small holdings in Japanese automakers, to raise cash.

Toyota said it would work with Isuzu on developing environmental technologies and diesel engines, which are popular in Europe.

Toyota has benefited this year from a decline in the Japanese yen relative to other major currencies that boosted its export earnings.

Toyota's exports to the United States have surged more than 70 percent this year, as demand for its vehicles outpaced the automaker's U.S. production capacity.

"They've still got plants that haven't come on-stream yet, such as San Antonio in Texas, and Woodstock in Canada, and every indication is that they're going to have a couple more coming on by the end of the decade," said Erich Merkle, director of forecasting for IRN Inc., an automotive consulting firm in Grand Rapids, Mich.

Toyota's U.S. sales are up 12 percent in a market that is down slightly overall. Its share of the U.S. market stood at 15.5 percent last month, helped by strong sales of the new RAV4 sport utility vehicle, the introduction of the Yaris subcompact and new FJ Cruiser.

"If you take a look at their sales and compare them to those of everyone else, they seem immune to the softness and downturn in auto sales," Merkle said.

The weaker yen provided an additional boost, accounting for half of the positive contributions to Toyota's operating income, which rose 35 percent despite an increase in research and development spending, the company said in a statement.

"For the first half, Toyota posted record consolidated results across the board," Toyota Executive Vice President Mitsuo Kinoshita said in the statement.

The results bolstered investors' confidence that Toyota's management is focusing on profitability as well as growth.

The Japanese automaker is closing in on GM, the world's largest automaker for more than 70 years, with plans to sell 9.8 million vehicles in 2008.

In the first nine months of the year, Toyota sold 6.61 million vehicles worldwide, compared with GM's sales of 6.89 million.

Recently, Toyota told investors it was aiming for a 10 percent profit margin -- a level of profitability normally associated with luxury carmakers.

Toyota's U.S. shares finished up $1.48 at $121.21.

"The only thing that's going to slow down Toyota is Toyota itself," Merkle said. He said the company seems aware that recalls and quality issues that have cropped up in the past two years pose a real risk to its reputation.

"That's something they'll have to grapple with, and maybe slow production plans down," he said.

Toyota's earnings came the same day that GM revised its third-quarter net loss to 21 percent less than it stated last week, because the initial report didn't include loan sales at its finance unit. The net loss was reduced to $91 million, or 16 cents a share, from the previously reported loss of $115 million, or 20 cents a share, GM said in a quarterly U.S. regulatory filing yesterday.

GM shares fell 8 cents to close at $34.62.

The Associated Press and Bloomberg News contributed to this article.

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