Many car manufacturers have conceded their outlook in the corona crisis. Toyota takes a look into the future – and expects a massive slump.
Tokyo Toyota boss Akio Toyoda wants to keep a promise in the corona crisis. When he took over Japan’s largest car maker with a loss of four billion euros in 2009 after the global financial crisis, he swore one thing: he wanted to trim his company so flexibly that it could survive a similar crisis without losses. On Tuesday, he now drew a positive balance after eleven years of reform at Toyota’s balance sheet press conference for the balance year 2019, which ended at the end of March.
It was time to thank his employees, said the founder’s grandson. Nobody is panicking. “Although we are experiencing a stronger case than during the financial crisis, we can make profits and invest in the future,” said Toyoda. For him, the crisis is “the starting point for a new Toyota company”. Toyoda understands this as the change from a car manufacturer to a networked mobility group that also includes artificial intelligence and robotics.
In fact, Toyota already stands out in the Japanese industry with its profit forecast. Many corporations, including competitor Honda, are reluctant to make forecasts because of the uncertain prospects of the pandemic. Toyota now predicts sales will drop 15 percent to 8.9 million cars and operating profit 80 percent to 500 billion yen. The always high profit margin of Toyota in the industry comparison will collapse to 2.1 percent – after 8.2 percent in the previous year.
Toyoda’s courage to make a forecast was not immediately rewarded on the stock exchange. The group’s share price fell two percent to 6527 yen after the figures were released. But Takaki Nakanishi, the founder of Nakanishi Automotive Industry Research, emphasizes: “It is commendable that the company has announced its plan for the current financial year, even though the automotive industry is in a very difficult situation with no future prospects.”
The company primarily wants to offer its workforce, its suppliers and dealers worldwide a guideline, Toyota said. But Nakanishi also recognizes a message to investors: “Despite the conservative premise, Toyota will not experience an operating loss and the dividend will be stable.”
Toyota starts the crisis with high profits
At the moment, Toyota only wants to cancel its usual share buybacks to secure money for investments in its future. Because the group wants to reduce this year only by three percent to 11.6 billion euros. But that’s still more than 2017.
One of the projects in which CEO Toyoda even wants to step on the accelerator is the smart model city “Woven City”, which the carmaker and partners want to build on an old factory site on the Fuji National Mountain. For Toyoda, the city is not just an open-air laboratory for new Toyota concepts such as mobility, connected life, robotics and artificial intelligence. The project also stands for Toyoda’s idea of making the company part of a larger movement through alliances.
Toyoda’s confidence is made possible on the one hand by the success to date. Unlike the local rivals Honda and Nissan, Toyota is starting the crisis with a healthy balance. Sales, sales and profits fell slightly by around one percent. Because in Toyota’s last quarter (January to March 2020), the corona crisis already depressed net profit by over three billion euros and operating profit by 1.4 billion euros. But with sales of 29,930 billion yen (257.4 billion euros) and operating profit 2,443 billion yen and (21.1 billion euros), the profit margin still remained stable at 8.2 percent.
For comparison: Honda’s sales fell by six percent to 14.931 billion yen (128.4 billion euros) due to exchange rate losses and the beginning of the corona crisis, and operating profit fell 12.8 percent to 633 billion yen (5.4 billion euros).
Between January and March, Honda even suffered an operating loss of 5.6 billion yen (48 million euros), while Toyota’s profit margin only decreased to 5.4 percent. Nissan postponed its annual press conference to May 28. But there is a risk of loss. The company has previously announced that its operating profit could undercut the predicted 65 billion yen by 120 to 130 billion yen. And should your own money run out, the automaker has already asked its banks for a credit line of more than eight billion euros.
Toyota is betting on a slow recovery in production
Toyota also expects markets to recover. In the current quarter, the Japanese hope to again produce 60 percent of last year’s production. Toyota calculates 80 percent for the third quarter of the calendar year and 90 percent for the fourth quarter. And thirdly, Toyota is not only putting projects to the test in the crisis, but also familiar ways of working to reduce costs.
The massive introduction of teleworking and the travel ban bring CEO Toyoda to completely new ideas. He found that, on the one hand, the number of documents produced had halved due to the video conferences. At the same time, he now meets far more virtual partners worldwide than previously through his business trips.
But he not only encourages his staff and partners to see the crisis as an opportunity to reform, but also to think about the relationships between people and with nature. “Companies and people should seriously think about how they live – and then change their behavior,” said Toyoda. “It could be that we have been given a great opportunity. And it could be our last. “