Toyota Forecasts Operating Loss

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Another scary story ... vial the Bloomberg
Dec. 22 (Bloomberg) -- Toyota Motor Corp., the world’s second-largest automaker, forecast its first operating loss in 71 years on plummeting demand, prompting Moody’s Investors Service to consider downgrading the company’s top-rated credit. The carmaker will post a 150 billion yen ($1.7 billion) loss in the year through March, it said in a statement today, scrapping a previous forecast of a 600 billion yen profit. “The environment we’re in is extremely tough,” President Katsuaki Watanabe told reporters today in Nagoya. “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom.” Moody’s is reviewing the carmaker’s “Aaa” rating on $19 billion of debt, possibly boosting the company’s borrowing costs amid tightening credit markets and the worst U.S. auto sales in 26 years. Watanabe has cut contract jobs, production and executive pay including board-members’ bonuses this fiscal year in a bid to offset slumping demand and a strong yen. “Toyota’s cost-cutting can’t match plummeting sales,” said Koichi Ogawa, chief portfolio manager at Tokyo-based Daiwa SB Investments Ltd., which manages $28 billion. “Everyone is getting hurt with this situation.” The automaker lowered its net income forecast 91 percent to 50 billion yen. The last time Toyota posted an operating loss was in the year ended March 1938, said spokesman Hideaki Homma. The company revised its forecast for a second time even after adding in an expected gain of 130 billion yen from cost- cutting measures, Watanabe said. All capacity expansion projects have been postponed, he said. Toyota rose to 2,919.41 yen as of 11:07 a.m. in Frankfurt from 2,895 yen at the close of Tokyo Stock Exchange trading. Sales Forecast The carmaker’s sales in the U.S., traditionally its most profitable market, plunged 34 percent in November. Toyota’s European sales dropped 34 percent last month, according to the European Automobile Manufacturers Association in Brussels. The company today cut its vehicle sales forecast 8.5 percent to 7.54 million for the year ending March 31. It lowered its North America sales estimate by 10 percent to 2.17 million vehicles. In Europe, sales may total 1.04 million vehicles and at home it may sell 2.01 million. Automakers worldwide are cutting production as sales plummet. Toyota, which opened its seventh North American auto- assembly plant earlier this month, said it plans to further reduce production at factories in the U.S. and Canada. The automaker this year halted production of Tundra pickups at its San Antonio plant for more than three months. Production resumed in Texas in November with a single shift. Honda Earnings Honda Motor Co., Toyota’s closest domestic rival, slashed its earnings forecasts this month after the yen’s 25 percent gain against the dollar this year. Suzuki Motor Corp., Japan’s second largest minicar maker, today said it will cut domestic production by an additional 30,000 units to 1.16 million vehicles for the year ending March 31. Daihatsu Motor Co., Toyota’s minicar unit, said it will cut Japan production by 16,000 vehicles in the period. Japan’s exports plunged 26.7 percent last month from a year ago, the most on record, as global demand for cars and electronics collapsed. Shipments to the U.S. slid an unprecedented 34 percent, the Finance Ministry said. “Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad. Across the industry, U.S. auto sales are down 16 percent this year, led by declines of 28 percent for Chrysler LLC, 22 percent for General Motors Corp. and 19 percent for Ford Motor Co. The three U.S. automakers will shutter about 59 factories over the next month as they struggle to avoid bankruptcy. Stronger Yen Compounding the drop in demand is the stronger yen, which erodes overseas profits for Japanese automakers. Every 1 yen gain against the dollar and euro trims Toyota’s annual operating profit by 40 billion yen and 6 billion yen, according to the company. The carmaker is basing its second-half earnings outlook on 93 yen to the dollar and 123 yen to the euro. The company expects a stronger yen will cut its operating profit by 200 billion yen for this fiscal year from its November forecast. Credit-Default Swaps Toyota’s 150 billion yen 1.33 percent bonds maturing in 2012 today traded at 40 basis points above Japan’s government debt, or a 1.015 percent yield, Japan Securities Dealers Association prices show. The notes traded at 25 basis points more than government bonds at the end of October. A basis point is 0.01 percentage point. The cost of default protection on Toyota debt rose 3 basis points to 217 basis points, according to CMA Datavision prices for credit-default swaps. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite. To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net Last Updated: December 22, 2008 06:03 EST

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Toyota forecasts its first-ever operating loss
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Source: Detroit Free Press
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Source: MSN UK News
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The cost of default protection on Toyota debt rose 3 basis points to 217 basis points, according to CMA Datavision prices for credit-default swaps. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite.

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