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Toyota suffers stunning annual net loss -- its first since 1950

Battered by a strong yen and slumping demand, the automaker reports a $4.4-billion loss in the fiscal year that ended March 31, and predicts a $5.5-billion net loss for its current fiscal year.

May 09, 2009|Tiffany Hsu

Stung by declining auto sales, Toyota Motor Corp. said it lost $7.7 billion in the fourth quarter -- leading to its first annual loss since 1950. And the world's largest automaker said next year may be worse.

Chief Executive Katsuaki Watanabe said Friday that Toyota, battered by a strong yen and slumping demand, lost $4.4 billion in its 2009 fiscal year, compared with a $17.7-billion profit a year earlier.

For its current fiscal year, Toyota is predicting an even greater loss of $5.5 billion.

Toyota shares fell $1.07, or 1.3%, to $79.17 in trading Friday.

In addition to the dismal forecast, which was far more extreme than analysts had expected, the Japanese behemoth said it was expecting to sell at least 1 million fewer vehicles for the fiscal year ending in March 2010 as it tries to cut costs by slowing production.

Analysts were quick to point out striking similarities between Toyota and its longtime rival, General Motors Corp., which is now teetering on the edge of failure.

Both companies' plans for aggressive international expansion were so ambitious that the global economic downturn found them overcommitted, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich. And the automakers were also heavily focused on larger, less fuel-efficient vehicles instead of diversifying their offerings.

Toyota's reputation for quality has also suffered in recent years, Virag said.

"Unlike a company like Honda that is more cautious with product lines and expansion, Toyota has made many of the same mistakes that GM has made," he said. "When you have that kind of size and complexity, when the market deteriorates, the earnings reports have only one way to go, and that's down."

In an effort to save $8 billion this year, Toyota will ask employees for suggestions and negotiate with suppliers. And for the first time in at least 15 years, the automaker cut its annual dividend by nearly 30%, to 99 cents a share from $1.41.

Following Friday's announcement, Standard & Poor's Ratings Services lowered its long-term corporate credit ratings for Toyota from AA-plus to AA-minus.

Analysts wrote that Toyota's profitability and cash flow would continue to struggle until the end of the current fiscal year, and that the automaker's financial performance could take longer to recover.

But despite the company's growing debt due to shrinking operating cash flow, Standard & Poor's also wrote that Toyota "maintains a minimal financial risk profile, characterized by a strong capital structure with massive liquidity."

Coming off a profitable run as the auto world's golden child, the economic downturn has dealt Toyota major setbacks. U.S. sales plunged nearly 42% in April, compared with the 33% drop by GM and the 31% decline by Ford Motor Co. Total vehicle sales fell from 9.4 million to 8.3 million. Worldwide sales sank 21%, and Toyota expects another 20% dip this year down to $166 billion.

Operating income fell to a $4.7-billion loss last year from a profit of $22.8 billion the year before. The last time Toyota, maker of the Prius hybrid and the Lexus brand, saw such a loss was in 1937.

"It appears to take some more time before the financial markets in the U.S. and Europe normalize and the global economy recovers," Watanabe said.

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tiffany.hsu@latimes.com

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