Toyota’s Prius Success Shows Japan Inc. Can Be Profitable – Businessweek

Japan Inc. isn’t dead yet.

Toyota Motor Corp. (7203), the nation’s largest manufacturer,
yesterday raised its profit forecast after earnings from Japan
last quarter jumped to a four-year high of 143.7 billion yen
($1.8 billion). That was 46 percent higher than the average
estimate of five analysts surveyed by Bloomberg, while income
from North America and other parts of Asia missed projections.

Asia’s largest automaker benefited from government
subsidies that drove up demand for Prius hybrids, and cited 160
billion yen in cost savings for allowing Toyota to earn more
profit in Japan than in any other region. That’s a contrast to
the losses piling up at electronics makers from Sharp Corp. (6753) to
Panasonic Corp. (6752) and Sony Corp. (6758) as they struggle to compete
against the likes of Samsung Electronics Co. (005930) and Apple Inc. (AAPL)

“Manufacturers have a lot to learn from Toyota,” said
Edwin Merner, Tokyo-based president of Atlantis Investment
Research Corp., which manages about $300 million in assets.
Others can learn to “stay the course even in bad times, not
blame other people or the government when things go wrong,” he
said.

Toyota has gained 26 percent in Tokyo trading during 2012,
the most among Japan’s three largest carmakers. The stock
climbed as much as 1.3 percent today, while the benchmark Nikkei
225 Stock Average declined.

China Slump

Profit at home offset the current slump in China, where a
wave of anti-Japan sentiment, stemming from a territorial
dispute over a group of islands claimed by both countries, is
driving consumers away from products made by Japanese companies
from Toyota to Canon Inc. (7751)

Toyota expects sales in China during the fiscal second half
ending March to be 200,000 vehicles fewer than the company had
expected and drain profit by 30 billion yen, Executive Vice
President Satoshi Ozawa told reporters yesterday. The carmaker
trimmed its annual total sales forecast by 50,000 units to 8.75
million units.

Toyota researchers estimate Japanese automakers are
unlikely to fully restore Chinese production before July because
of the consumer backlash, according to an Oct. 23 internal note
prepared by Toyota’s research division, obtained by Bloomberg.
Joichi Tachikawa, a Toyota spokesman, declined to comment on the
document.

Former Drag

Still, the Toyota City, Japan-based carmaker raised its
full-year projection for net income and operating profit after
the company reduced costs by 230 billion yen during the fiscal
first half. That’s a contrast to Honda Motor Co. (7267), Japan’s third-
largest automaker, which last week cut its profit forecast 20
percent, citing concerns about China demand.

For Toyota, the Japanese operations posted their third-
straight quarter of profit, after eight quarters of losses. In
Asian markets outside of Japan, earnings rose 32 percent, albeit
10 percent less than the average estimate in the Bloomberg
survey.

In North America, the maker of the Camry sedan saw
operating income double to 64.9 billion yen, though that was 18
percent below the consensus. Toyota has gained market share in
the U.S. this year, leaving less room for companies such as
Suzuki Motor Corp. (7269), which plans to end car sales in the country.

Toyota’s earnings from Europe, which beat analysts’
estimates, only accounted for 2.5 percent of total operating
profit.

‘Steady Progress’

“These are positive results and it shows Toyota is doing
quite well this year in areas except China,” said Manabu Tamaru, a fund manager at Baring Asset Management Co. in Tokyo.
“In the U.S., hybrid cars are selling pretty well, the product
mix is strengthening and in Southeast Asia, the Toyota brand is
making steady progress.”

In Japan, Toyota’s deliveries gained 20 percent last
quarter as pent-up demand and government subsidies for fuel-
efficient cars spurred demand. The Japanese market expanded 14.2
percent in the three months through September, outpacing growth
in the U.S., according to data compiled by Bloomberg.

Government subsidies ran out Sept. 21, leading domestic
sales to start falling that month. They fell 5.7 percent in
October, according to the Japan Automobile Dealers Association.
The expiration of government subsidies for fuel-efficient cars
presents a “downside risk” to Toyota’s earnings, Kohei Takahashi, a Tokyo-based analyst with JPMorgan Chase & Co., said
in an Oct. 15 report.

“The subsidies really provided a tail wind,” Toyota’s
Ozawa said. “That helped the results exceed expectations.”

Sharing Parts

Toyota expects Japan to lose about 20 billion yen in the
fiscal year, though less than the 70 billion yen loss the
company previously expected, Ozawa said. The company has
improved profitability in Japan by raising prices of exported
cars, increasing the efficiency of domestic factories and
cutting costs through suppliers, possibly by more than 300
billion yen this fiscal year, he said.

The company is cutting manufacturing costs through a method
it calls “Toyota New Global Architecture” by sharing
components across platforms and reducing the number of parts
used in a car. For example, Toyota has reduced the number of
radiator types they buy to about 20 variants, from 100,
Executive Vice President Shinichi Sasaki told reporters in
April.

By comparison, Japanese electronics makers are firing
thousands of workers and shutting down factories to stay alive.
Confronted with falling demand for TVs and a record yen eroding
the repatriated value of overseas sales, Sony, Panasonic and
Sharp posted record losses last year.

Sharp is now predicting an even bigger 450 billion yen loss
and Panasonic is expecting to lose 765 billion yen. Sony this
month reported its seventh straight quarterly loss, though the
company is predicting its first annual profit in five years.

“Unless you think the world economy is going to fall
apart, and it might, Toyota should do well over the coming few
years and looks very undervalued if you can take a one-to-three
year view,” Atlantis Investment’s Merner said. “I assume all
the analysts are now going to recommend the stock and it may go
up too quickly. But even so it is a company you want to own.”

To contact the reporters on this story:
Anna Mukai in Tokyo at
amukai1@bloomberg.net;
Masatsugu Horie in Osaka at
mhorie3@bloomberg.net

To contact the editor responsible for this story:
Young-Sam Cho at
ycho2@bloomberg.net