Toyota expects profit to drop 80% this year as virus saps car sales

TOKYO (Reuters) – Toyota Motor Corp (7203.T) on Tuesday said it expects profit to drop 80% to its lowest in nine years, as Japan’s biggest automaker grapples with the impact of the novel coronavirus which has sapped global demand for vehicles.

The forecast came a day after Reuters reported, citing a source, that Toyota plans to slash production in North America by nearly a third through October due to government measures aimed at containing the pandemic.

Worldwide, curbs on public movement have prevented workers from commuting, forcing auto plants to close, while uncertainty about future household income have prompted drivers to hold off from vehicle purchases.

“The coronavirus has dealt us a bigger shock than the 2008 global financial crisis,” Toyota President Akio Toyoda said at a livestreamed media briefing.

“We anticipate a big drop in sales volumes, but despite that we are expecting to remain in the black. We hope to become a leader of the country’s economic recovery.”

Toyota forecast operating profit of 500 billion yen ($4.66 billion) for the year through March 2021, down 80% from 2.44 trillion yen in the year just ended. That would be its weakest profit since the 2011/12 financial year.

The automaker forecast global sales of 8.9 million vehicles – a nine-year low – versus 10.46 million in the just-ended year. It said it expects sales to recover to 2019 levels next year.

For interactive charts on Toyota’s financial performance, click here tmsnrt.rs/3fHr4QA.

Many of Toyota’s global rivals including Honda Motor Co Ltd (7267.T) have refrained from issuing forecasts, citing uncertainty about the coronavirus impact.

DEMAND SLUMP

Japanese automakers are bracing for a year of falling car sales as economists anticipate a slow and patchy recovery from the pandemic with people holding back from spending. Social distancing practices may also curb the desire to commute to work, dampening the need for new cars.

A drop in demand for new vehicles since March has already slashed global sales at Japanese automakers, with annual sales at Toyota falling 1.4% in the year ended March from a year earlier.

Combined annual sales at Japanese automakers fell 7.3% to a four-year low of 26.5 million vehicles in the just-ended year, showed Reuters calculations based on sales figures announced late last month by individual automakers.

Toyota and other automakers have begun to gradually resume operations at plants worldwide, but weak demand and procurement issues are widely expected to limit output in the coming months.

As a result, some analysts see a cut in annual global vehicle sales by around a third, compared with an 11% fall in 2009/10 after the global financial crisis.

Toyota’s ample cash reserves will likely help the automaker through the tough year. It has nevertheless sought a credit line totalling $9 billion from Sumitomo Mitsui Banking Corp and MUFG Bank Ltd as a buffer against rising fund-raising costs brought about by the pandemic.