TOKYO (Reuters) – Toyota Motor Corp upgraded its full-year operating profit forecast by 8 percent on expectations of a weaker yen but flagged a dour outlook for North America, its biggest market, where quarterly sales fell to the lowest in nearly three years. The automaker is struggling to sell more cars in North America, where automakers are battling for customers with aggressive discounts, particularly on sedans as driver preferences shift to bigger SUVs and pick-up trucks. This has raised marketing costs for Toyota and other automakers.
Profitable growth in North America is important to Toyota to help it sustain big investments it is planning to make in fast-growing new technologies such as automated driving functions and artificial intelligence.
Toyota said on Tuesday it now expects full-year operating profit to come in at 2.0 trillion yen ($17.54 billion), up from a previous forecast of 1.85 trillion yen, based on a revised assumption that the yen will trade around 111 yen JPY= to the U.S. dollar, from 110 yen. The updated profit forecast number is more or less similar to last year’s operating profit of 1.99 trillion yen and in line with forecasts of a profit of 2.04 trillion from analysts polled by Thomson Reuters I/B/E/S.
Toyota Executive Vice President Osamu Nagata said that the improved forecast was largely due to a positive currency impact, adding that marketing activities, including financial incentives in the United States, would cut into overall profitability this year.
“Weakening profitability in our U.S. operations is still having a negative impact,” Nagata told reporters at an earnings conference, adding that the shift in demand from sedans to SUVs and falling residual values of leased vehicles would continue to weigh on the company. “We still have a lot of work to do there.”
In July-September, the maker of the Prius gasoline hybrid and the RAV4 SUV crossover sold around 672,000 vehicles in North America, down from around 684,000 a year ago. It was Toyota’s lowest quarterly sales there since the January-March 2015 quarter. The automaker anticipates lower annual retail sales in the region for the year to March. At home, sales fell 4.2 percent during the quarter to 543,000 units.
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Honda Motor Co Ltd (7267.T), Japan’s third-biggest automaker, and smaller Subaru Corp (7270.T) both reported earlier this month that they sold fewer vehicles in North America during July-September and spent more on incentives to whittle down inventories.
Nissan Motor (7201.T), the nation’s second-biggest vehicle maker, will report its results on Wednesday.
Toyota is fighting to stay competitive in the U.S. market, which is coming off a strong run that culminated in record sales of 17.55 million vehicles industry-wide in 2016. For the past year or so, Toyota has been raising the production of its Tacoma and Tundra pickup trucks and its RAV4 SUV crossover, to capitalize on strong demand for larger models.
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But improving sales in other markets have been offsetting weakness in the United States. Quarterly vehicle sales rose 8.0 percent in Europe, and 0.3 percent in Asia. In growing markets, which include central and South America, sales rose 0.6 percent. “Even if sales in the U.S. have flattened out, they’re seeing growth in a lot of other markets, like ASEAN, Brazil and Russia, which were considered weak spots not so long ago,” CLSA managing director Chris Richter said.
Toyota posted a 10 percent rise in operating profit for the second quarter, exceeding analysts’ forecasts for 515.3 billion yen. It also announced a share buyback worth 250 billion yen, the latest in a series of buybacks it has been making over the past few years.
With reports from Reuters.
