Toyota Motor Corp. is forecasting an 80% decline in operating profits for the fiscal year ending in March 2021, as the new coronavirus pandemic is expected to lead to a sharp drop in new car sales.
Operating profits indicate a company's returns on its core business.
Toyota sales amount to about 30 trillion yen. The negative impact on the Japanese economy from a prolonged business slowdown is impossible to calculate.
"I wanted to be honest about what we know to set a standard," Toyota President Akio Toyoda said during an online press conference Tuesday, explaining why he released an earnings forecast despite not knowing when the pandemic will end.
Toyota's outlook for the fiscal year ending in March is grim. Global sales for the entire group are predicted to be 8.9 million units, 1.55 million units fewer than the previous fiscal year, or a 14.9% decline.
Toyota saw a decline of about 1.1 million units in the fiscal year ending in March 2009 that included the so-called Lehman shock. This drop is forecast to be 1.4 times bigger.
Nevertheless, Toyota has succeeded in strengthening its corporate structure since the Lehman shock, and the firm expects to avoid going into the red in operating profits.
While operating profits for the fiscal year ending in March 2009 were a negative 461 billion yen, the figure forecast for the fiscal year ending in March 2021 is a positive 500 billion yen.
Toyoda emphasized that over the last seven years the company has actively invested in areas such as autonomous driving and going electric, and has continued to reduce costs.
With the firm expecting to avoid a loss, Toyoda expressed confidence they are "ready to lead the economic recovery after the pandemic ends."
Toyota Operating Officer Kenta Kon said the company expects global new vehicle sales to be "down to 60% of the previous year in April-June, but to recover 80% in July-September, to 90% in October-December, and back to previous year's level after that."
However, another executive expressed greater uncertainty, saying, "If the economic damage that has been focused on the service sector does not recover, cars won't sell."
While Toyota showed a glimmer of light amid the darkness, Honda Motor Co. did not release an earnings forecast for the fiscal year ending in March 2021.
Honda President Takahiro Hachigo said at a briefing on Tuesday: "Earnings for the fiscal year ending in March 2020 were harsh. The outlook for the fiscal year ending in March 2021 is difficult to calculate."
The last time Honda did not release an earnings forecast was in 2011 after the Great East Japan Earthquake.
Honda holds about 30% of the market for four-wheeled vehicles in China, where the new coronavirus originated.
Its finished vehicle factory in Wuhan, Hubei Province, where the pandemic began, was forced to close for a long time. Its sales in China in fiscal 2019 declined by 1.7% to 1.44 million compared to the previous fiscal year.
Sales have been sluggish around the world due to shelter-in-place orders. Honda's global sales of four-wheeled vehicles in fiscal 2019 were down 530,000 units compared to the previous year to 4.79 million units. Its two-wheeled vehicle sector, the most profitable in the industry, was down 910,000 units from forecasts to 19.34 million units.
The pandemic is, without a doubt, affecting automakers' earnings besides Toyota and Honda.
In December, Mazda Motor Corp. revised its earnings forecast downward for the fiscal year ending in March 2020. Its net income is now expected to be 12.1 billion yen, down 30.9 billion yen from the previous forecast.
Nissan Motor Co. and Mitsubishi Motors Corp. have announced they expect net income to drop into negative territory.
"If the current situation continues, subcontractors will collapse one after another in the next few months," said one industry insider.
The pandemic will likely reveal which companies have foundations strong enough to withstand the crisis.
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