Weak U.S. Truck Sales Hurt Toyota Net

TOKYO -- Slumping U.S. sales of pickup trucks and sport-utility vehicles contributed to a 28% drop in Toyota Motor Corp.'s net profit for its fiscal first quarter, even as demand soared for its more fuel-efficient models.

Income for Japan's No. 1 auto maker by sales volume was also battered by a stronger yen, which reduces the value of overseas earnings, as well as higher material costs and losses from vehicle leasing in the U.S.

Associated Press

Costly materials and slumping U.S. truck and SUV sales offset demand for fuel-efficient models.

The weak results are a rare setback for Toyota, whose rapid expansion in sales and profit growth this decade once appeared immune to hardships facing other auto makers. Still, its woes pale before the challenges facing Detroit auto makers General Motors Corp. and Ford Motor Co., which both recorded billions of dollars in losses for the same quarter that ended June 30.

Net income decreased to 353.66 billion yen ($3.22 billion) from 491.54 billion yen. Toyota's revenue for the latest quarter slipped 4.7% from a year earlier to 6.22 trillion yen.

Toyota maintained a bleak forecast for the year, saying it expects net income for the fiscal year ending March 31 to tumble 27% to 1.25 trillion yen. But the company trimmed its sales forecasts for the fiscal year to 8.7 million vehicles from 9.1 million.

As sales slip in the U.S., Toyota Executive Vice President Mitsuo Kinoshita said it would be difficult for the auto maker to reach its target of selling 10.4 million vehicles annually by 2009.

Toyota is the latest of the Big Three Japanese auto makers to stumble as strong demand in emerging markets like China and the Middle East failed to make up for a sharp downturn in the more lucrative U.S. auto market.

Honda Motor Co., already bracing for an 18% drop in net profit for the fiscal year ending March 2009, last month cut its global auto-sales forecast to 4.08 million vehicles from 4.14 million. A plunge in demand for Nissan Motor Co.'s larger, less fuel-efficient vehicles drove net profits down 43% for the fiscal first quarter.

Toyota also is feeling the pinch from its decision to sink $1 billion into a new plant in Texas to produce the Tundra full-size pickup truck. Just as the plant swung into full production last year, consumers started shunning larger vehicles as fuel prices jumped. Now the plant is operating well below capacity. By contrast, sales of Toyota's smaller, more-fuel-efficient vehicles such as the Prius hybrid are rising, and the auto maker is scrambling to meet demand.

To correct the production imbalance, Toyota said in July that it will temporarily shut the Texas truck plant and a truck plant in Indiana and will start the first U.S. Prius production at a plant in Mississippi by 2010.

Like U.S. auto makers, Toyota is faced with potential losses from the lower resale values of its leased vehicles, which will be worth less at the end of their leases as used-car prices plummet in the U.S. Toyota set aside nine billion yen this quarter to cover leased-vehicle losses.

Write to John Murphy at john.murphy@wsj.com

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