Special Report

2008 Year in Review

It’s an unheard of occurrence for Toyota Motor Corp. to idle a manufacturing plant, have its debt rating cut and admit it won’t turn an operating profit in a fiscal year.

But in 2008, the auto maker, feeling the effects of the global financial crisis, experienced all of the above.

Blaming the dramatic slowdown in auto sales globally, Toyota in early November revised the outlook for its fiscal year ending March 31, 2009.

The auto maker, which through the first nine months of 2008, exceeded General Motors Corp.’s worldwide production, said it expected net income of only ¥550 billion ($5.6 billion), nearly half earlier estimates and 68% below the ¥1.72 trillion ($17.5 billion) it earned in its prior fiscal year, ended March 31, 2008.

In late December, following a 33.9% sales drop in November U.S. sales and continuing contraction in all major markets, Toyota revised its outlook once again, forecasting net income at just ¥50 billion ($557 million).

But in the most stunning news, after calling for an operating profit of ¥600 billion ($6.68 billion) in early November, Toyota predicted it would record its first fiscal-year operating loss of ¥150 billion ($1.67 billion).

“The tough times are hitting us far faster, wider and deeper than expected,” Toyota President Katsuaki Watanabe was quoted as saying. “This is an unprecedented crisis requiring urgent action.”

The day after releasing its revised outlook, a report surfaced Watanabe would step down as TMC president in 2009, assuming the role of chairman from an ailing Fujio Cho.

Including its Daihatsu Motor Co. Ltd. and Hino Motors Ltd. units, Toyota now projects its calendar-2008 sales will fall 4% below year-ago to 8.96 million units, jeopardizing its chances of unseating GM as the world’s top vehicle seller

“This is very, very, very bad,” Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, tells Reuters following December’s revision. “This is also not just a problem for Toyota. What is good for Toyota is good for the Japanese economy.”

In late November, Fitch Ratings downgraded Toyota from AAA to AA on the news of expected lower sales, as well as the appreciating yen.

In the U.S., Toyota’s No.1 new-vehicle market, the auto maker has suffered through an unprecedented sales drought that began in mid-2007 and continued in 2008.

Through February, Toyota’s U.S. sales had been either down or flat for eight months, a 26-year record, Ward’s data shows.

Even a 0% financing offer on Toyota-brand models in the fall couldn’t stop the auto maker from slipping below year-ago sales levels for the year.

As in 2007, Toyota officials blamed some of the U.S. sales slowdown on the fallout in the housing sector in its key markets of Florida, California and other Southern and Western states.

But perhaps more significantly, Toyota, like other auto makers and retailers, was feeling the effects of the broader economic crisis that sapped consumer confidence.

“I think people are nervous (and) very, very cautious about what’s going on in the marketplace,” Toyota Motor Sales U.S.A. Inc. spokesman Irv Miller said in September of the lack of showroom traffic.

As a result of the downturn, inventories of Toyota models swelled like never before, causing the auto maker to take drastic action.

Toyota, which two years earlier opened its San Antonio Tundra fullsize-truck assembly plant with high hopes of chipping away at the sizable market shares of the Detroit Three, announced in July it would idle the plant for three months as record-high gas prices drove buyers away from large vehicles.

Toyota’s San Antonio plant reopened in early November with the launch of the ‘09 Tundra, as production of all of the auto maker’s fullsize pickups was consolidated there, eliminating Tundra output at the Princeton, IN, plant. Princeton also had been idled for three months before resuming production in November.

Taking a page from the Detroit Three, Toyota paid San Antonio workers during the 3-month shutdown. Idled employees engaged in training activities and tackled community clean-up projects.

At the same time, Toyota announced it would change course and build its Prius hybrid-electric vehicle, and not the Highlander cross/utility vehicle, at its under-construction plant in Blue Springs, MS.

The addition of Prius production stateside was to occur in late 2010, about six to 12 months later than Highlander output initially was slated to begin in Blue Springs. With Prius moving into the Mississippi plant, Highlander production shifted to Princeton.

However, in December, Toyota indefinitely postponed the Blue Springs opening in light of the economic downturn.

The decision to delay the U.S. launch marked a sharp turn for the Prius, which for much of 2008 was a hot seller in the U.S. and in short supply.

Unlike previous years, Toyota could squeeze no more units out of its Japanese plants. Lack of supply initially and a slowdown in demand later in the year as fuel prices dipped back below $2 gallon caused Prius sales to slump 9.6% through November vs. year-ago.

Capping a quiet year for vehicle launches in the U.S., Toyota retailed its new Toyota Venza midsize CUV from December. The Venza, derived from the Camry/Highlander platform, features seating for five and a choice of the auto maker’s volume 3.5L V-6 or new 2.7L 4-cyl. Other than the early 2008 introduction of the Corolla/Matrix compact cars, the Venza was Toyota’s only major U.S. vehicle launch of 2008.

The Lexus luxury brand saw sales contract 19.7% through November – a bigger drop than the 12.5% downturn for the Toyota/Scion brands. Only the low-volume IS-F performance sedan, LX 570 large SUV and all-wheel-drive variant of the LS 460 large sedan bowed during the year.

Toyota held to an expectation of 2.4 million-unit sales in the U.S. for much of the year, but in early November downgraded its forecast to 2.2 million-2.3 million units.

However, the auto maker was able to increase its market share through November to 16.9% from 16.3% year-ago, surpassing Ford Motor Co. but still trailing GM, Ward’s data shows.

Toyota Motor Sales U.S.A. Inc.’s Bob Carter, general manager-Toyota Div., told Ward’s in mid-November the auto maker was fortunate to be “in a well-capitalized, fiscally strong position” but added Toyota was supportive of Ford, GM and Chrysler LLC’s efforts to get government loans to remain afloat.

“We’re for anything that stabilizes and makes the auto industry healthy,” he said. “This is not about a couple of OEMs.”

The U.S. wasn’t the only problem, as Toyota’s sales slowed in nearly every market in 2008.

At home in Japan, Toyota sales fell 28% in November as industry deliveries declined to their lowest point in 34 years, Bloomberg.com reported.

The domestic-market downturn, as well as the auto maker’s still heavy reliance on exports from Japan to the U.S. and other countries, led it to idle domestic production lines – in some cases for the first time in more than a decade.

In early December, Toyota said it would suspend production of Lexus models at its Tahara and Miyata vehicle-assembly plants and idle its Hokkaido transmission plant, which supplies gearboxes for U.S.-bound Corollas.

Some 8,700 Toyota managers will see their winter bonuses cut by 10%, and the auto maker also will halve its temporary workforce in Japan to 3,000 by the end of March.

This year in Japan, the auto maker unveiled a redesigned version of its Alphard flagship minivan, as well as a more daringly styled twin, the Vellfire.

“The exterior of the Alphard emphasizes elegance and refinement, while that of the Vellfire accentuates power and innovation,” Toyota says in a release. The models seat seven or eight passengers, depending on the trim level, and are powered by either 2.4L 4-cyl. or 3.5L V-6 gas engines.

In Western Europe, Toyota’s sales fell 14% through September, Ward’s data shows. As in the U.S., consumer confidence was lacking in Europe, where the market trended down sharply in the year’s second half.

However, in releasing first-half results, Toyota said Eastern Europe, specifically Russia, “remained strong.”

Nevertheless, an underperforming Western Europe dragged down Toyota, as total European sales in the April-September period fell to 579,000 units, from 635,000 a year earlier.

In late November, Toyota announced slower sales of the Yaris subcompact was forcing it to idle its Valenciennes, France, plant for a total of 14 days in December, January and March and slow its line speed beginning Feb. 2.

Toyota launches in Europe in 2008 included the tiny iQ A-car and next-generation flagship Avensis sedan.

Although they initially appeared to be spared, Toyota’s India expansion plans were derailed in late December.

Toyota Kirloskar Motor Ltd. as of mid-November still planned to double its investment in a second Indian plant, located next to its existing Bidadi facility, from Rs16.5 billion ($343.4 million) to Rs32 billion ($666 million). The move would have increased annual capacity from 70,000 units to 170,000 initially. But those plans fell victim to the same slowdown that put the Mississippi plant on ice.

Toyota Kirloskar in 2008 also announced plans to build the Prius hybrid-electric vehicle in India, but provided no timeframe.

A plan to introduce production of Toyota’s Camry HEV to Australia spurred additional drama in 2008.

After Australia’s new Labor government approved an A$35 million ($33 million) subsidy for the production of environmentally friendly vehicles, a Toyota Australia official was quoted as saying the auto maker would have built the Camry Hybrid there anyway.

Damage control for both sides ensued, with Prime Minister Kevin Rudd insisting the subsidy was instrumental in Toyota’s decision to produce the Camry Hybrid in Altona from 2010, instead of importing it from Thailand.

Toyota still will build the Camry Hybrid in Thailand for the local market in 2009.

The auto maker reportedly also is to begin Camry Hybrid production in China with partner Guangzhou Automobile Group Co.

Toyota has seen its fortunes increase quickly in China, as it surpassed General Motors Corp. this year to become No.2 in sales after just five years of local assembly.

“(But) sales in China are not expanding as we had thought,” Toyota spokesman Paul Nolasco told Ward’s in October.

At the time, Toyota still was holding to a forecast of selling 700,000 units in China in 2008, but reports in late November indicated the number had been cut to 600,000.

–with Alan Harman and Sudhakar Shah

cschweinsberg@wardsauto.com