Tumbling Profits Force Toyota CEO Into Crisis Mode

Even as it develops efficient new platforms and streamlines its operation where it can, Toyota finds itself against the ropes as a falling yen and rising costs sends profits tumbling. Its end-of-fiscal-year financial statements, released today, are enough to send bean counters to the medicine cabinet in search of antacid, while the company’s president warns of more trouble ahead.

To Akio Toyoda, the increasingly gloomy picture has all the hallmarks of a failing sports team.

While global Toyota sales increased slightly in the fiscal year ending March 31, it’s what’s happening outside the dealership that concerns Toyoda. The company’s operating profit fell 30 percent to $25.62 billion and net profit dropped 21 percent to $20.73 billion. Overall revenue also took a haircut, falling 2.9 percent.

In the last fiscal quarter, operating profit fell 20 percent and net income 6.6 percent (to $3.58 billion). These numbers include the automaker’s Daihatsu and Hino small car and truck subsidiaries.

According to Automotive News, Toyoda doesn’t expect the situation to improve in the current fiscal year, either. He has told investors to brace for further losses and another bad fiscal statement a year from now.

“I feel a strong sense of crisis about whether or not we are actually executing car-making from the perspective of the customer in all Toyota workplaces, from development, production, procurement and sales, all the way to administrative divisions,” Toyoda said. “In the case of sports, booking two consecutive years of losses would mean you are failing. I hate to be beaten.”

More streamlining is required as labor and R&D costs, as well as incentives to move vehicles in a stagnant market, have all eaten into the company’s profit margins. Another factor is beyond Toyoda’s control: currency. The automaker saw $8.45 billion lopped off its operating profit last year due to exchange rate fluctuations.

While Toyoda plans to spend less money going forward, his company’s expenditures haven’t proved fruitless. Much work went into the development of the TNGA platform to underpin many of its vehicles, including the next-generation Camry, and plenty of cash went into retooling factories to handle the new builds.

Still, the automaker feels the need to develop and build product in a more efficient way.

“When it comes to making ever-better cars in a smart way, it is becoming apparent that there is still room for improvement,” Toyoda said.

[Image: Toyoda Motor Corporation]