Toyota Improves Profit Forecast

Auto maker still faces obstacles in U.S. from rising sales incentives and vehicle shortages

Toyota Motor Corp. on Tuesday raised its profit projections for the year ending March 31, saying it could boost sales and rein in costs, but the U.S. market continues to weigh on earnings.
 The company said its operating margin in North America dwindled to about 2% in the quarter ended Sept. 30 as rising incentives on passenger cars offset sales of its trucks and sport-utility vehicles, particularly the RAV4 crossover.
 The RAV4 is the best-selling vehicle in the U.S. without a truck bed, and it has helped propel Toyota's U.S. sales to within a hair's breadth of Ford Motor Co., the second-largest auto maker in the U.S. in terms of sales.
 But Toyota faces a shortage of RAV4s, its bigger cousin, the Highlander, and the Tacoma pickup truck—the lingering effects of a self-imposed freeze on plant construction that was lifted in 2015.
 “Until recently, there was a bottleneck in SUV production,” said Osamu Nagata, Toyota's chief financial officer. “In the future, we will expand capacity to deliver cars to customers in a timely fashion.”
 Toyota has relied on passenger- car sales to drive volume— a segment of the market being pummeled as U.S. car buyers increasingly prefer trucks and SUVs as fuel prices stay low. This reliance helps explain why Toyota took a hit in operating income in North America for the quarter ended in September, despite relatively flat sales.
 The company reported that operating income for the region declined to ¥55.3 billion ($486.3 million) for the period from ¥139.8 billion a year earlier. Car makers, Toyota included, are forced to increase incentives on passenger cars to maintain volume, eating into margins on the vehicles.
 Toyota offered an average of $3,291 in incentives on its cars, compared with $2,063 for its light trucks, in the first 10 months of the year, according to analysis by Jefferies.
 The other issue that weighed on Toyota's operating profit was a spike in imports from Japan to compensate for a temporary decrease in North American production of about 88,000 units during the September quarter.
 The company said this was largely because of preparations to produce Toyota's latest vehicles, including the new Camry midsize sedan. Toyota hopes to solve its supply problems in the near future: A new plant for Tacoma trucks in Mexico is set to open in 2019. The company is also scouting for a new production site in the U.S. with partner Mazda Motor Corp. that it aims to bring online in 2021.
 President Donald Trump praised the companies during his recent visit to Tokyo. “They're going to invest $1.6 billion in building a new manufacturing plant, which will create as many as 4,000 new jobs in the United States. Thank you,” he said.
 Toyota on Tuesday said it now expects to earn ¥1.95 trillion for the year ending in March, compared with net profit of ¥1.83 trillion last fiscal year—a 6.5% increase. The company had earlier projected a drop in net profit of 4.4%.
 The increase is driven by stronger projected sales for nearly all of the company's market, and by a fortunate turn in foreign-exchange rates. A weaker-than-expected yen is expected to boost operating income by about ¥175 billion. A weak yen helps boost the value of profits when they are repatriated.


 RAV4 crossovers under assembly in St. Petersburg, Russia, last year. A weakening yen is expected to boost Toyota's full-year results.


 

BMW's Results Put More Pressure on Car Maker's Shares
BMW AG reported weak results for its latest quarter on Tuesday even as the German luxury-car maker raised its fullyear earnings outlook.
 BMW, which is in a tight race for global leadership of the premium-car market with Daimler AG-owned Mercedes- Benz and Volkswagen AG's Audi luxury unit, said net income for the third quarter fell 2.8% from a year earlier to €1.76 billion ($2.04 billion), while revenue edged up 0.3% to €23.4 billion.
 The Munich-based auto maker said sales growth for its premium sedans and sport-utility vehicles slowed, while investment in electric vehicles and new technology, such as self-driving features and connecting cars to the internet, weighed on profits.
 Overall BMW-brand sales rose 1.2% to 590,415 vehicles in the quarter.
 The third-quarter performance, which was below analysts' consensus forecasts, added to negative investor sentiment that has dogged BMW shares this year. The stock fell 2.8% to €87.42 in Frankfurt trading on Tuesday, trailing the broader automotive index.
 Upgrading its full-year outlook, BMW said it now expects “solid,” rather than “slight,” earnings growth for the entire group. But it downgraded its outlook for its core automotive business to slight growth, keeping its overall profit-margin target in a range of 8% to 10%.
 —William Boston and Max Bernhard


BY SEANMCLAIN

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