Toyota expects dip in profits

Slowdown in U.S. economy cited

HERALD-LEADER WIRE SERVICES

TOKYO --

Toyota Motor said Thursday that the slowdown in the U.S. economy is likely to cause its first annual profit drop in nine years, accelerating a shift by it and other Asian car manufacturers into emerging markets such as China, Latin America and the Middle East.

Toyota, now in a dead heat with General Motors to be the world's largest car company, said most of its recent profit growth has come in new markets such as Brazil, China and Russia. It said that growth helped offset sluggish sales in the United States, traditionally Toyota's largest and most profitable market, and other mature economies, such as Europe and Japan.

"Our profit structure has become more geographically balanced, with growing contributions from resource-rich countries and emerging countries," Toyota's president, Katsuaki Watanabe, said in a statement.

This shift has been partly driven by the faltering prospects of the United States market. Declining American sales, along with the weakening dollar and rising material prices, prompted Toyota to forecast a 27.2 percent decline in net profit to $12.5 billion during the current fiscal year, which ends March 2009. Last month, Honda Motor projected an 18 percent drop in net profit this fiscal year, citing similar reasons.

Still, Toyota appeared to be faring better than its American rivals. GM lost $3.3 billion in the first quarter. Ford had a surprise profit of $100 million for the same period but expects to lose money this year as the U.S. auto market deteriorates.

Toyota had been on a roll with the success of its fuel-efficient models, including the Prius and the Corolla subcompact, which have gotten a boost from rising gas prices. For the fiscal year ended March 31, Toyota racked up record profit of $16.54 billion -- up 4.5 percent from the previous year. That was in line with the projection Toyota gave in February.

Pickup, SUV sales ailing

On Thursday, Toyota said income in North America fell nearly a third last year. In particular, it said higher gasoline prices hurt sales of pickup trucks and sports-utility vehicles, including its recently remodeled Tundra pickup.

Toyota said it expected U.S. vehicle sales of all brands in 2008 to fall into the low 15 million range, from last year's 16.1 million. Toyota still relies on the United States for a third of its sales.

And while emerging markets offer the promise of new sales, analysts warned they could also create challenges for established auto companies such as Toyota. China and India have spawned homegrown car manufacturers, which in time could threaten Toyota in the same way Japanese auto companies have humbled Detroit.

By rolling out its ultra-low-price Nano subcompact, analysts, said the Indian carmaker Tata has exposed a potential weakness of Toyota, whose cars are still priced beyond the reach of the middle class in emerging countries.

"These are the future enemies of Toyota," said Yasuaki Iwamoto, auto analyst at Okasan Securities in Tokyo. "These countries offer Toyota not only new markets, but also new rivals."