A leading Japanese automobile company, Toyota Motor Corp. (Toyota) declared on Tuesday, May 12, 2020, that it expected an 80% decline in its annual operating profit, which would be the lowest record figure of profit loss in nine years. Around the globe, the automobile industry had been shattered drastically as the widespread coronavirus pandemic forced to shut down business operations of the carmakers due to restrictions imposed on travels and people’s movements.
Toyota’s Decline Sales
With the pandemic impact on the sales revenue of the automobile industry, Japanese automaker was expecting its operating profit of 500 billion yen ($4.66 billion) for the current financial year till March 2021. The company’s estimation would be a sharp decline of 80% of its sales from 2.44 trillion yen in the last year and this would be Toyota’s weakest profit since the 2011/12 financial year.
Likewise the impact of the global auto industry, Japanese carmakers are struggling from the pandemic since the government’s policy imposing containment measures led to the closure of the production plants, and consumers were considering to stockpile essential items as their priorities. As economists anticipated the harsh impact of the virus on Japanese automakers that it would be a slow and patchy recovery of the car industry since the demand for new cars had been dampened.
For the year to March, Toyota is expecting to sell 8.9 million vehicles globally, compared to 10.46 million sales in the last year, which reflects a record low sales in nine years. The sharp decline in the global demand for new vehicles since the virus erupted in March has already affected sales at Japanese automakers worldwide, with annual sales of Toyota fell 1.4% from a year earlier.
Toyota’s Large Cash Reserve
Reuters’ calculations, based on sales figures announced late last month by individual automakers, showed that the combined annual sales at Japanese automakers fell 7.3% to a four-year low of 26.5 million vehicles in the year ended March. As a result, some analysts estimated a sharp decline of annual global vehicle sales by around a third of the overall automotive companies in Japan, compared with an 11% fall in 2009/10, after the global financial crisis.
As governments in some countries have decided to relax coronavirus restrictions and restart the economic activities, Toyota and other Japanese automakers began to gradually resume operations at plants worldwide. Nonetheless, the carmakers would be still facing challenges such as weak demand, procurement issues, and social distancing measures, which would affect their expected to limit their output in the coming months.
Meanwhile, sources asserted that Toyota has ample cash reserves, which would help the company to go through the tough challenges for the year. However, it has a credit line totaling $9 billion from Sumitomo Mitsui Banking Corp and MUFG Bank Ltd as a buffer against rising fund-raising costs due to the virus.
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