Toyota Posts First Profit Drop in Past Five Years

On Wednesday, Toyota posted its first fall in annual profit for the past five years. It also warned that its earnings would drop again due to pricey U.S. incentives for customers and a forecast for the yen to strengthen.

The top executive at the company also spoke about concerns it was becoming harder for the biggest automaker in Japan to maintain their profits growing as sales top out at close to 10 million vehicles per year.

The downbeat prediction by the automaker only underscored how automakers in Japan have been relying heavily on the yen’s slump the past few years.

However, the sharp gains by the currency during 2016, caused in a large part by the falling world equity markets and Brexit, took a big bite out of the latest results at Toyota.

On Wednesday, the Prius hybrid and Corolla maker warned more currency trading problems were coming, pushing profits down again in its current fiscal year through March of 2018.

At the same time, incentives to entice customers in its lucrative market in North America slammed the operating profit for Toyota in that region.

Auto sales in the U.S. have sputtered forcing most automakers to increase incentives to entice customers to buy, something the top executive in the U.S. for Toyota warned is not sustainable.

Executive Vice President at Toyota Osamu Nagata during a press briefing held in Tokyo said incentives had trended upwards while competition has become extremely fierce.

Overall, net profit posted by Toyota was 1.82 trillion yen equal to $16 billion, on revenue that reached 27.5 trillion yen in its recently ended fiscal year of March of 2017.

That was down over 20% from its record net profit of 2.3 trillion yen the prior year.

Toyota, which was overtaken in 2017 by Germany’s Volkswagen as the top-selling automaker in the world, expects net profit to reach 1.5 trillion yen in March of 2018, far below the 1.9 trillion yen expected by market analysts.

The latest annual sales at Toyota moved up to 10.25 million units compared to the previous of 10.09 million.

North America demand remained flat and Toyota recorded an increase in sales for Europe, Japan and other parts of Asia.

Its unit sales in South and Central America, Africa as well as the Middle East were down.

The carmaker launched internal restructuring in 2016 to become leaner and more profitable, but its CEO Akio Toyoda announced on Wednesday that the company still had a ways to go to complete its overhaul.

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