TOKYO (Reuters) - Toyota Motor Corp (7203.T), Japan’s biggest automaker, forecast operating profit for the current year to slide by a fifth due to increased spending to push sales in a slowing U.S. market and the lingering impact from a stronger yen.
The prediction of a second straight year of profit decline by Toyota comes at a time when data shows a strong run of U.S. demand for cars seen in the past several years may be ending.
The financial setback would pose a challenge to the world’s second largest automaker in sustaining big investments in fast-growing new technologies such as automated driving functions and artificial intelligence.
Toyota said on Wednesday that as revenue growth slows, it would have to prioritise areas of investment to maintain profitability, without specifying which areas.
It forecast operating profit falling to 1.6 trillion yen (£10.8 billion) in the year to March, following on the heels of a whopping 30 percent tumble in the year just ended, when it took a massive hit from a stronger yen.
“In the sporting world, two years of falling profit would be considered a losing streak, and I hate losing,” Toyota President Akio Toyoda said at a results briefing.
To improve profitability, the company aimed to build on the cost reduction efforts enacted last year, Toyoda said, adding it will also focus on selling larger vehicles.
Globally, Toyota and its group companies aim to sell 10.25 million vehicles in the year to March, largely unchanged from last year.
Sales in North America, its single biggest market which accounts for around 28 percent of its global vehicle sales, are seen easing 0.6 percent to 2.82 million.
Last week, industry data showed that U.S. new vehicle sales in April declined on the year for the second consecutive month, suggesting a possible easing in full-year sales from record highs hit in 2016.
This has raised concerns among industry experts about rising inventory levels and the risks of a pricing war, which could undermine automakers’ profits, although Executive Vice President Osamu Nagata said that the company would exercise “adequate control” over incentives.
Still, this year Toyota will see a negative impact of around 165 billion yen in costs related to incentives, financial services and other marketing costs in the U.S. market. Last year, these marketing-related activities had lifted Toyota’s bottom line by around 15 billion yen.
Toyota also expects a negative impact of 110 billion yen to its operating profit this year from an assumption that the yen will average around 105 yen against the U.S. dollar. But the sum is much less than the whopping 940 billion yen currency hit it took last year.
Toyota said it aims to increase supply of light trucks and sell more of the recently introduced C-HR SUV in the North American market to boost its performance there.
The automaker plans to keep R&D investments near record high levels this year of around 1.05 trillion yen, roughly 4 percent of sales revenues, as it continues to invest in the new technologies.
“Given the size of Toyota, we must be able to sustain such R&D investment; that’s the only way in which we can achieve sustainable prosperity,” Toyoda said.
The automaker also said it would buy back its own shares worth up to 250 billion yen.
Reporting by Naomi Tajitsu; Editing by Muralikumar Anantharaman