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Fire at affiliate could cost Toyota $323 million

February 6, 1997

TOKYO (AP) _ Disruptions caused by a parts shortage are likely to reduce Toyota Motor Corp.’s operating profits this fiscal year by at least 40 billion yen, or $323 million at current exchange rates, according to a study released Thursday.

The report by Nikko Research Center, the research arm of Nikko Securities Co., said the weakness of the yen against the dollar would soften the blow to Toyota, which is Japan’s largest automaker and accounts for around 40 percent of the domestic market. With the dollar at a four-year high against the yen, Toyota earns more yen when it sells cars in the United States.

But a published report Thursday said the parts shortages would reduce exports of some Toyota models to the United States.

A fire shut down a brake and clutch parts plant belonging to Aisin Seiki Co. in Kariya, 190 miles southwest of Tokyo on Saturday.

The resulting lack of parts has obliged Toyota to close nearly all of its domestic group assembly lines for all of this week. Almost all Toyota cars use brakes and clutches produced by Aisin.

The halt of parts manufacturing at Aisin affected Toyota’s ``just-in-time″ production system, which is designed to minimize inventory to maximize efficiency.

Operations at Toyota’s overseas plants, including those in the United States, will not be affected by the domestic shutdown, the company has said.

But The Wall Street Journal reported Thursday that there will be temporary but severe shortages of exports to the United States.

Toyota will ship about 10,000 fewer Camrys, RAV4s, 4Runners and Lexus models to the United States this month than the 40,000 it had planned, according to an executive in Toyota’s overseas division who spoke to the Journal condition of anonymity.

The Journal said a Toyota spokeswoman in North America estimated the reduction at 7,000 vehicles and maintained the impact on sales would be minimal.

In the Nikko report, analysts Tsuyoshi Mochimaru and Noriyuki Matsushima said Toyota’s production facilities will operate at just 15 percent of capacity this week and recover to only 60 percent next week.

Toyota loses 26 billion yen ($210 million) in sales and 5.3 billion yen ($43 million) in operating profit every day of complete production shutdown. Other related expenses add to the losses.

For the current fiscal year ending March 31, Toyota predicts a pretax profit of 550 billion yen, or $4.44 billion, on sales of 8.8 trillion yen, or $71 billion.

The company doesn’t provide a forecast for operating profit. Toyota officials could not be reached late Thursday for comment on the Nikko estimates.

The report added that Toyota is likely to review its parts acquisition practices following the crisis, which underlined the danger of depending on a single supply source.