NAGOYA, Japan – Toyota has hit a speedbump.
The Japanese auto giant forecast its first operating loss in 70 years on Monday, more fallout from the severe slump in vehicle sales that has nearly claimed two Detroit automakers and raised questions over when the U.S. market, Toyota's largest, will hit bottom.
Despite the setback, the automaker is still poised to pull ahead of its main U.S. rival, General Motors Corp., to become the No. 1 world carmaker in 2008, industry watchers said. Toyota reported it sold 7.05 million cars worldwide during the first nine months of the year, compared with 6.66 million for GM for the same period.
"They're going to grow and outstrip General Motors, there's no way around that," said George Magliano, analyst with IHS Global Insight.
Toyota Motor Corp., which is committed to zero layoffs, will continue cutting production to weather the downturn. The automaker also lowered its global vehicle sales forecast for the second time this year and said it was putting ambitious expansion plans on hold, in large part because of a precipitous drop in demand in the U.S.
"The tough times are hitting us far faster, wider and deeper than expected," Toyota President Katsuaki Watanabe told a gloomy news conference at the company's Nagoya, Japan, headquarters. "This is an unprecedented crisis requiring urgent action."
Sona Iliffe-Moon, a spokeswoman for the automaker's U.S. arm., said the company has not had any layoffs since the 1950s.
"As a result of that experience, it became a part of our culture to ensure employment and stability for employees," Iliffe-Moon said
Toyota had reported strong growth in recent years, boosted by heavy demand for its fuel-efficient models like the Camry sedan and Prius gas-electric hybrid.
But Watanabe said a severe drop in demand, especially in North America, which accounts for one-third of vehicle sales, and profit erosion from a surging yen were too much for Japan's No. 1 automaker. Overall U.S. auto sales fell to their lowest level in 26 years last month.
"The change that has hit the world economy is of a critical scale that comes once in 100 years," Watanabe said.
Toyota said it expects an operating loss of $1.66 billion for the fiscal year ending in March, compared with an operating profit of $25.2 billion a year earlier.
Toyota said it would still post a small net profit of $555 million, thanks to outside dividend income, down from year-earlier earnings of $18.89 billion. But operating income is seen as the best reflection of its core business.
The Japanese automaker said it had no intention of drifting from its practice of avoiding layoffs for full-time employees either globally or for its 14 U.S. factories located in the South and Midwest.
Instead, it assigns other tasks for employees when it idles plants, such as training or community service. Employees can also take unpaid time off.
This practice has helped the automaker resist unionization at its factories, saving it from the high labor costs plagued its U.S. counterparts, said Erich Merkle, auto analyst with Crowe Horwath LP. That makes any U.S. layoffs in the near future unlikely, he said.
"You can't say never," Merkle said. "I think they'll try to ride this thing out the best they can ... You'll see more reduction in terms of plant output and production."
Earlier this month, the automaker announced production cuts at factories in Indiana, Kentucky and Canada, on top of other reductions in November, when Toyota also cut several hundred contract workers.
Toyota employs about 36,600 full-time employees in the U.S., a market that accounts for about a third of the 8.9 million vehicles it sold in its fiscal year ended in March.
The announcement Monday reflected a dramatic change of fortune for the iconic company, which in recent years had outlined ambitious expansion plans and weathered an industry slowdown much better than its U.S. rivals.
Toyota, which started in business as a loom maker, began making trucks and passenger cars in 1937. Its first and only operating loss came the following year, before it started reporting formal results in 1941.
At the time, Toyota was still far behind the American automakers. With World War II, Toyota started a side business making aircraft engines, but that group company switched to making auto parts and sewing machines after the war.
In its forecast Monday, Toyota lowered the number of vehicles it expects to sell globally this calendar year to 8.96 million, down 4 percent from last year. Earlier this year, Toyota had projected worldwide sales of 9.5 million vehicles.
Tsuyoshi Mochimaru, auto analyst for Barclays Capital in Tokyo, warned worse may be ahead.
U.S. auto sales aren't expected to start recovering until late 2009, and the dollar — already at a 13-year low against the yen — could lag further, he said. A strong yen hurts results because overseas profits must be converted into the Japanese currency.
"The problem is next year," said Mochimaru. "It's unmistakable that things are extremely tough for Toyota."
Watanabe and other Toyota executives repeated a recent announcement that expansion plans will be on hold, including a new plant in Mississippi and projects in India.
Toyota is a relatively old-style Japanese company that offers lifetime employment, and only in recent years has hired and let go of temporary workers to adjust production. It said it was reviewing overseas jobs but had not reached a decision.
The company said it plans to cut the number of temporary workers at its Japanese plants in half to about 3,000, although there were no plans to lay off any full-time employees.
Watanabe vowed Toyota would grow so lean it would realize profitability even if its worldwide sales fall as low as 7 million vehicles.
"We must change to become more slim, muscular and flexible," he said.
The automaker will focus on hybrids and small cars, and invest in environmentally-friendly technology to prepare for long-term growth, officials said.
While Japan's automakers are in far better financial shape than their cash-strapped American counterparts, the global slowdown is hitting them hard. Last week, Japan's No. 2 automaker, Honda Motor Co., also lowered profit and sales forecasts and declined to give a vehicle sales goal for 2009.
Monday marks the second time Toyota reduced its earnings forecast. Initially, it had projected net profit of $13.9 billion for the fiscal year, but last month lowered that to $6.1 billion.
Also Monday, it lowered its revenue forecast to $239 billion, down about 18 percent from a year earlier.
Toyota's U.S. sales plunged by a third over 2007 in November, when overall sales fell to their lowest level in more than 26 years. And there is little hope for a quick fix as consumers hold back big purchases amid a credit crunch, rising unemployment and fears about the future.
The company's stock fell 5 yen, or 0.17 percent, to 2,895 yen in Tokyo. The benchmark Nikkei 225 stock average rose 1.5 percent.