Higher incentives hurt Toyota's operating profits

TOKYO -- Toyota Motor Corp. does not believe it will be possible to reduce incentive spending in the United States this summer, but it hopes new models this autumn will allow it to trim rebates.

Due partly to higher incentives, Toyota's group operating profits in April through June fell 13.2 percent from a year ago. Operating profits totaled 341 billion yen, or $2.9 billion at current exchange rates.

Toyota's profits fell even though the automaker increased revenues and sold more vehicles worldwide.

Toyota's level of incentive spending "is unlikely to really change until the end of the model year," says Takeshi Suzuki, Toyota's managing officer for finance. The company hopes to reduce incentives as it introduces models, "but we will have to look at the overall market conditions."

Suzuki cited Autodata, which estimates that Toyota's incentives totaled $970 per vehicle. That's up from the first three months of the year, when incentives averaged $690. Autodata reports that Toyota's incentives topped $1,000 per vehicle in July. But that's well below the Big 3, which averaged $4,000 per vehicle.

Despite higher quarterly incentives, Toyota's North American factory sales slipped 0.5 percent. Sales rose in all other regions. Suzuki says Toyota's goal of selling 800,000 cars annually in Europe "is already within reach."

From April through June, Toyota's worldwide revenues rose 5.6 percent to $34.4 billion. But net income fell 9.7 percent to $1.9 billion. Unit sales rose 8.2 percent to 1,594,000.

Suzuki says marketing activities trimmed operating income by $336 million. That included $84 million for higher U.S. incentives, another $84 million in costs associated with shifting models among Toyota's North American plants and $168 million related to a less profitable global product mix. "Worldwide, there's a shift to compact cars," he says.

A weaker dollar reduced Toyota's operating profit by another $252 million, as Toyota booked fewer yen for every dollar it received from overseas sales. And as Toyota hired more workers for its expanding overseas plants, rising labor costs trimmed another $210 million from operating profits. On the other hand, cost cutting bolstered operating profits by about $504 million.

Toyota's operating profits in North America dropped 36.6 percent to $543 million. The company attributed the regional downturn to lower sales, higher incentives and the cost of shifting or adding production of the Camry Solara, Sienna minivan and Lexus RX330.

"We expect North American profits will continue to grow after the model reallocation and change- overs," Suzuki says.

Operating profits in Japan, where the effects of the currency losses were felt, dipped 6.6 percent to $2.1 billion. European operating profits rose 23.1 percent to $52.1 million. Toyota's earnings were prepared in accordance with U.S. accounting principles.

Separately, Suzuki Motor Corp. released earnings for the April-through-June quarter in accordance with Japanese accounting principles. Suzuki did not include a year-to-year comparison; this is the first time the carmaker has released quarterly results.

For the quarter, Suzuki's operating profit totaled $206.5 million. Net profit for the quarter totaled $105.9 million - nearly half the net profits of $260.7 million that Suzuki had recorded for the fiscal year ending March 31. Suzuki's quarterly revenues totaled $4.8 billion.