TOKYO -- Aggressive cost cuts and inventory adjustments helped Toyota Motor Corp. rein in its North American losses during the latest quarter, as the worlds biggest automaker improved its full-year forecast by predicting overall red ink wouldnt be as bad as expected.
Toyota, battling a 34.2 percent sales plunge in the United States this year, has booked four straight quarters of operating losses in North America -- once its most profitable market.
The latest loss totaled to 3.7 billion yen ($38.7 million) in the April-June period, the companys fiscal first quarter. That erased an operating profit of $72.3 million a year earlier. But the result marked a big improvement over the $1.85 billion operating loss in January-March.
Since the beginning of this year, we have been adjusting production to come down to the optimal inventory level. Therefore, we do not have excess inventory anymore, Senior Managing Director Takahiko Ijichi told reporters Aug. 4, while announcing quarterly earnings.
Ijichi said government incentives were lifting demand. The U.S. governments cash-for-clunkers package is aimed at spurring sales of more fuel efficient vehicles, and it helped limit Toyotas U.S. sales drop to 11.4 percent in July. Japan and several European countries have offered similar incentive plans.
Right now, the market environment seems to be improving, Ijichi said, though he cautioned, "It's difficult to get a read on how much this will translate into a fundamental recovery.
Like automakers around the world, Toyota has been hammered by tumbling sales and big losses as the global credit crisis and economic slump keep people from showrooms.
But in the first quarter, Toyota was trailing domestic rivals Honda Motor Co. and Nissan Motor Co., which both booked operating profits. For the full fiscal year, Honda is one of the few automakers still expecting to be in the black, and even raised its profit outlook.
For its part, Toyota says it now expects a full-year operating loss of $7.85 billion , compared to an earlier outlook for an $8.90 billion loss.
It also raised its forecasts for global vehicle sales by 100,000 vehicles to 6.6 million, on the back of expected sales in Japan, where government stimulus packages are in full swing.
In North America, Toyotas first-quarter sales dropped 46.9 percent to 387,000 vehicles. It cut local production by 38.3 percent to match the bottomed-out demand. And as of July 1, Toyota had the third-lowest inventory in the United States, with a 47-day dealer stock.
Globally, Toyota slipped to its third straight quarterly loss as sales sank by double-digits in Japan, Europe and the United States.
But production is gradually picking up in Japan, most notably to assemble more of the Prius hybrid car, for which customers in Japan are waiting at least eight months for delivery.
Analysts cautioned, however, that such government incentives could prove temporary and noted that Toyota's new forecast for a $7.85 billion, or 750 billion yen, operating loss is still pessimistic.
In the April-June quarter, which saw General Motors and Chrysler succumb to bankruptcy, Toyota made a better-than-expected operating loss of 194.9 billion yen.
That compared with a profit of 412.6 billion yen a year earlier and a consensus loss estimate of 326 billion yen in a survey of five analysts polled by Thomson Reuters.
Toyota lost a net 77.8 billion yen, swinging from a profit of 353.7 billion yen in the first quarter a year ago. Revenue declined 38 percent to 3.84 trillion yen.
Toyota raised its cost savings target to 900 billion yen from 800 billion yen, by accelerating measures to eliminate quality-related costs and cutting labor costs through work-sharing.
Profitability could improve in North America, where Toyota is preparing to dissolve a loss-making plant in California that it ran with GM before the U.S. automaker left it behind in bankruptcy with its unprofitable asset-holding Motors Liquidation Co.
A liquidation would likely result in a one-time loss, but it would help Toyota in the long run by raising the rate of capacity utilization at its other North American factories, analysts said.
Reuters contributed to this report