TOKYO -- The cost of Toyota Motor Corp.'s largest U.S. recall is small change compared to the hit the company is taking from foreign exchange losses, a top executive says.
Unlike the expense of recalling 3.8 million Toyota and Lexus vehicles to fix their accelerators, the bite of the rapidly climbing yen threatens company efforts to return to profits after two straight years of losses, Executive Vice President Yukitoshi Funo said.
"The overall impact on our business is not so huge," Funo said of the recall costs. "It's not on the order that would determine the difference between being in the black or in the red."
But the yen's rapid appreciation against the dollar is another matter. After trading between ¥100 and ¥135 for nearly a decade, the dollar weakened to around ¥90 this year.
"There are many factors in returning to the black," and foreign exchange is the biggest, Funo said. "It won't be so easy to return to profit in the next fiscal year."
Funo didn't give a dollar figure for the U.S. recall cost. But at the company's last earnings press conference in early November, it said it is bracing for a ¥420.0 billion ($4.77 billion) hit from foreign exchange losses in the fiscal year ending March 31, 2010.
Since then the yen has climbed an additional 2 percent against the dollar, hitting 14-year highs along the way and worsening the foreign exchange losses.
A more expensive yen hurts exporters such as Toyota by making their products relatively more expensive overseas and by undercutting the value of their overseas earnings when repatriated and converted back into the home currency. Other Japanese carmakers are also feeling the pinch.
Last month Toyota, citing cost cutting, altered its full-year forecast to an operating loss of $3.89 billion, compared with an August projection for a loss of $8.34 billion. But that would still be Toyota's second straight loss after plunging into the red last year for first time in seven decades.
Toyota, which exported just over half of its Japan-made vehicles in the first nine months of this year, estimates that every ¥1 fall in the dollar erases $34.1 million of operating profit.
Reuters contributed to this report