Strong yen takes $1.74B from Toyota, Mazda, Subaru profits

TOKYO — Even as their global business hums along nicely, Toyota, Mazda and Subaru all felt the sting of the Japanese yen's rising value in the quarter ended Dec. 31.

Foreign currency exchange rates and slumping wholesale deliveries punished Toyota Motor Corp. and its two smaller Japanese partners, Mazda Motor Corp. and Subaru Corp., last week as they reported earnings results for the quarter.

Each posted a slide in operating profit, with Mazda taking the worst hit — a 76 percent plunge.

The yen's appreciation against the dollar, euro and other currencies lopped off $1.74 billion from their combined bottom lines. Toyota, as the biggest and most international of the three partners, absorbed about 84 percent of their total forex blow.

Wrestling with exchange-rate fluctuations is nothing new for trade-dependent Japanese automakers. But the companies' fiscal third-quarter results were a painful reminder of the volatile headwinds they face, even when the rest of their business is humming along fine.

Mazda's operating profit fell to ¥6.5 billion ($59.6 million), while Subaru's slumped 42 percent to ¥57.8 billion ($530 million). Toyota, the robust group leader, said its operating profit also slipped, but just 3.2 percent to ¥654.4 billion ($6 billion).

But Toyota still raised its profit outlook for the current fiscal year ending March 31. It now forecasts operating profit to rise 1.3 percent. It previously had expected a 2.7 percent fall. Cost reductions and a better model mix will help drive the improvement, it said.

Subaru also indicated an upbeat outlook, saying operating profit will increase 21 percent to ¥220 billion ($2.02 billion) for the fiscal year ending March 31. Subaru predicts results will bounce back on strong demand for its redesigned Legacy sedan and Outback crossover.

Subaru's profit slide also was a factor of big outlays the company made to cover recall costs, including a callback to fix faulty coil springs. Quality costs took a ¥29.3 billion ($268.7 million) bite.

But Mazda is bracing for a fourth straight year of falling operating profit. It forecasts a 27 percent tumble in operating profit to ¥60 billion ($550.2 million), the lowest level since 2013.

Falling wholesale shipments were another common theme for the three affiliates.

Toyota's worldwide wholesale volume retreated 3.8 percent to 2.2 million vehicles. At Mazda, global wholesale shipments declined 8 percent to 293,000 vehicles, while Subaru's wholesale volume fell 5.9 percent to 267,200 units.

Inventory management was partly at play, as carmakers prepared for slowing market demand. Toyota Motor North America trimmed U.S. inventories over that period from a 62-day supply of vehicles on Oct. 1 to 49 days on Jan. 1. Mazda's shrank from 69 days to 47 over the period.

Subaru's actually increased to a 21-day supply, from 19. But its wholesale deliveries have been crimped by the gradual production ramp up of the latest Legacy and Outback.

All three of the affiliated automakers look to North America as their most important market.

For Toyota, North American regional operating profit increased fivefold to ¥93.2 billion ($854.7 million) in the latest quarter, even as wholesale volume declined 1.8 percent to 668,000 units. Regional operating profit margin improved to 3.4 percent, from 0.7 percent a year earlier.

Toyota has been targeting spiff spending on vehicles that actually need it, while dialing back on those that don't. A rollout of higher-margin vehicles, such as light trucks, helped, Executive Vice President Didier Leroy said last week. And ratcheted-up cost controls also fueled the surge.

"All of that brings some fruit," Leroy said. "There is also a strong contribution of financial services, which improved a lot in terms of profitability in North America in the last quarter."