Are you sure?

Toyota to cut capacity to match sales

Toyota Motor Corp will cut its global production capacity to match lower sales, a company source with direct knowledge of the matter said on Wednesday, with potential annual cuts of at least 700,000 vehicles identified.

The source said the extent and timing of the output cuts had not yet been set but the Nikkei business daily reported that Toyota planned to reduce its global capacity by 10%, or 1 million vehicles, as early as the current financial year to March 2010.

Toyota, the world's biggest carmaker, has begun restoring some production cut in the wake of the global financial crisis, as inventories shrink and government stimulus efforts kick in, but it has yet to announce whether it plans longer-term cuts in factory capacity.

Many car plants around the world are idle or running below capacity as the industry tries to work out how much sales will recover after the economic crisis passes and how U.S. firms General Motors Co and Chrysler Group LLC emerge from their deep woes.

“The production cut is positive for its earnings, but there is room for further capacity cuts in the United States and elsewhere,” said Yoshifumi Tabei, an auto analyst at Kazaka Securities.

Toyota has seen a recovery in sales of fuel-efficient cars helped by government measures to promote such vehicles, with its Prius hybrid ranking as Japan's top-selling car in July for the second straight month, but it has lagged behind its rivals in cost-cutting.

It booked an operating loss for the third straight quarter in April-June, while Honda Motor Co and Nissan Motor Co turned profitable during the period thanks to cost reduction measures including pulling out of some motor sports and cutting jobs.

Toyota has decided to halt a production line in Japan for about a year and a half from next spring and is considering halting a line at a UK plant, said the source, who declined to be named because the matter was not public.

Toyota has said it will decide this month whether to pull out of New United Motor Manufacturing Inc (NUMMI), a California joint venture with General Motors.

Those three moves would cut capacity by 700,000 vehicles, based on Toyota factory data, from Toyota's annual output capacity of 10 million vehicles.

“The idling of plants had been a negative factor for Toyota, so the fact they're moving to tackle this should be evaluated favorably,” said Yumi Nishimura, deputy general manager of the investment advisory section of Daiwa Securities SMBC.

The Nikkei said Toyota would cut capacity to 9 million cars in a bid to return to an operating profit in fiscal 2010, but the source said decisions had not been taken on such deep cuts.

Toyota forecast this month a slightly shallower annual loss, relying on deeper cost cuts and government-backed sales stimulus around the world, but there remain doubts about a sustainable recovery in demand.

Shares of Toyota rose 1.5%, outperforming a 0.9% rise in the benchmark Nikkei average. (Reuters)