Toyota cautious as profits drop

Japanese carmaker Toyota has seen quarterly profits drop less than forecast but remains cautious.

Net profits fell 28% in the three months to June at 353.7bn yen (£1.6bn), from a record 491.5bn yen in the same period of last year.

The company said the trading environment had taken a sharp turn for the worse, creating a ‘very tough’ quarter. Nevertheless, the drop in sales in some markets, such as the US and Europe, was offset by increasing demand in countries such as Russia and China.

The weak US economy and the stronger yen, which makes Japanese goods more expensive overseas, were blamed for denting sales along with the rising cost of raw materials.

But the results were slightly better than expected because Toyota took a smaller charge than its rivals against a fall in the value of its leasing fleet. Tumbling used car prices have forced carmakers to set aside cash against declining residual values.

Given the tough conditions, Toyota said: “It will be crucial for us to act quickly and flexibly to overcome this.”

The firm is maintaining its earnings outlook for the year to March 2009, predicting net profits of 1.25 trillion yen.

As energy prices rise, customers are moving away from gas-guzzlers, helping boost sales of more energy-efficient models including Toyota’s Prius hybrid.

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