North America drags down Toyota’s sales

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Even companies with small cars and hybrids can’t escape a slowing economy and high gas prices. Toyota announced its income for the last three months is down 28 percent compared to last year. This has led to Toyota’s biggest drop in profits in five years. The biggest culprit for this slide is sales in the North America, where operating profit fell 57 percent as record gasoline prices cut demand for large vehicles. This is what forced President Katsuaki Watanabe to halt U.S. production of Tundra pickups and Sequoia SUVs for three months.

“Toyota can’t escape a terrible market,’’ said Fumiyasu Sato, chief executive officer of Milestone Asset Management, a Tokyo-based investment adviser. “Truck demand will keep shrinking and the shift to small cars will accelerate.”

Part of this loss is also due to the shrinking residual value on Toyota’s vehicles. SUVs are particularly becoming less popular, and Toyota has many SUVs out on leases. When these cars come back to Toyota at the end of their contract, they will be worth less than originally expected. Toyota needs to make provisions for this loss, and that factors into this announced loss. Toyota isn’t alone, it’s Japanese rivals Honda and Nissan have also announced shrinking profits in the wake of a drop in value on large leased cars.

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Source: Bloomberg

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