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Analysis: Trump lashes out at Toyota even as local production hits record high

By Masaaki Kudo, Nikkei staff writer

 

NAGOYA, Japan — Why does Donald Trump go after Toyota Motor?

 

The Japanese automaker’s consolidated business results for the April-December period announced Monday painted a picture of a company that does not quite fit in the mold the U.S. president has tried to cast for it. The results showed the company’s U.S. production has reached the highest-ever level, which should mean Toyota has increased its hiring locally.

 

Trump’s pressure comes as the company faces a potentially tougher industry climate. At Monday’s press conference, Toyota Managing Officer Tetsuya Otake described the auto industry environment as “growing highly uncertain.”

 

The latest earnings results also showed some indications for a potentially more competitive environment. Toyota’s consolidated operating profit for the April-December period fell 33% from a year earlier to 1.55 trillion yen ($13.8 billion). Although the company raised its operating profit  estimate for the year ending March 2017 by 150 billion yen, this largely reflects the boost from a weaker yen since November. Excluding the currency impact, it is not an exaggeration to say that the company is facing a tougher competitive environment.

 

Its global total vehicle sales for the nine-month period grew 1% from a year ago to 7.71 million cars. The regional figure for the North America market, where the company earns some 40% of its operating profit, was 2.14 million vehicles, up slightly from a year ago.

 

However, the outlook for the North American business is growing uncertain. Even though larger vehicles are selling well, helped in part by weak oil prices, sales of small cars, including the Prius, are slumping. Toyota expects the total new car sales in the U.S. in 2017 will drop 2% from a year ago to 17.2 million vehicles.

 

Wild card

 

Trump remains a major wild card for Toyota in such an uncertain juncture. He has indicated he will renegotiate the North American Free Trade Agreement, and called on businesses to boost jobs and production in the U.S.

 

Toyota’s North America production for the April-December period totaled 1.52 million vehicles, up about 5% from a year ago, while its exports to the U.S. from Japan decreased about 8% in unit terms during the same period. But this has not prompted Trump to retract his claims that the company is being unfair.

 

One reason for Trump’s insistence is related to the current structure of Toyota’s North American operation, which is built around NAFTA. While the percentage of local production in Toyota’s North American operations is about 70%, the figure for the U.S. alone is about 50%.

 

Toyota has contributed to the U.S. by bringing in its efficient production methods and no-layoff policy. It has also contributed to the country in terms of research into advanced technologies.

 

However, Trump’s focus is apparently not on such past aspects. He remains adamant in demanding future efforts to increase jobs.

 

The question for the company, then, is to what extent it can concede. Toyota President Akio Toyoda has said the company will continue to contribute to “sustainable growth in each region.”

 

“Should the rules of NAFTA change, we will make efforts to adapt ourselves to such changes,” he added.

 

Another Toyota executive was apprehensive about Trump’s pressure to increase production in the U.S., saying, “Boosting in the U.S. would directly lead to cutting the production in Japan.”

 

That would affect the company’s relations with its vast network of domestic suppliers comprising over 30,000 companies, which supports worker training and development of cutting-edge technologies in the medium-to-long term. Striking the right balance between Japan and the U.S., as well as finding growth opportunities in an adverse situation, would be key for Toyota, experts say.

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