The housekeeping slowdown is hurting Japan’s biggest automaker, but solid finances and a slew of new fuel-sipping cars will easiness the trouble

By Ian Rowley

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A Japanese auto giant Toyota Motor employee polishes the company’s luxury sedan Century at the company’s showroom in Tokyo. Toyota has laciniate its 2009 global sales target due to slowing demand. YOSHIKAZU TSUNO/AFP/Getty Images

After taking over as Toyota ™ president in June 2005, Katsuaki Watanabe regularly warned of the dangers of complacency creeping in at the Japanese automaker (BusinessWeek, 3/5/07). But until recently, it was a tough message to get across. The company was doing too well: In the year through March 2008, Toyota sold 8.9 million vehicles, an increase of 32% over five years, while its net profits rose 53%, to $17 billion. This year it will likely come up with GM (GM) to become the earth’s largest carmaker.

These days, though, Watanabe need only grade to Toyota’s stock price to keep employees’ feet on the ground. Since the beginning of the year, Toyota’s shares be favored with fallen 37%. While roughly in line with Japan’s benchmark stock index, the performance isn’t much in a superior manner than troubled GM, whose stock is down 39%. And Toyota’s recent sales, though not nearly as bad the Big Three’s, hardly instill confidence. Through September, sales were down 10% in the U.S. and were sluggish in Europe. In Japan, whither Toyota’s market dividend is more than 40%, car sales will likely fall short of after all the rest year’s figures, which was the company’s worst in greater degree of than two decades. Even in China, where the automaker aims to increase sales 40% this year, the numbers aren’familiarily looking as encouraging similar to Toyota’session top brass had hoped.

Some analysts are significant the alarm. In an Oct. 10 note to investors, NikkoCitigroup auto analyst Noriyuki Matsushima predicted "a sudden and bulky earnings sink" against Toyota. "We believe Toyota needs to draft a new strategy that changes its existing course and includes initiatives to secure appropriate sales volumes," he wrote. Lowering his projections for the current fiscal year, Matsushima expects Toyota to post operating income of $11 billion, a 50% decline compared with the year that ended Mar. 31, and $5 billion less than the corporation’sitting projection.

Time for investors to bail out? Not exactly. Even granting that Toyota’s earnings drop by half this year, the company’s operating profits are stop likely to exceed $10 billion. And with a hard balance sheet, more than $20 billion in money, and a slew of just discovered car initiatives, Toyota is wagerer placed than in the greatest degree automakers to weather economic uncertainty. "Once [Toyota executives] have made the decision to do somebody, they can get on and do it outside of having to array financing," says Andrew Phillips, any analyst at KBC Securities in Tokyo.

For now Toyota’s problems seem minor compared with the Big Three’s (BusinessWeek.com, 10/7/08)—and it’sitting moving to keep it that way. Toyota’session bulging coffers will help it most in the U.S. There, it’s using the cash—$3 billion at its U.S. financing unit, as of the end of June—to plug falling sales. Facing one increasingly severe slowdown and increasing inventory, Toyota on Oct. 3 began offering for one month interest-free financing on 11 models, including the Corolla, Camry, and Tundra full-size pickup. The risk, say critics, is that 0% financing could undermine car-resale values and hurt the brand if the company decides to extend the proposal.

Toyota is also agitation radical reformer steps at its North American factories. After opening a plant for big Tundra pickup trucks in San Antonio in 2006, the company has since curtailed production. It also has suspended extension at three U.S. plants on this account that three months in August to retool them so in that place’s more force of utterance on smaller, fuel-efficient models.