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Car Slump Jolts Toyota, Halting 70 Years of Gain

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« on: December 23, 2008, 10:10:58 am »
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Car Slump Jolts Toyota, Halting 70 Years of Gain

A surprisingly grim forecast from Toyota Motor on Monday — that it will lose money this fiscal year on its vehicle business for the first time in seven decades — is the latest sign of the global auto industry’s sharp slowdown after years of rising profits and rapid expansion.

Worldwide vehicle production has been growing an average of 3 percent annually since the beginning of the decade, according to the research firm CSM Worldwide. But with sales falling in virtually every region because of weak economies and tight credit, auto companies will cut vehicle production as much as 10 percent next year, CSM predicted.

“The sales decline has been so precipitous that production has to be reduced to catch up,” said Michael Robinet, CSM’s vice president for global vehicle forecasts.

The fall-off in sales has accelerated in the past three months as consumers have struggled to get loans to buy vehicles. In turn, auto companies have closed factories to reduce inventories and taken other steps to save money.

Global vehicle production fell 16 percent in the fourth quarter, according to the firm IHS Global Insight. “The collapse is far sharper than anything previously expected or previously experienced,” said George Magliano, the firm’s head of auto industry research for North America.

The industry already has far more production capacity than it needs to meet consumer demand. Most major automakers have been steadily building factories in markets like India, China and Brazil in anticipation of millions of first-time buyers entering the market.

CSM estimates that auto companies have enough factories to build 90 million vehicles a year. It said, however, those plants would produce only about 66 million vehicles in 2008 and even fewer next year.

Detroit’s struggling Big Three automakers have been cutting production in the United States to levels not seen since the 1950s. Last week, President Bush approved $17.4 billion in federal loans to keep General Motors and Chrysler from going bankrupt.

But the downturn is testing even the strongest companies, including the industry stalwart Toyota.

The company projected its first operating loss since 1938, its first year in business.


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