Toyota Motor Corp., which built 45 percent of its cars in Japan last fiscal year, may need to produce a greater proportion overseas as the yen trades near a record against the dollar.

“How much longer should we insist on producing in Japan?” said Chief Financial Officer Satoshi Ozawa, seated next to President Akio Toyoda at a press conference in Tokyo today. “I feel strongly that our efforts may have exceeded the limits of what is possible in dealing with the yen's impact.”

While Toyoda said he wants to protect jobs and Japan's manufacturing culture, the automaker's profitability is suffering with the yen close to a post-World War II high and German and South Korean rivals benefiting from weaker currencies and free trade agreements. The currency and the impact of Japan's record earthquake contributed to Toyota's fourth-quarter profit falling 77 percent from a year earlier, the company said.

The stronger yen cut net income by 290 billion yen ($3.58 billion) in the year ended March 31, Toyota said. That was more than the 110 billion yen cost from the 9-magnitude temblor and tsunami, which forced Toyota to shut down production at all its Japanese plants for two weeks and led to a plunge in domestic sales.

Japan Production Toyota's ratio of domestic production is higher than Japanese rivals. Nissan Motor Co., the nation's second largest car company after Toyota, made 25 percent of its vehicles in Japan last fiscal year. Third-ranked Honda Motor Co. made 26 percent of its cars at home.

“I fully understand that we can't go on with just a desire to protect manufacturing in Japan,” Toyoda, 55, said.

The country's currency soared to a postwar high of 76.25 per dollar on March 17. The yen, which traded at 80.96 today, may approach the record level again as “risk-averse” Japanese investors refrain from investing in overseas assets following the nation's biggest earthquake, according to JPMorgan Chase & Co.

The currency is also likely to continue rising because of weaker demand for the dollar as the U.S., the world's largest net debtor nation, keeps borrowing costs low, said Junya Tanase, chief currency strategist at JPMorgan in Tokyo.

Balancing Production The comments contrast with Toyoda's previous pledge to keep at least 3 million units of annual production in Japan.

Ozawa intends to advise his colleagues and Toyoda on the need to revise the balance of domestic and overseas output and may question the need to keep 3 million units in Japan, he said.

“The strong yen has been a problem for a while, and it barely weakened after intervention” by the Group of Seven nations on March 18, said Yuuki Sakurai, president at Fukoku Capital Management Inc. in Tokyo. “Toyota and other Japanese manufacturers need to assume that the yen will gain to between 75 and 80 yen.”

Toyota said fourth-quarter net income fell to the lowest in 1 1/2 years amid parts shortages following the quake. Profit for the three months ended March 31 fell to 25.4 billion yen from 112.2 billion yen a year earlier, it said.

Quarterly profit missed the 104 billion yen average of four analyst estimates compiled by Bloomberg in the past four weeks. Sales dropped 12 percent to 4.64 trillion yen.

GM, Volkswagen Output disruptions may cause Toyota to fall behind General Motors Co. and Volkswagen AG in global sales this year. The disaster follows Toyoda's first full year as president, dominated by recalls of more than 10 million vehicles for problems related to unintended acceleration.

Toyota said today it expects domestic and overseas production to begin recovering in June, at least a month earlier than previously announced. It maintained a forecast that output will return to normal levels by November or December.

“Toyota's production will most certainly fall from last year's level, while both GM and Volkswagen will make big gains in the U.S., Europe and China,” said Koji Endo, an auto analyst at Advanced Research Japan in Tokyo. The Japanese carmaker's global output may decline to less than 6.5 million vehicles this year from 8.4 million in 2010, he said.

Toyota's global vehicle sales dropped 12 percent from a year earlier to 1.79 million in the three months ended March 31. The decline was led by a 37 percent decrease in Japan. Sales in North America fell 12 percent to 551,000 while in Asia, excluding Japan, deliveries rose 23 percent to 345,000.

The carmaker may have lost output of 300,000 vehicles in Japan and 100,000 overseas through the end of April due to quake-related shutdowns, Executive Vice President Atsushi Niimi said April 22.

Production Recovery Toyota's global output in June will be about 70 percent of capacity, the company said. About 30 parts remain in short supply following disruption caused by the quake, compared with 150 in April, Toyoda said.

The carmaker resumed output at all Japan plants at half of normal capacity on April 18. All of the company's factories were closed for two weeks following the quake, with hybrid car production resuming March 28.

Shares in the Toyota rose 0.6 percent to 3,270 yen at the 3 p.m. close of trading in Tokyo, before the earnings announcement. The stock has dropped 10 percent since March 10, the day before the earthquake.

Forecast Like Honda, Toyota declined to provide an earnings forecast for the fiscal year started April 1, citing the impact of the earthquake on production. Toyota may issue a forecast in mid- June, Toyoda said.

The carmaker may post 311 billion yen in net income for the current year, according to the average of 11 analyst estimates.

The recovery may also be hindered by electricity shortages in Japan after the earthquake cut the nation's power-generating capacity by 8 percent.

Chubu Electric Power Co., which supplies electricity to Toyota's factories in Aichi prefecture, decided earlier this week to shut a nuclear plant in Shizuoka prefecture, west of Tokyo. Prime Minister Naoto Kan requested the shutdown until the plant's tsunami defenses are improved, citing a government study that showed an 87 percent likelihood of a magnitude-8 quake striking the area within 30 years.

“We want to do our best in balancing the needs of the economy and the need to save power,” Toyoda said today.

Honda said April 28 its fourth-quarter net income dropped 38 percent to 44.5 billion yen for the three months ended March 31. Nissan reports earnings tomorrow.

Bloomberg

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Toyota May Stop &rsquo;Insisting on Japan&rsquo;

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