Toyota Shares Plummet; So Do Honda, Nissan Shares

Toyota Shares Plummet; So Do Honda, Nissan Shares

By Michelle Krebs January 22, 2008

As the global stock market plunged on worries that the U.S. is in recession, shares of Toyota fell the most they had in seven years in Tokyo trading, Bloomberg News reported.

Toyota stock plunged 7.2% to 4,880 yen at the 3 p.m. close on the Tokyo Stock Exchange Tuesday. Honda shares slipped 6% to 2,915 yen. Nissan’s stock declined 6.4% to 922 yen.

While Bloomberg noted the threat of a recession in the U.S. spurred the decline in the global stock market, the stocks of Japan carmakers were also hurt by the Japanese yen’s strengthening against the U.S. dollar to its highest level in almost three years.

A strengthening yen cuts into the Japan automakers’ repatriated earnings from North America, where they derive as much as 65% of their operating profits.

A 1-yen gain against the dollar cuts Toyota's annual operating profit by 35 billion yen ($330 million) and Honda's by 20 billion yen, the two automakers told Bloomberg. The yen traded at 106.17 to the dollar as of 3:14 p.m. in Tokyo.

Toyota based its second-half earnings forecasts on 110 yen per dollar. Honda based its profit forecast for the six months ending March 31 on 113 yen to the U.S. currency. Nissan said in April its annual profit outlook is based on 117 yen to the dollar.

If the yen rises close th the level of 100 yen to the U.S. dollar, "it will have a considerable negative impact on their earnings,'' Fitch Ratings said in a release Tuesday. The rating service noted, however, that Toyota, Honda and Nissan may ``gain greater market share in the U.S., which may mitigate some negative impact.

Toyota and Honda forecast higher U.S. sales this year even as they expect industrywide demand to fall. Toyota plans to raise U.S. sales about 1% to 2.64 million vehicles. Honda expects sales to increase 2.5% to 1.59 million in the U.S. Nissan has issued no annual sales forecast for the market but said it intends to maintain "momentum'' in the U.S., where it had higher sales in 2007 from 2006.

The Nikkei 225 Stock Average fell to the lowest since September 2005, slipping 5.7% to 12,573.05. The MSCI Asia Pacific Index dropped, entering a bear market.

The decline in shares of the Japanese automakers, however, didn't just begin with the most recent stock market decline. All had a tough year in 2007, reports Business Week Online.

Shares of Toyota, easily the world’s most profitable automaker, fell 32% in 2007 and Honda, which made $3.25 billion in the last quarter, saw its stock fall 35% during the same period. Both are expected to post more record earnings when the current financial year ends in March. By contrast, perpetually troubled GM and Ford, which owns a third of Mazda, are down a mere 27% and 29%, respectively, Business Week Online notes.

Another surprise is the fact that Mazda was the worst performing major auto stock over the last 12 months. Despite Mazda’s new models being well-received and its profit margins increasing, its stock is down 45% since this time last year, Business Week Online points out.

In addition to a general fallout in the stock market and the strengthening yen against the dollar, another reason Japanese auto stocks are slumping is concerns that the sub-prime scarred U.S. market will shrink faster than previously expected.

"Yet," the blog goes on, "for all that, it’s hard to see how Japan’s auto stocks warrant such large sell-offs. For one thing, strong sales in emerging markets, and especially China, are likely to offset a slowdown in the U.S. market. Toyota, for example, increased China sales by 50% in 2007 and a lot of those were highly profitable Camrys built at its plant in Guangzhou. Sales in the Middle East and Russia are also booming and nearly all of Japan’s carmakers are ramping up domestic production by splashing out on new plants to meet global demand.

"And even as the U.S. sales slow, analysts point out that Japanese automaker are in a good position to benefit from high gas prices."

Still, it may not put Toyota and Honda shares on the buy list.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.