Toyota Motor Corporation has announced that it will idle one of its production lines and cut its excess inventories by up to 700,000 units globally. The move comes as Toyota struggles to return to profitability after months of slumping sales.
According to a source within the company, “though sales in some countries have been picking up, the outlook for global car demand is still uncertain.”
A report in the Nikkei Business Daily reports that Japan’s No. 1 automaker plans to reduce its capacity by 10% worldwide by March of next year. An unnamed source within the company, however, denies that Toyota has made any final decisions but indicated that the cuts would more likely be around 7%. The source also indicated that the cuts will likely include a U.S. based joint venture with General Motors Company and the closure of a production line in the U.K.
Toyota is expected to announce whether it will pull out of the New United Motor Manufacturing, Incorporated joint venture with U.S. automaker, GM.
“The idling of plants had been a negative factor for Toyota, so the fact they’re moving to tackle this should be evaluated favorably,” said Yumi Nishimura, deputy general manager of the investment advisory section of Daiwa Securities SMBC.
Toyota had recently restored some production in response to increased sales created by government stimulus programs including the U.S. Car Allowance Rebate System program which wrapped up on Monday.
Yoshifumi Tabei, an automotive analyst with Kazaka Securities, says the decision to cut production is a move in the right direction but says, “There is room for further capacity cuts in the United States and elsewhere.”
Toyota has seen a modest recovery in sales of its most fuel-efficient models in recent months. In July, Toyota’s Prius gas-electric hybrid was the top-selling model in Japan for the second consecutive month. However, Toyota has lagged behind rival automakers including Honda in cost-cutting.
During the second quarter, Toyota saw an operating loss while Honda and Nissan both turned a profit, largely due to cost reductions which included job cuts and withdrawing from some motor sports associations. For Toyota, the April – June period marked its third straight quarter operating in the red.