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Automobiles

Toyota halts Japan production as carmakers slam on the brakes

Industry hopes to weather storm with strong balance sheets

Toyota, the world's largest automaker, has already halted production at most of its European car plants, as well as all of its facilities in the U.S., Canada and Mexico. (Photo by Kohnosuke Urata)

TOKYO -- Toyota Motor suspended production at five plants across Japan on Friday, joining the ranks of automakers throughout the world that have been forced to do the same as the coronavirus pandemic stifles sales. 

However, Japan's largest automaker said it hopes its strong cash position can help it endure the pain.

"I have said multiple times that the speed of change is fast, but the truth is, it was shocking just how much the world could change in an instant," Toyota President Akio Toyoda said. Toyoda, who also heads the Japan Automobile Manufacturers Association, was speaking last month.

Honda and Nissan Motor have also signaled plans to halt production in Japan, with Suzuki halting all of its plants and Mitsubishi Motors already partially suspending the assembly of light vehicles.

"No one is thinking of buying a new car at the moment," said Takaki Nakanishi, CEO of Nakanishi Research Institute, a Tokyo-based auto industry research company.

Toyota has requested a 1 trillion yen ($9.2 billion) emergency credit line from Sumitomo Mitsui Banking Corporation and MUFG Bank to help it weather the pandemic. This follows Moody's downgrade last week of its credit ratings for Toyota, Honda and Nissan, saying the sector was expected to remain vulnerable to the coronavirus outbreak given its sensitivity to consumer demand and sentiment.

But with more than 6 trillion yen in cash and short-term investments, as well as 23 trillion yen in retained earnings, analysts say Toyota's balance sheet looks stable for now.

"Japanese automakers have solidified their financial performance after the financial crisis of 2008, and are now quite prepared for emergency circumstances," said Seiji Sugiura, senior analyst at the Tokai Tokyo Research Institute.

Nakanishi, who also sees Toyota's credit line request as "a precautionary measure to be prepared for the worst," warned the coronavirus crisis could affect the automotive industry even further.

"Coronavirus has first emerged as a problem disturbing the global supply chain from China. But now the pandemic has completely damaged consumption," Nakanishi said.

Still, Japan's nine major carmakers have enough cash on hand to cover around two months of revenue on average, said Tokai Tokyo Research Institute's Sugiura, with Toyota able to cover 2.4 months, thanks to strong retained earnings which account for 43.4% of their total assets.

Toyota said last week it would halt production at five of its Japan plants, including the company's home base in central Aichi Prefecture, until April 15, and may extend the suspension depending on demand.

Models affected include the 4Runner sport utility vehicle for the North American market and China-bound Lexus. Toyota will also halt production at three of its plants in Thailand from April 7 to 17.

Suzuki Motor stopped all of its operations on Wednesday until Friday due to delays in the supply of components supplied from India, which is under lockdown.

Nissan Motor will suspend production at three facilities, including in Tochigi Prefecture which produces its luxury models, while Honda will also halt two of its plants for two days in mid-April.

Mitsubishi Motors has already partially halted its fabrication of light vehicle models in Okayama Prefecture until April 10.

The production halts follow the shutting down of plants in Europe, Southeast Asia and North America, where Toyota, Honda, Nissan and Subaru among top 10 selling marques.

The U.S. imports nearly 1.7 million vehicles annually from Japan, according to the Japan External Trade Organization, accounting for almost 20% of Japan's domestic production.

Unit vehicle sales in North America account for more than 30% of sales for both Nissan and Honda, while Toyota sells nearly 28% of its vehicles there with the third highest market share after General Motors and Ford Motor. Subaru sells 70% of its vehicles in the U.S.

As the coronavirus pandemic continues to pound U.S. consumer confidence, forcing dealerships across the country to shutter, automotive website TrueCar expects total new vehicle sales already fell by 37% last month from a year ago.

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