Here’s Why Toyota Shares are in a Downward Spiral

Toyota Motor Corp (NYSE:TM) withdrew its annual profit guidance on Tuesday after Thai floods endangered production in Japan — and Japan was just recovering from the March earthquake. The floods have also caused Honda Motor Company (NYSE:HMC) to cut its earnings forecast while Nissan Motor Co raised theirs.

Toyota Motor Corp (NYSE:TM)posted a 32 percent drop in quarterly operating profit, which was more than expected. They are still committed to manufacturing at home even though the yen’s (NYSE:FXY) strength makes exports less competitive against rivals such as South Korea’s Hyundai Motor Co. Toyota (NYSE:TM) is also no longer much of a rival for Nissan either. A Toyota (NYSE:TM) executive said Nissan might have been more proficient at dealing with the Earthquake crisis this year.

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Toyota’s (NYSE:TM) chief financial officer, Satoshi Ozawa said, “I can’t deny that Nissan may have done some things right, given the outcome of how they recovered from both the earthquake and the floods. If there’s something there to learn from, we’d like to do that.

On October 10, work at Toyota’s (NYSE:TM) three vehicle plants was stopped due to the Thai floods. A shortage of parts also reduced output in 9 other countries, one of which was in Japan (NYSE:EWJ). The company said three plants will be non-operational until at least November 12. During this time, Toyota (NYSE:TM) will lose production of about 150,000 vehicles.

Toyota (NYSE:TM) said operating profit for second quarter was 75.39 billion yen ($966 million.) This was short of an average estimate of 101.3 billion yen from Reuters. Net profit dropped 18.5 percent to 80.42 billion yen, and revenue dropped 4.8 percent to 4.57 trillion yen. Global vehicle sales dropped 4.7 percent to 1.805 million. Prior to withdrawing its forecasts, Toyota had predicted an operating profit of 450 billion yen for the year to March 2012.

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Meanwhile, Nissan upped its profit forecasts last week as it had strong sales growth along with obtaining a substitute for the parts shortage. The company believes they will begin production again next week.

Tetsuro Ii, chief executive officer of Commons Asset Management in Tokyo said, “Companies now need to adopt new ideas and move faster. Some companies, such as Nissan, are doing this well…It’s too soon to make a judgment on Toyota’s and Honda’s long-term prospects, but I can’t help but get the impression that they are slow in their reforms.”

The setback may not be long-term since the Toyota plants themselves were not flooded. However, Toyota will probably place behind General Motors Co (NYSE:GM) and Volkswagen AG this year in sales and market share. Ford (NYSE:F) will also be another beneficiary of Toyota’s misfortune. “In assessing the impact of the Thai floods on Toyota, we’re talking about the people that supply their parts, rather than Toyota (NYSE:TM) itself,” said Koji Endo, senior analyst at Advanced Research Japan in Tokyo. “So this disaster looks to be a short-term setback rather than a long-term one.”

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