TOKYO • Toyota said yesterday its annual net profit fell for the first time in five years.
The Japanese car giant unexpectedly warned that the cost of customer incentives and a further pickup in the yen threatened to dig further into its bottom line.
The downbeat forecast underscores how Japan's carmakers, including rivals Nissan and Honda, have benefited heavily from a slump in the currency in recent years.
But sharp yen gains at the start of the past fiscal year - largely driven by Brexit and tumbling world equity markets - took a bite out of Toyota's latest results.
Yesterday, the Corolla and Prius hybrid maker warned that it expected more currency pain this business year, while incentives in the lucrative North American market pushed operating profit in the region down about 35 per cent.
Overall, Toyota posted a net profit of 1.83 trillion yen (S$22.7 billion) on slightly lower revenue of 27.6 trillion yen in the recently ended year to March - more than 20 per cent down from a record 2.31 trillion yen net profit the previous year.
Toyota, which lost its crown last year to Volkswagen as the world's top-selling carmaker, warned that it expects a net profit of 1.5 trillion yen in the current year to March 2018 - way off market expectations of around 1.9 trillion yen.
Vehicle sales in the past fiscal year ticked up to 10.25 million units from 10.09 million a year earlier.
Unit sales in the key North American market remained flat, while Toyota registered a pickup in Europe, Japan and the rest of Asia.
Demand dropped in Central and South America, Africa and the Middle East, it said.
"Japan's auto sector saw ups and downs in its earnings as the yen fluctuated during the fiscal year - foreign exchange will continue to be a major factor for the industry," said Mr Satoru Takada, a Tokyo-based analyst at research firm TIW, before the results were published.
"There is also a concern that demand in the cash cow North American market may have peaked as competition there intensified.
"The Chinese market is growing thanks to tax cuts but the pace is slowing," he added.
This past fiscal year has seen sharp moves in the yen, with it surging after Britain's shock vote to exit the European Union boosted demand for the safe haven asset.
The trend briefly reversed course after Mr Donald Trump's November US presidential election win fanned expectations that his big-spending, tax-cutting agenda would fire up inflation and push the Federal Reserve to hike interest rates. A rate hike tends to lift the US dollar against other currencies, including the yen.
But the Japanese auto industry is facing uncertainty over Mr Trump's drive to support US firms over foreign imports, a stance that has raised fears of a possible global trade war.
He has targeted Toyota with strong criticism of its ongoing project to build a new factory in Mexico, threatening it with painful tariffs.
In January, Toyota said it will invest US$10 billion (S$14.1 billion) in the US over the next five years, creating hundreds of jobs. As part of the plans, it announced last month an additional US$1.33 billion investment at its Kentucky plant.
But sales in the key US market have been sputtering over the past few months and the top Toyota executive in the US said recently that deep discounts carmakers were offering to customers were not sustainable.