Despite Recall Toyota's Profits Rise

Toyota posted a $2.2 billion quarterly profit on August 4 and upped its forecast for the year despite its recall woes.

The world's largest automaker raised its annual net profit forecast to 340 billion yen (US$3.9 billion) from 310 billion forecast in May, despite recent worries over the global economy and the safe-haven yen's strength.

Toyota reported a net profit of 190.47 billion yen for the quarter ended June, turning around a loss of 77.8 billion yen in the same period a year earlier and beating forecasts.

Operating income increased from a loss of 194.9 billion yen to a gain of 211.6 billion yen, as the automaker cited increases in vehicle sales and "a large decrease" in costs related to loan losses.

The automaker's strong results come despite it having pulled around 10 million vehicles worldwide, as it faces a host of lawsuits over "unintended acceleration" issues blamed for more than 80 deaths in the United States.

While the worst has passed for Toyota, "some challenges lie ahead," said auto analyst Tatsuya Mizuno. "There are likely to be some more recalls from time to time and their level of profitability is lower than before."

Despite its recall crisis, Toyota saw sales in North America increase 36% in the quarter ended June compared to the same period a year ago.

Sales in Japan increased 23% on-year, buoyed by government consumer incentives to buy environmentally friendly vehicles.

"Thanks to the extension of subsidies for purchases of environmentally friendly cars, sales largely exceeded those of the previous year," said Senior Managing Director Takahiko Ijichi.

However, sales in Europe slowed 12% as the eurozone debt crisis helped erode consumer sentiment.

Fears for the global economy have seen the safe-haven yen appreciate strongly against other major currencies, which if sustained could erode repatriated profits for automakers and other Japanese exporters. In upwardly revising its annual profit forecast, the auto giant said it had assumed average exchange rates through the fiscal year of 90 yen to the dollar and 112 yen to the euro. It said it aimed to be profitable even at an 85 yen-to-the-dollar level, where the greenback is currently trading at an eight-month low on worries about the durability of the U.S. recovery.

"In the long run, we believe we should build cars in places where we sell them, Ijichi said. He warned that the expiry of consumer incentive programs in Japan may pose a risk later in the year, causing a "possible backlash in demand".

The recall crisis "has dealt a big blow and its impact is still lingering," said Mamoru Kato, auto analyst at Tokai Tokyo Research Center. "Toyota used to post profit that stands out from rivals."

Ijichi declined to assess the financial impacts of the recall crisis, only saying that the company was working hard to regain public trust.