Toyota Takes Another Financial Hit Due to Dollar Drop

Unfortunately for Toyota Motors Co, which used to be the world’s biggest automaker, the company is free falling as it's looking at yet another financial disaster. The car manufacturer is about to take the biggest hit among the Japanese exporters due to the dollar’s tumble against the yen. At this moment, it seems that Toyota has assumed the riskiest currency rates for the rest of the year.

Toyota decided to go with a dollar rate of 90 yen for the October-March second half, while fellow countrymen like Honda Motor or Nissan Motor assumed a 85 yen average. Not only the dollar sunk to a 14-year low of 86.29 yen, but the Japanese authorities officially said they have no plans in intervening.

"Carmakers that issued big profit warnings last year have set cautious forex assumptions this time, so roughly speaking the current rates are within expectations," Aizawa Securities auto analyst Toshiro Yoshinaga said.

"But there are views that the dollar could sink even further in 2010, to the 70s (yen), and in that sense Honda and Nissan, which are relatively strong in emerging markets, are in the winning camp," he said.

The problem seems serious as Toyota’s production costs in Japan are calculated in yen. Due to the difference of currency exchange, Toyota will receive less money then originally expected, as more than half of its production is exported. Estimates say that every 1-yen fall in a dollar means 30 billion yen less profit for Toyota. This means a 350 billion loss for the Japanese automaker, whose unfortunate assumption of the currency exchange rate was an attempt to lower the car’s prices on the US market.