Toyota 2009 Annual Report Download - page 35

The worldwide financial services industry is highly competitive.
The worldwide financial services industry is highly competitive. Increased
competition in automobile financing may lead to decreased margins. A decline
in Toyota’s vehicle unit sales, an increase in residual value risk due to lower
used vehicle price, increase in the ratio of credit losses and increased funding
costs are factors which may impact Toyota’s financial services operations. The
likelihood of these factors materializing has increased as a result of the
ongoing rapid worldwide economic deterioration, and competition in
automobile financing has intensified. If Toyota is unable to adequately
respond to the changes and competition in automobile financing, Toyota’s
financial services operations may adversely affect its financial condition and
results of operations.
Financial Market and Economic Risks
Toyota’s operations are subject to currency and interest rate
fluctuations.
Toyota is sensitive to fluctuations in foreign currency exchange rates and is
principally exposed to fluctuations in the value of the Japanese yen, the U.S.
dollar and the euro and, to a lesser extent, the Australian dollar, the Canadian
dollar and the British pound. Toyota’s consolidated financial statements, which
are presented in Japanese yen, are affected by foreign currency exchange
fluctuations through both translation risk and transaction risk. Changes in
foreign currency exchange rates may affect Toyota’s pricing of products sold
and materials purchased in foreign currencies. In particular, strengthening of
the Japanese yen against the U.S. dollar can have an adverse effect on
Toyota’s operating results. The fluctuation of the Japanese yen against other
currencies including the U.S. dollar has been particularly great in the past year.
If the Japanese yen further rapidly appreciates against other currencies,
including the U.S. dollar, Toyota’s financial condition and results of operations
may be adversely affected.
Toyota believes that its use of certain derivative financial instruments
including interest rate swaps and increased localized production of its
products have reduced, but not eliminated, the effects of interest rate and
foreign currency exchange rate fluctuations. Nonetheless, a negative impact
resulting from fluctuations in foreign currency exchange rates and changes in
interest rates may adversely affect Toyota’s financial condition and results of
operations. For a further discussion of currency and interest rate fluctuations
and the use of derivative financial instruments, see “Operating and Financial
Review and Prospects — Operating Results — Overview — Currency
Fluctuations”, “Quantitative and Qualitative Disclosures About Market Risk”,
and notes 20 and 21 to Toyota’s consolidated financial statements.
High prices of raw materials and strong pressure on Toyota’s
suppliers could negatively impact Toyota’s profitability.
Increase in prices for raw materials that Toyota and Toyota’s suppliers use in
manufacturing their products or parts and components such as steel, precious
metals, non-ferrous alloys including aluminum, and plastic parts, may lead to
higher production costs for parts and components. This could, in turn,
negatively impact Toyota’s future profitability because Toyota may not be able
to pass all those costs on to its customers or require its suppliers to absorb
such costs.
The downturn in the financial markets could adversely affect
Toyota’s ability to raise capital.
Financial markets worldwide have been significantly disrupted in the wake of
the global financial crisis. A number of financial institutions and investors have
been facing difficulties providing capital to the financial markets due to their
deteriorated financial conditions. As a result, there is a risk that companies may
not be able to raise capital under terms that they would expect to receive with
their creditworthiness. If Toyota is unable to raise the necessary capital under
appropriate conditions on a timely basis, Toyota’s financial condition and
results of operations may be adversely affected.
Political, Regulatory and Legal Risks
The automotive industry is subject to various governmental
regulations.
The worldwide automotive industry is subject to various laws and
governmental regulations including those related to vehicle safety and
environmental matters such as emission levels, fuel economy, noise and
pollution. Many governments also impose tariffs and other trade barriers, taxes
and levies, and enact price or exchange controls. Toyota has incurred, and
expects to incur in the future, significant costs in complying with these
regulations. New legislation or changes in existing legislation may also subject
Toyota to additional expenses in the future.
Toyota may become subject to various legal proceedings.
As an automotive manufacturer, Toyota may become subject to legal
proceedings in respect of various issues, including product liability and
infringement of intellectual property, and Toyota is in fact currently subject to a
number of pending legal proceedings. A negative outcome in one or more of
these pending legal proceedings could adversely affect Toyota’s future
financial condition and results of operations. For a further discussion of
governmental regulations, see “Information on the Company — Business
Overview — Governmental Regulation, Environmental and Safety Standards”
and for legal proceedings, please see “Information on the Company —
Business Overview — Legal Proceedings”.
Toyota may be adversely affected by political instabilities, fuel
shortages or interruptions in transportation systems, natural
calamities, wars, terrorism and labor strikes.
Toyota is subject to various risks associated with conducting business
worldwide. These risks include political and economic instability, natural
calamities, fuel shortages, interruption in transportation systems, wars,
terrorisms, labor strikes and work stoppages. The occurrence of any of these
events in the major markets in which Toyota purchases materials, parts and
components and supplies for the manufacture of its products or in which its
products are produced, distributed or sold, may result in disruptions and
delays in the operations of Toyota’s business. Significant or prolonged
disruptions and delays in Toyota’s business operations may adversely affect
Toyota’s financial condition and results of operations.
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Annual Report 2009 33