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Facing US tariff threat, Toyota warns that car costs could rise

Uncertainty mars strong quarterly results

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Toyota is bracing for the possibility of a rise in US car import tariffs, which could cloud its outlook.

Tokyo

TOYOTA Motor Corp on Friday said that higher US car tariffs would ramp up the cost of vehicles produced locally along with those imported to the United States from Japan, which would have a "big impact" on its bottom line.

Like its global rivals, Toyota is bracing for the possibility of a rise in US car import tariffs, which could cloud its outlook as it would raise the cost of selling vehicles in the world's second-biggest vehicle market. Such uncertainty took the shine off strong quarterly results announced on Friday.

So far, Japan's biggest carmakers and components suppliers said that they have seen limited direct impact from US tariffs on steel and aluminium implemented in June, but they acknowledge that they could take a significant hit if Washington delivers on proposals to hike tariffs on cars and car parts to 25 per cent.

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"If we see a rise, it would raise the cost of locally produced vehicles by around US$1,800 each, and increase costs for (models imported from Japan) by US$6,000," Toyota senior managing director Masayoshi Shirayanagi told reporters at a results briefing. "This would be a big impact."

The United States is a major market for Japan's carmakers, where Toyota, Honda Motor Co Ltd and Nissan Motor Co Ltd locally produce around half or more of the cars that they sell in the country. The remainder are imported from Japan, Canada, Mexico and elsewhere.

Higher tariffs would deliver a major blow to all global carmakers as most, including US ones, rely on imports to source the vehicles and parts contained in them which are sold in the United States.

Earlier this week, Denso Corp, one of the world's biggest components supplier, said that US car tariffs, if implemented, could wipe up to US$720 million off annual profit. Ford Motor Co last week said that tariffs in general could cost it up to US$1.6 billion in 2018 in North America.

Toyota has been a vocal opponent of tariffs, arguing that 25 per cent would increase the cost of its US-made Camry sedan by US$1,800 and US$2,800 for its Tundra pick-up truck.

The carmaker operates 10 production plants in the United States, and locally produces just under half of all the cars that it sells in the country.

Its share of localised production is lower than the 75 per cent of Honda and 60 per cent of Nissan.

Detroit carmakers Ford and General Motors Co (GM) as well as Fiat Chrysler Automobiles NV (FCA) lowered their full-year profit forecasts last week amid worries escalating tariffs would hurt sales and profit margins.

Earlier on Friday, Toyota posted a 19 per cent jump in April-June operating profit to 683 billion yen (S$8.4 billion), beating estimates and clocking its best quarterly performance in two-and-a-half years on the back of higher sales and cost reductions in Asia.

Its global retail vehicle sales rose one per cent to 2.6 million units in the quarter, boosted by a lift in Asia, where demand for the recently remodelled Camry helped increase sales by 5.4 per cent in China, the world's biggest car market, during the first six months of 2018. REUTERS