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Japanese Car Makers Expected to Maintain Record Profit Results for 2006

TOKYO April 20, 2006; Chang-Ran Kim writing for Reuters reported that after a turbo-charged year of bumper sales, a soft yen and hefty cost cuts, Japan's biggest auto makers are set to extend their run of record profits in 2006/07 fueled by even more key product launches.

With the exception of product-deprived Nissan Motor Co., the sector's top players are likely to post robust fourth-quarter earnings, capping a year that will see best-ever operating profits at Japan's five main auto makers.

A 12-yen rise in the dollar from the year-earlier period helped prop up January-March profits, but Toyota Motor Corp. (Tokyo:7203.T - News), Honda Motor Co., Mazda Motor Corp. and Suzuki Motor Corp. also came out ahead as their vehicles attracted more customers around the world.

But Nissan, which had no new product launches in the all-important U.S. market during the quarter, is expected to post a 1.7 percent drop in three-month operating profit, according to a survey of 20 brokerages by Reuters Estimates, with some warning its full-year numbers could fall short of the company's guidance.

With a barrage of revamped cars only coming to market in the second half, Japan's number two auto maker is forecast to see the smallest growth this business year, of 3.5 percent.

Third-ranked Honda's 2006/07 profit is expected to fall 10.6 percent from consensus forecasts for the just-ended year, which was inflated by a 128 billion yen ($1.1 billion) one-off accounting gain related to pension funds. Stripping out that factor, Honda's profit would be up 5.0 percent.

"Overall, we see good growth at the Big Three (Toyota, Nissan and Honda) over the next two years," Macquarie Research analyst Kurt Sanger wrote in a recent report.

Much of their fortune will continue to be made in the United States, where top-ranked Toyota began selling a new generation of the big-volume Camry -- America's best-selling car -- last month.

Honda will roll out three new crossovers -- the CR-V and the Acura RDX and MDX -- in a timely launch as more consumers switch over from traditional gas-guzzling SUVs to save cash at the pump, where gasoline is approaching $3 a gallon once again.

Nissan is suffering from bloated inventory of its light trucks, but should crank up sales later this year with the remodeling of the Sentra and Altima sedans and the Infiniti G35 coupe, which account for two-fifths of its U.S. volume.

CURRENCIES A WILD CARD

With no end in sight to Japanese brands' U.S. charge, however, analysts warn of a heat-up in the debate over what some politicians and U.S. auto executives have characterised as an artificially weak yen, which they argue is giving foreign brands an unfair edge.

The signs are already emerging. Last week, the U.S. Automotive Trade Policy Council demanded that the Treasury Department name Japan as a currency manipulator; meanwhile, European auto makers, hit with record-high euro-yen rates, are also beginning to grumble.

"Exchange rates are going to be a focal point this year, if indeed politics leads to a sudden strengthening in the yen," said Atsushi Kawai, analyst at Mizuho Investors Securities.

A climb in the yen would cut chunks out of Japanese auto makers' profits, which, according to Goldman Sachs, will be more sensitive to currency swings this year as exports from Japan grow.

Mindful of the backlash, Toyota is taking pains to bill itself as an American company that is contributing to the local economy by creating thousands of jobs, even as lay-offs await many General Motors and Ford Motor workers.

That image as a good corporate citizen will be important as Toyota ventures deeper into the large-pickup-truck market -- the last bastion of Detroit's struggling brands -- with a supersized Tundra early next year.

"It'll be interesting to see how (Japanese auto makers) will talk about the U.S. market," said Christopher Richter, analyst at CLSA Asia-Pacific Markets, adding that political concerns may prompt especially conservative profit forecasts for this year.

Toyota does not provide group-based earnings forecasts, but an average of 20 brokerages' projections put its operating profit at 2.006 trillion yen, up 12 percent from a consensus estimate for 2005/06 -- the biggest rise among domestic auto makers.

Mazda's profit is forecast to grow 8.7 percent this year, and Suzuki's is seen rising 8.4 percent.

Nissan will kick off the reporting season for the sector on April 25, followed by Honda on April 26, Suzuki and Mazda on April 28, and Toyota on May 10.