Toyota Facing Tough Decisions over Vehicle Prices

Nagoya, June 27, 2008; Jiji Press reported that Toyota Motor Corp. is facing tough decisions on whether to raise its vehicle prices in Japan amid the combination of higher costs and slumping demand.

The leading Japanese automaker hopes to avoid raising prices in the sluggish domestic market. But materials price increases exceed levels that Toyota can absorb through its own efforts, President Katsuaki Watanabe said.

Higher costs for steel and other materials are expected to drag down Toyota's operating profit by over 300 billion yen in the year ending in March 2009.

The company has already agreed with Nippon Steel Corp. on a steel sheet price increase of over 30 pct. It is also under pressure to accept price hike requests from makers of glass and other materials.

Toyota is considering the possibility of passing on the higher costs in retail prices for new models or raising the prices of all models. Price increases covering all models would be the first since 1974.

Rival automakers are closely watching Toyota's moves.

Nissan Motor Co. President Carlos Ghosn said the industry leader should be the first to make a decision.

But Toyota remains cautious due to concerns that price hikes appear certain to put a damper on its domestic sales. Foreign exchange rates that move in favor of Toyota make the situation more complex.

Toyota can gain a profit of some 280 billion yen in the year if exchange rates remain at current levels. The company assumes an exchange rate of 100 yen to the dollar for the year, compared with around 107 yen at present.

Consumers may backlash if Toyota raises prices under such favorable conditions, industry watchers said.