Toyota Hikes Car Prices for First Time in 30 Years

Skyrocketing steel costs force price increase.

Toyota Motor Corp. said on August 25 that it will raise the prices of some passenger cars in Japan for the first time in three decades in response to skyrocketing steel costs. The move is expected to cushion the automaker's profits from the impact of higher material costs, but it risks depressing already weak demand as the Japanese economy teeters on the cusp of recession, analysts said.

Japan's largest automaker said it would increase the retail price of its popular Prius hybrid by three percent from September 1. The prices of commercial vehicles will rise by 2% on average.

Toyota said that so far it had been able to compensate for material prices by cutting costs. "However, recent further price increases in raw materials have been larger than Toyota's cost reduction efforts are able to offset," it said.

Japan's auto market is in a slump, depressed by weak consumer spending, a shrinking population and signs that younger Japanese are losing interest in cars, particularly in big cities.

"Toyota has no other choice but to raise prices to increase its profitability," said Hirofumi Yokoi, an auto analyst at the consultancy firm CSM Asia Corp. "Toyota will now be forced to gradually raise the prices of its other models. The price hikes are expected to have a big impact on domestic sales at a time when demand in Japan is already weak."

It is the first time since 1974 that the auto giant has raised the domestic prices of existing passenger vehicles, rather than waiting for the launch of new or upgraded models.

The price of iron ore, a vital material to make steel, has soared in recent years due to rising demand, particularly in fast-growing China and India, forcing steelmakers to pass on the increased costs to automakers.

Japanese steel giants Nippon Steel Corp. and JFE Steel Corp. said last month that they had agreed to almost double the price they pay to miners Rio Tinto Ltd. and BHP Billiton Ltd. for iron ore.

The soaring cost of steel and other materials was one of the main culprits for a 28% tumble in Toyota's net profits in the quarter to June.

Nissan, Japan's third largest automaker, has indicated that it is waiting for market leader Toyota to raise vehicle prices before it follows suit. "All car manufacturers will increase prices. It's a question of time," Nissan Motor Co. chief executive Carlos Ghosn said last month. "How can you not increase prices if the price of raw materials goes up 100%?"

Toyota recently cut its global sales target for 2008 and has indicated that it may lower its 2009 target, which would push back its goal of becoming the world's first company to sell more than 10 million vehicles in one year.

The company has enjoyed fast-growing sales and profits in recent years, helped by strong interest in its fuel-sipping hybrids, which use more rare metals than most conventional vehicles. But the U.S. economic slump, weak domestic demand and soaring commodity costs have put the brakes on its expansion.

Copyright Agence France-Presse, 2008

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