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Toyota posts record 1st quarter profit, but frets about U.S. tariffs

A visitor walks through a Toyota showroom in Tokyo, on Aug. 3, 2018. (AP Photo/Eugene Hoshiko)

TOKYO (Kyodo) -- Toyota Motor Corp. reported Friday a record group net profit of 657.31 billion yen ($5.9 billion) for the April-June period, backed by brisk sales in China and Europe, but expressed concern about a U.S. threat to impose higher tariffs on cars.

Net profit at Japan's largest automaker increased 7.2 percent from the same period a year earlier, while operating profit jumped 18.9 percent to 682.69 billion yen. First quarter sales rose 4.5 percent to 7.36 trillion yen, a record high for the period.

But Toyota maintained its full-year earnings forecast, citing additional costs for research and development as well as rising materials prices. It foresees a net profit of 2.12 trillion yen, down 15 percent, and expects operating profit to fall 4.2 percent to 2.3 trillion yen, on sales of 29.00 trillion yen, down 1.3 percent.

"When you look at the numbers for the reported quarter, we can say we are on course toward realizing our full-year targets, but in terms of earnings power and cost-cutting, we are still half way," Senior Managing Officer Masayoshi Shirayanagi said at a press conference in Tokyo.

Toyota released its earnings as automakers around the globe brace for possible tariff hikes on cars and auto parts by the administration of U.S. President Donald Trump in the name of protecting national security.

Toyota cut its fiscal 2018 sales outlook for North America by 500,000 vehicles, to 2.75 million, as the "uncertain situation" has prompted the carmaker to take a cautious stance, according to Shirayanagi.

He added that if the United States goes ahead with the tariff hikes, it would have an "enormously big" impact on Toyota sales and earnings in the United States, its key market.

Toyota estimates the tariffs, if invoked, would raise the price of its vehicle exported to the U.S. market by an average of about $6,000.

The automaker exported roughly 710,000 vehicles from Japan to the United States in 2017, so it could face a total additional cost of some $4.26 billion based on a simple calculation of the average tariff levy.

While some other Japanese carmakers have suggested they would consider shifting production to the United States as a response to tariff increases, Shirayanagi said Toyota will stick to keeping annual domestic production at 3 million vehicles.

Toyota said the higher U.S. tariffs on aluminum and steel imports that were imposed earlier this year will raise costs by 10 billion yen in the current fiscal year through next March.

Overall, Toyota maintained its group worldwide sales target of 10.5 million vehicles. The group includes vehicles produced by minicar-maker Daihatsu Motor Co. and truck maker Hino Motors Ltd.

Despite selling an all-time high 5.54 million vehicles in the first six months of 2018, the Toyota group remained the third largest in the industry, outstripped by the alliance formed by Renault SA, Nissan Motor Co. and Mitsubishi Motors Corp. and the Volkswagen group in first and second, respectively.

Also Friday, Toyota said it will dissolve a capital tie-up with Isuzu Motors Ltd. formed in 2006 in an attempt to supplement each other's technological development of diesel engines.

Joint development was suspended in 2009 amid stricter restrictions on carbon emissions.

Isuzu said it will buy back a 5.89 percent stake that Toyota currently holds in the truck maker for up to 80 billion yen.

As the auto industry faces a shift to electric-powered vehicles, automation and connectivity, Toyota has been stepping up efforts to forge and strengthen alliances with a range of other industries, including ride-hailing firms, retail stores and information technology companies.

"In an era of once-in-a-century change in the auto industry, it has become difficult to enhance competitiveness by Toyota alone," said Executive Vice President Moritaka Yoshida at the same press briefing.

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