Toyota 2010 Annual Report Download - page 30

TOYOTA ANNUAL REPORT 2010 28
The automotive industry is subject to various governmental regulations
The worldwide automotive industry is subject to various laws and governmental regulations
including those related to vehicle safety and environmental matters such as emission levels, fuel
economy, noise and pollution. In particular, automotive manufacturers such as Toyota are required
to implement safety measures such as recalls for vehicles that do not or may not comply with
the safety standards of laws and governmental regulations. In addition, Toyota may, in order to
reassure its customers of the safety of Toyota’s vehicles, decide to voluntarily implement recalls or
other safety measures even if the vehicle complies with the safety standards of relevant laws and
governmental regulations. Many governments also impose tariffs and other trade barriers, taxes
and levies, or enact price or exchange controls. Toyota has incurred, and expects to incur in the
future, significant costs in complying with these regulations. If Toyota launches products that result
in safety measures such as recalls, Toyota may incur various costs including significant costs for free
repairs. Furthermore, new legislation or changes in existing legislation may also subject Toyota to
additional expenses in the future. If Toyota incurs significant costs related to implementing safety
measures or meeting laws and governmental regulations, Toyota’s financial condition and results of
operations may be adversely affected. Toyota may become subject to various legal proceedings.
Toyota may become subject to various legal proceedings
As an automotive manufacturer, Toyota may become subject to legal proceedings in respect of
various issues, including product liability and infringement of intellectual property. Toyota may
also be subject to legal proceedings brought by its shareholders and governmental proceedings
and investigations. Toyota is in fact currently subject to a number of pending legal proceedings
and government investigations. A negative outcome in one or more of these pending legal
proceedings could adversely affect Toyota’s financial condition and results of operations.
Toyota may be adversely affected by political instabilities, fuel shortages or interruptions
in transportation systems, natural calamities, wars, terrorism and labor strikes
Toyota is subject to various risks associated with conducting business worldwide. These risks
include political and economic instability, natural calamities, fuel shortages, interruption in
transportation systems, wars, terrorisms, labor strikes and work stoppages. The occurrence of any
of these events in the major markets in which Toyota purchases materials, parts and components
and supplies for the manufacture of its products or in which its products are produced,
distributed or sold, may result in disruptions and delays in the operations of Toyota’s business.
Significant or prolonged disruptions and delays in Toyota’s business operations may adversely
affect Toyota’s financial condition and results of operations.
Political, Regulatory and Legal Risks
Toyota’s operations are subject to currency and interest rate fluctuations
Toyota is sensitive to fluctuations in foreign currency exchange rates and is principally exposed to
uctuations in the value of the Japanese yen, the U.S. dollar and the euro and, to a lesser extent, the
Australian dollar, the Canadian dollar and the British pound. Toyota’s consolidated nancial statements,
which are presented in Japanese yen, are a󰮏ected by foreign currency exchange uctuations through
both translation risk and transaction risk. Changes in foreign currency exchange rates may a󰮏ect Toyota’s
pricing of products sold and materials purchased in foreign currencies. In particular, strengthening of
the Japanese yen against the U.S. dollar can have an adverse e󰮏ect on Toyota’s operating results. The
Japanese yen has been appreciating against major currencies including the U.S. dollar in the past year.
If the Japanese yen continues to appreciate against major currencies, including the U.S. dollar, Toyota’s
financial condition and results of operations may be adversely a󰮏ected.
Toyota believes that its use of certain derivative financial instruments including interest rate
swaps and increased localized production of its products have reduced, but not eliminated, the
effects of interest rate and foreign currency exchange rate fluctuations. Nonetheless, a negative
impact resulting from fluctuations in foreign currency exchange rates and changes in interest
rates may adversely affect Toyota’s financial condition and results of operations.
High prices of raw materials and strong pressure on Toyota’s suppliers could negatively
impact Toyota’s profitability
Increases in prices for raw materials that Toyota and Toyota’s suppliers use in manufacturing their
products or parts and components such as steel, precious metals, non-ferrous alloys including
aluminum, and plastic parts, may lead to higher production costs for parts and components. This
could, in turn, negatively impact Toyota’s future profitability because Toyota may not be able to
pass all those costs on to its customers or require its suppliers to absorb such costs.
The downturn in the financial markets could adversely affect Toyota’s ability to raise capital
The world economy continues to be weak and business conditions remain difficult. A number of
financial institutions and investors have been facing difficulties providing capital to the financial
markets at levels corresponding to their own financial capacity. As a result, there is a risk that
companies may not be able to raise capital under terms that they would expect to receive with their
creditworthiness. If Toyota is unable to raise the necessary capital under appropriate conditions on a
timely basis, Toyota’s financial condition and results of operations may be adversely a󰮏ected.
costs are factors which may impact Toyota’s financial services operations. The likelihood of these
factors materializing continues to remain at a high level amidst weak global economic conditions, and
competition in automobile nancing has intensied. If Toyota is unable to adequately respond to the
changes and competition in automobile nancing, Toyota’s nancial services operations may adversely
a󰮏ect its nancial condition and results of operations.
Financial Market and Economic Risks
Risk Factors
Corporate Information
Risk Factors Other Management and Corporate Data
Consolidated
Performance Highlights
Financial Section Investor Information
Corporate Information
Business Overview
Special Feature
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