Japan's Toyota, Hit Hard Now But Equipped to Steer Clear

Toyota President Katsuaki Watanabe with the "ultra-compact" iQ, to go on sale in Japan. In the works: U.S. production of the Prius hybrid. "We plan to use this very severe business environment as an opportunity," a spokesman said. (By Haruyoshi Yamaguchi -- Bloomberg News)

"Big Japanese stocks like Toyota are easy to sell," said Merner, who has followed the Tokyo stock market for three decades. "Maybe you can't get a good price, but you can certainly sell them quick."

The Japanese government has "very few defense systems" to support the country's stock market, according to Shumpei Takemori, a professor of economics at Keio University in Tokyo.

The central bank here has little flexibility to lower interest rates to make stocks more attractive. They are already at rock bottom, about 0.5 percent for loans between banks. Despite limited capacity for cuts, the central bank will consider a 0.25 percent rate cut when it meets Friday, the Nikkei financial newspaper reported Wednesday.

The Japanese government, however, did move Tuesday to beef up one defense against market speculation. Finance Minister Shoichi Nakagawa said the government has banned the practice known as naked short-selling, which is selling a stock short without first borrowing the shares or making sure they can be borrowed.

While companies here can do little about turbulence in the stock market, many of them do have plenty of cash to ride out the storm.

About 40 percent of publicly traded Japanese companies are debt-free, according to a survey by the Nikkei financial newspaper. Major banks and many large companies have huge cash reserves, a legacy of the cautious management style that came into fashion here after Japan's financial crash in the 1990s.

Thanks to "balance sheets of armored steel," major Japanese companies such as Toyota are much better prepared than their competitors to withstand a long global recession and grab a significantly larger market share when consumers do start spending, said Ken Courtis, former vice chairman of Goldman Sachs Asia.

"My view is that Japanese producers will be hit much less hard by the crisis," he said. "They have lower cost structures, more product, technological momentum and better image. They can put products on the market which people can afford and will want to buy."

Courtis said the Japanese advantage is especially powerful in the automobile market in the United States, where General Motors and Chrysler are teetering on the edge of bankruptcy and in need of government bailout.

Toyota reached into its deep pockets this fall to grab the attention of reluctant car buyers in the United States. Taking the lead from other companies, it created Toyota's first-ever interest-free financing program and applied it to nearly all the vehicles it sells in the U.S. market.

Toyota has also responded to the listless American car market by halting the assembly of big pickup trucks at its U.S. plants for three months.

The company says it has laid off none of its 42,000 workers in North America. Instead, many of them are being retrained.

"We plan to use this very severe business environment as an opportunity to strengthen the flexibility and toughness of the company," said Toshiaki Hori, a Toyota spokesman.

In 2010, Toyota plans to open a new plant in Mississippi to make the Prius, the popular hybrid car that is now imported from Japan. By producing the car in the United States, Toyota expects to escape the punishing consequences of a higher yen.

Sometime after 2010, Toyota plans to begin mass production of all-electric cars. It has already launched a joint venture to design and manufacture long-life batteries for those cars.

"This downturn will probably be to the long-term benefit of Toyota," said Merner at Atlantis Investment. "They have high profit margins and lots of cash. There is going to be a big shakeout in the auto industry. Toyota is in better shape now than ever before to survive it."