Hard times are coming

Slipping SUV sales hurting carmakers – SUVs enjoy some of the industry’s best margins  

Toyota is posting a profit warning after seeing North American and European sales slip dramatically on the slippery back of rising oil prices.

According to the world’s largest automaker, their profit shrank by 28 per cent in the first quarter to USD3.2 billion  while their operating income fell by 38.9 per cent.

They cited two main reasons for the drop in profit, the first is rising materials cost while the second contributing factor was the shift in consumer preference from large and profitable SUVs to smaller and more economical cars that gives carmakers a lot slimmer profit margins.

Yaris and Altis (above) are in high demand, they can’t make enought of it

“Currently we can’t satisfy the order backlog for Yaris and Corolla,” Ijichi said. “Because of short supplies of batteries we’re not able to satisfy demand for Prius,” said Mitsuo Kinoshita, executive vice president at Toyota.

Toyota’s revenue fell 4.7 percent to $57 billion. U.S. sales fell 4 percent to 729,000 during the first 3 months of 2008.

With oil prices still well above the USD100 per barrel mark, the market for fuel hungry SUVs will remain fragile and if the 1970s fuel scare is anything to go by, it is only likley to recover within two years, at the earliest.

Speculators are causing everyone a lot of pain right now, most economists expect them to start looseing their grip within a year and allow oil to find it’s natural level

 The Malaysian automotive market also registered a slight drop in sales in June and the trend is not likely to reverse for the next few months although the market is hopeful that the Government will make a downward adjustment on fuel prices if the monthly average dips below USD125 per barrel.

Oil price stood at USD114.94 as the market closed on Friday. Average June price was USD126.33. Oil peaked just above USD140 per barrel in that month.

Most industry observers and economists believe that the current high oil price is the result of speculation and that the level will fall below USD100 within one year, probably to between USD60 and USD80 per barrel.