TOKYO – Foreign exchange rates and spiraling costs hammered profits at Toyota Motor Corp., derailing Japan’s largest carmaker from a third-straight year of record results and spurring President Akio Toyoda to warn of an impending "sense of crisis."

Operating profit tumbled 20 percent to 438.9 billion yen ($3.94 billion) in the carmaker’s fiscal fourth quarter ended March 31. Net income slid 6.6 percent to 398.4 billion yen ($3.58 billion), the company said Wednesday while announcing full-year earnings results.

Revenue increased 6.8 percent to 7.44 trillion yen ($66.87 billion).

Global retail sales advanced 3.1 percent to 2.5 million vehicles in the January-March period, including results from its Daihatsu small-car subsidiary and truck-making affiliate Hino.

The fourth-quarter slump sealed a retreat in full-year profits, with both 12-month operating profit and net income falling from the previous year.

The reversal cut short a run in which Toyota had notched two-straight years of across-the-board records in full-year revenue, net income and operating profit. It also put Toyota on the path toward another decline in operating profit and net income in the current fiscal year.

'Sense of crisis'

Toyoda said he felt a sense of crisis as the company braced for two consecutive years of falling profits and said that Toyota would streamline operations to bolster margins.

“I feel a strong sense of crisis about whether or not we are actually executing car-making from the perspective of the customer in all Toyota workplaces, from development, production, procurement and sales, all the way to administrative divisions,” Toyoda said.

“In the case of sports, booking two consecutive years of losses would mean you are failing,” said Toyoda, grandson of the company’s founder. “I hate to be beaten.”

For the full fiscal year ended March 31, operating profit fell 30 percent to 2.85 trillion yen ($25.62 billion), while net income dropped 21 percent to 2.31 trillion yen ($20.76 billion).

Revenue declined 2.8 percent to 27.60 trillion yen ($248.07 billion).

Global retail unit sales inched ahead 1.6 percent to 10.3 million vehicles, for the full fiscal year. Worldwide wholesale deliveries advanced 3.3 percent to 9.0 million units.

Toyota lost its title as the world’s biggest automaker to German rival Volkswagen Group in calendar year 2016, with worldwide volume inching ahead just 0.2 percent to 10.2 million vehicles. But that fell short of the 10.3 million vehicles VW reported selling for a 3.8 percent bump.

Gloomy outlook

Toyoda warned that profits will fall again in the current fiscal year ending March 31, 2018.

Operating profit is expected to slide 20 percent to 1.60 trillion yen ($14.38 billion), while net income is forecast to decline 18 percent to 1.50 trillion yen ($13.48 billion).

Global retail unit sales are seen essentially flat at 10.25 million vehicles, while worldwide wholesale deliveries are forecast to dip 0.8 percent to 8.9 million units.

The reversal is exacerbated partly by spiraling outlays for such things as higher incentives, increased labor costs and ramped up investments in manufacturing sites.

Toyoda said his company has made big advances in developing better vehicles with its new modularized platform. Called the Toyota New Global Architecture, or TNGA, it underpins such nameplates as the redesigned Camry sedan and CH-R compact crossover arriving stateside this year. But the company needs to improve the way it makes vehicles to be more competitive.

“When it comes to making ever-better cars in a smart way, it is becoming apparent that there is still room for improvement,” Toyoda said, adding that the company will focus on streamlining operations in the current fiscal year. Last year, Toyoda recently reorganized the company to create internal sub-companies that are freed to act more independently and nimbly.

It will take time for results of that overhaul to show, he said.

Higher costs

In the just-ended fiscal year, exchange rate losses lopped 940.0 billion yen ($8.45 billion) off Toyota’s operating profit. Higher incentives, labor costs, r&d spending and investments depressed operating profits by another 530.0 billion yen ($4.76 billion), erasing cost cutting efforts.

The company is spending more partly to retool factories for its new TNGA vehicle platform. Toyota embarked on a new era of expansion two years ago after taking a three-year pause on new factories. The offensive began with the introduction of TNGA in the fourth-generation Prius hybrid. The campaign will continue through 2020 with a new factory in Mexico.

Japan anchored full-year earnings as Toyota’s biggest profit center and top-volume markets.

Operating profit in Japan surged 56 percent to 508.2 billion yen ($4.57 billion) in the fiscal fourth quarter ended March 31. For the full year, regional operating profit actually fell, but Japan still generated more profits than the rest of the world combined for the 12-month period.

North America and Europe swung to regional operating losses in the January-March period.

But for the full year, North American finished in the black, with operating profit dropping to 311.1 billion yen ($2.80 billion), from 528.8 billion ($4.75 billion) the year before.

Europe slumped to a fiscal full-year operating loss of 12.2 billion yen ($109.7 million), from a regional operating profit of 72.4 billion yen ($650.7 million) a year earlier.

Regional wholesale volume in North America was flat at 2.8 million vehicles for the full fiscal year, but North America kept its position as Toyota’s biggest market.

European sales advanced 9.6 percent to 925,000 units in the year ended March 3.

EDITOR'S NOTE: An earlier version of this story misstated the annual revenue figure.