Japanese Automakers Sputter Amid Skidding Sales Worldwide

Japan, whose major auto brands as Toyota, Honda and Nissan have been challenging American rivals for ever larger market shares stateside, with Toyota recently exceeding GM as the biggest car seller in the USA, has been hit with a double whammy amid the global financial crisis-sagging car sales both in the North America and home markets. Such dual impact forced Japan to cut back auto production by 41% (including trucks and vans) last year, during which its car sales skidded to a 30-year low of 3.2 million vehicles. As such the global financial crisis has broadsided the Japanese car-making industry worse than that in the epicenter of the fallout or the USA.

The Japanese Automobile Manufacturers Association (JAMA) predicts Japan's auto production to continue declining in the following months, without recovery in the short term. In January, Japan produced 576,539 vehicles, sharply down 400,436 vehicles from that of last year.

Economists warn that Japan is undergoing the worst economic recession since the World War II and it's the export-oriented economy dealing a heavy body blow during the global financial fallout.

"While enterprises become reluctant to make new investments, the demand for capital goods will nosedive as a result," comments Ashvin Chotai, the chief market analyst at the Intelligence Automotive Asia. "The global financial crisis has apparently shattered the confidence of car consumers in Asia," says Chotai, predicting an annual slump of 11.8% in Asian auto sales this year, much worse than that during the Asian financial crisis in the late 1990s. "Japan and Korea as the major car exporters will be affected the most," he adds.

Rising Currency

Japanese automakers' plight is worsened by the appreciating yen, which gained 14% during 2008, seriously eroding profits these companies generated from overseas markets and, what's worse, weakens their price competitiveness on cars and parts globally.

Reports are that the appreciating yen has driven Japanese automakers to outsource parts overseas to reduce production cost. Mitsubishi Motors told its Taiwan-based joint venture of more auto parts orders to be placed this year. Ford Japan, which has purchased the Escape CRV from Ford Taiwan, is planning to expand its procurement from Taiwan to include Mondea, Focus, and iMax, which Ford Taiwan produces with technology transfer from Ford Japan.

However, not every overseas partner of Japanese automakers benefit from the rising yen. Reports are that some Japanese auto parts makers, in contrast, have cut outsourcing to overseas OEM (original equipment manufacturer) to switch such orders to satellite factories in Japan. Such moves have been driven by social responsibility, calling for corporations to care for local workers at home at the expense of much higher labor cost.

Financial Woes

The same fate plaguing Western automakers also racks most Japanese counterparts, who are floundering under unprecedented financial troubles to seek official loans. Toyota, which finally dethroned General Motor as the world's largest automaker earlier this year, may soon lose the crown as it foresees a sharp decrease in production for this year and has idled 12 auto plants in Japan to digest its large inventory, leaving only one domestic production line in operation.

The top Japanese automaker has been slashing output due to plummeting sales, likely resulting from tightened credit everywhere, at hone and overseas. Toyota's American sales fell 37% last December, worse than its American counterparts-31% for GM and 32% at Ford. With Toyota predicted to cut output by 20% in 2009, Volkswagen, which saw its 2008 revenues grow an annual 4.5%, may nudge the Japanese giant into second place to pave its ambitious plan to replace Toyota as the world's largest automaker by 2018.

Falling from grace since its establishment 70 years ago, Toyota may post the first annual loss in 2009. The company, which prides itself on not having to resort to layoff, is now eliminating 5,300 contract workers in Japan, who do not receive most of the benefits given to permanent workers, as well as reneging on the tacit guarantee of lifetime employment.

Japan's other major automakers like Honda, Nissan, and Mazda are also sputtering-expressing need for government help amid steadily falling car sales. The Japanese government reportedly has been negotiating with banks to raise US$5 billion in favorable financing for these automakers.

Most of the eight major automakers in Japan predict annual losses in 2009, with Honda being the only exception with a forecast for a small profit of 80 billion yen. Nissan does not plan to shut down any production lines at home or abroad, despite its eventual cutback by 2010 of 20,000 jobs worldwide, or 8.5% of its 235,000 global workforce.

Sunnier View

The Tokyo-based Atlantis Research Institute, however, looks at the current Japanese auto market more optimistically, saying that the figures are not as gloomy as they appear. "Compared to those of late last year, the figures look better," said the research institute.

Perhaps Japanese automakers have been making long-term plans to cope with the worst-case scenario. It is conceivable that Japanese carmakers believe developing eco-friendly cars is one way to channel resources for a sustainable auto industry. Toyota has reportedly cut labor, shut down production lines, but not reduced its R&D budget for green car projects. Besides being the world leader in hybrid cars with the Prius, Toyota is also developing solar-powered cars, scheduled to be formally debuted in two years. Such solar-powered cars will tap energy through solar panels either on car bodies or rooftops of buildings to maximize using the readily-available natural power resource.

Most automakers see building green cars as the most effective strategy to expand market shares in the future. Honda unveiled its new hybrid Insight early February, priced competitively at less than US$20,000 stateside, compared to the US$22,000 for the Prius.