Japanese Auto Industry Crumbles as Exports Dry Up

<<     >>
Comments: 0

March 27, 2009

The Japanese economy and specifically its automotive industry continue to be hammered in this economic recession.  Japan's gross domestic product declined  12% on an annualized basis in the last three months of 2007 as exports dropped sharply.  For the month of February, the government reported exports declined 49.4% compared to a year ago.  This is the fourth consecutive month exports declined and the largest in 30 years.   The International Monetary Fund is estimating the Japan's economy to contract 5.8% for 2009.  Japan’s industrial output fell 10% in January and February numbers are expected to be similar when reported next week.  Vehicle exports fell 64%, with those to the US down 71%.  The current economic downturn also took a toll on all the major Japanese manufacturers as vehicle production in February continued to fall (See Red Ink Warning – The Auto Slump is Global Including the Imminent Fallout).  

This week the Japanese automakers reported their domestic sales and production for the month of February.  The summary of the results for Japan’s big three vehicle companies follows:

Japan's largest manufacturer Toyota (Figure 1) reported that its global auto production, including subsidiaries fell by 49.6% in February from a year ago, to 434,179 units.  In February production including its subsidiaries, Japanese production was down 56.4%, Japanese sales fell 25.2% and exports decline 68.4%.  It was also reported the company does not expect to return to normal production until at least September.  Sales of vehicles exported to the US for the first 2 months of the year were down 38%.

 Figure 1: Toyota Stock (Click image to enlarge)

Honda (Figure 2), Japan’s second largest manufacturer reported production for February was down 42.7% compared to a year ago at 190,680 units, as output in Japan fell by 48.4%.  February was the fourth month in a row Honda reported production dropped in its home market.  Exports in February were also down 37.8% compared to 2008 to 29,346 vehicles. Its Japanese auto sales in February fell year-on-year by 20.2%.  Sales of vehicles exported to the US for the first 2 months of the year were down 48%.

 Figure 2: Honda Stock (Click image to enlarge)

Japan’s third largest manufacturer Nissan (Figure 3) also reported substantial declines in domestic production. Nissan's production for February fell 51.3% compared to 2008 to 156,864 vehicles. Production in Japan was down 68.8% with the company’s exports from Japan down 77.6% to 16,811 units in the month.  Sales of vehicles exported to the US for the first 2 months of the year were down 19%.

  Figure 3: Nissan Stock (Click image to enlarge)

At Toyota the erosion of global sales has put the company in a position it has not been in for a long time.   Late last year Toyota offered financial guidance and announced (presentation, release) it expects an operating loss of ¥150 billion ($1.7 billion) for the fiscal year ending March 31, 2009.  This will be the first yearly loss 71 years.  Last year the company reported a record profit of ¥2.27 trillion ($14 billion).

The Los Angeles Times recently published a story on how the downturn in the auto industry has affected Toyota’s hometown in Japan.  In Toyota City, Japan 80% of work force is employed in the auto industry. As part of its restructuring plan, Toyota eliminated 9,000 contract workers, which is over 10% of its 85,000 employees.  Full-time direct employees, once considered to be employed for life, are also now at risk.  In, Toyota City unemployment rose sharply where one-third of the 1,400 employers are related to the auto industry.  With Toyota’s sharp production cuts, these companies are at risk of bankruptcy and may need government help to survive.  Toyota City expects a 96% drop in corporate taxes where the local government generates one-forth of its corporate tax revenue from Toyota.

The LA Times went on to state:

The city has the typical signs of stress: plummeting property sales, empty storefronts and restaurants. But there is another commodity that the town has lost to the recession: foreigners. The representatives from Toyota suppliers and customers from the U.S. and Europe who used to pack downtown's hotels are gone. Some say occupancy rates have dropped 90%.

Toyota City industrial labor division’s general director Norio Seki, has said the city is in trouble with the city facing hardships similar to Detroit.

Acknowledging he never asked the city of Detroit for advice, Seki said:

"I'd like to know how they handle unemployment at this scale... I'd like to know what other industries they are looking into. How can you use the technology used in the auto industry for other kinds of enterprises?"

Seki went on to elaborate that Toyota City and Detroit are different in that monetary savings by individuals is greater and there are better social safety nets in Japan that should help the citizen get through these hard times.

Toyota has had tremendous growth over the past decade and it now faces a crisis it was not prepared form.  Earlier this year, Akio Toyoda was picked to replace  Katsauki Watanabe as the company’s president.  Watanabe became vice chairman of the company.  For the first time in 14 years, a descendent of the founder will be running the company.   The management change came at a time when the economic downturn has negatively affected the founding family’s net worth as Toyota stock price plunged.  The Toyoda family is the company’s largest private investor owning about 0.46% of the company’s outstanding shares and has seen its value decrease by $429 million (Figure 1). In the last year the price of Toyota’s shares have fallen about 40%.  Toyota is a strong company with ample cash on hand to weather a short term crisis but what they and the rest of the industry are experiencing is unprecedented.


The severe collapse in Japanese production in comparable to the steep drops the US manufacturers have been reporting in their home North American market. (See Forecast: US Auto Market May See Great Depression Like Collapse).  According to data published by Automotive News, as of March 21st GM, Ford and Chrysler have cut 2009 production in North America by 64%, 54% and 59% respectively over the previous year.  Toyota, Honda and Nissan have also drastically reduced production by 54%, 46% and 45%. Total North American production is down 53%.

As dire as the situation may appear for the future of US manufacturers GM, Ford and Chrysler, it is just as bad for the Japanese big three.  The sharp declines in both domestic and overseas consumption have hammered the Japanese auto industry as well as the greater Japanese economy.  It can only be hoped that the US market, which the Japanese auto makers are heavily reliant upon begins to bottom out. 

March sales in the US do not look encouraging from early estimates.  Early projections for month anticipate a 9.0 million seasonally adjusted sales rate.  In February, the rate was 9.1 million vehicles.  For comparison the lowest rate in the past 30 years was 8.8 million in 1981. Furthermore, given the deep production cuts by the the three big Japanese manufacturers, there is a strong chance their 4th Quarter losses could be deeper than first anticipated with a substancial drain on cash reserves as revenue drops with the steep production cuts.  

In conclusion, in 1981 during a very severe recession for the first time in 60 year GM reported an annual loss.  Since then the company has self destructed numerous times over the years, leading to its current situation awaiting the US government to decided its future. Almost 30 years later, Toyota just overtook GM to become the worlds largest auto manufacturer and today faces a similar turn of events.  Futhermore it is humbling to read Toyota City being compared to Detroit.  I will add that it may be more appropriate to compare it to Flint, MI where GM has its true roots and was truly a one industry, one company town.  In any case, Toyota has plenty of available talent, financial resources and goodwill to avoid the same fate as GM.  Although, thirty years ago, GM was just as strong Toyota is today.



Entire contents © 2007 - 2009 The Automotive Lyceum All Rights Reserved

URL: http: (ex. cnn.com)
Math (30 + 5)
* required


Note: Website optimized and best viewed in the Firefox browser. Formatting errors may result when viewing content with Internet Explorer. Click Firefox logo to download the latest version.

© 2019 Christonium LLC

Terms of Use