Japanese Auto Makers Head for Stiff Competition

01/03/97

Reuters reports that Japan's carmakers may have set rosy targets for 1997, but industry analysts counter that the predictions may be to high leading to fierce sales battles that could be compounded by a feeble economic recovery and low exports.

Japan's top five carmakers (Toyota, Nissan, Honda, Mitsubishi, and Mazda) said they expected sales to increase by 3.7 percent to 7.8 percent, although industry analysts say those figures are too high. Noriyuki Matsushima, a senior analyst with Nikko Research, said, "they are too optimistic. It is impossible for them to reach those targets."

Toyota says it expects a four percent hike in 1997 domestic sales, Nissan predicted a 3.7 percent growth, Honda predicted a 5.5 percent rise, Mitsubishi forecast 5.0 percent growth, and Mazda reported that it expected a 7.8 percent rise in sales.

Some analysts have said the carmakers' announcement of seemingly impossible sales targets were designed to force dealers to boost sales. They have said that carmakers knew that reaching their targets would not be easy. Matsushima said, "makers will face a stiff battle and those who can give more incentives to dealers will win the war."

Analysts expect the sales battle to be more intense than usual because Japan's slow economic recovery has tightened consumer spending and because the industry expects slack exports. Matsushima said, "Japan will have to curb its vehicle exports in the second half of next year to avoid a possible revival of trade friction with the United States."

In the last six months exports have boomed, increasing concern over trade problems with the United States. Early in November, the American Automobile Manufacturers Association warned Japan about exports after Japan announced a 30 plus percent jump in its trade surplus with the U.S. A weaker yen has fueled the boom in exports.

The analysts said that all these factors mean that Japanese carmakers will have to fight it out in the domestic market, with price discounts and new models, if they hoped to boost sales.

A planned rise in Japan's consumption tax, however, is expected to pose another obstacle to car sales. The tax is slated to increase from three to eight percent on April 1. Additionally, the Japanese government forecast gross domestic product growth of only 1.9 percent for the fiscal year beginning April first--its lowest prediction ever.

The predicted outcome of 1997's expected sales battle will be a widening of the sales gap among Japanese car makers with Toyota coming out on top. Nobuaki Yanachi, senior analyst with Kankaku Research, said, "Toyota should handsomely boost its profits next year, helped by cost-cutting, caused by the effects of larger output (pushed up by robust sales)." He said Toyota had a wider range of new models and the financial strength to provide good dealer incentives.

Yanachi said that Honda's profits are also expected to grow next year, but at a slower rate, because of rising sales costs. Harsh competition will probably give Mitsubishi and Mazda a harder time in 1997, and Nissan's performance will likely depend on its new models fare.

Paul Dever -- The Auto Channel