Is the worst over for Japan's automakers?

Posted by: Ian Rowley on July 30, 2009

There is no denying Japan’s automakers took some extreme measures at the start of the year. As sales slumped around the world, nothing was safe from cost cutting. Mitsubishi Motors apologized before one press conference for not providing water as an emergency cost saving measure. The chief engineer of a new Lexus shared a car with two colleagues rather than take the bullet train from Toyota City to Tokyo, even though it took four hours versus 90 minutes on the train, to save $300 in train fares. More important: the likes of Toyota, Honda and Nissan slashed production at the start of the year—in some months trimming output 65% from a year earlier—as they battled to reduce inventories.

This week’s earnings results suggest the tough steps are paying off. After racking up huge losses in the first three months of the year, Honda, Nissan, and Mazda have all posted better than expected results for the April-June period. Honda, one of only three Japanese carmakers, to make an annual profit in the financial year that ended on March 31, surprised analysts yesterday with a small profit. Today’s its stock rose 8%. Nissan, which posted a smaller than expected loss a couple of hours after Honda’s results, surged 10%. Mazda’s better-than-hoped $264 million loss also warrants a mention given that the Hiroshima-based carmaker exports about 85% of the vehicles it makes in Japan. That makes it especially vulnerable to the strong yen, which surged against other currencies last fall and remains at painful levels for exporters.

For all that, the recent recovery in confidence—and share prices—could prove fragile. One question mark is what will happen to auto sales once government incentive schemes come to an end. “Cash for clunkers” and tax breaks for eco-friendly cars are one reason for better-than-forecast results. In China, government measures, including boosting sales of cars with engines sizes of 1.6 liters or smaller, continue to stoke sales. In Japan, subsidies for eco-friendly vehicles, such as the Honda Insight and Toyota Prius, have propelled hybrids to the top of the sales rankings for the first time. But what happens when the government help runs out?

Then there’s the Toyota factor. The company, the world’s largest automaker, doesn’t reveal its quarterly results until August 4. Given its huge importance to the Japanese auto industry, if its numbers disappoint, the recent improvements in sentiment could quickly go into reverse.

Reader Comments

rod

July 30, 2009 6:04 PM

quality will prevail, japan still makes the most reliable vehicles and best value in the long term.

mike wilson

July 31, 2009 1:46 AM

I work a lot with Toyota I know things have slowed down and realy hope to see a turn around some time in the next couple years they are so into Lean and 5S it is amazing.

RJD

July 31, 2009 1:48 PM

The new GM and Ford, freed from the shackles of UAW legacy pension and health care costs, will take market share from Toyota and Honda. GM and Ford's new vehicles are more exciting and have better quality than the bland boring snoozmobiles in which Toyota specializes.

ps

July 31, 2009 5:17 PM

I believe that Hyundai and Honda will benefit most, with GM and Ford making some progress. If the Detroit iron quality holds up over a 5 yr period or so, they'll give the big imports a run for their money. Initial quality is meaningless if cars fall apart after 120k, a GM specialty.

the big bang theory episodes

January 17, 2011 5:35 PM

Is the worst over for Japan's automakers? - BusinessWeek did not totally explain what you would be talking about in the post, But I just realised why you chose that exact title.

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