Japan Autos Report Q2 2008

Although new vehicle sales in Japan continued on a downturn in 2007, following a similar slide in the previous year, there is evidence to suggest that a recovery could be on the cards. BMI highlights positive growth in the first two months of 2008, which supports our forecast for a turnaround over the next five years. In a twist to the traditional structure of the market, however, imports will play a pivotal role in sales growth. Although imports will not necessarily be from overseas brands; Japanese manufacturers are increasingly importing models from their bases in other countries in order to cut costs. In 2007, imports by Japanese manufacturers overseas more than doubled to 33,493 units.

This is not to say that national producers will completely abandon domestic production. Honda has announced plans to invest in a new small car plant to produce a low-cost model aimed at Japan's growing small car market, as well as emerging markets where Renault's Logan has been successful. When Honda's plant comes online in 2010, it will have an annual production capacity of 240,000 units, equal to 14% of small car sales in 2007. The plant will begin operations through its engine production line in 2009. Mitsubishi Motors has also introduced plans to raise the annual production capacity of its domestic plants in order to meet its target for the financial year ending March 2008. Its three Japanese plants previously produced 840,000 units but this has been increased by 10% as Mitsubishi chases a global target of 866,000 units for the current financial period, up 15% year-on-year.

Disadvantaged in a similar way to Australia and South Korea by being a developed state with a nearsaturated market, Japan ranks down in eighth place with a rating of 54.5 from 100 in BMI's newly created Business Environment Ratings for the autos industry. While the country scores well in terms of its country risk with low levels of corruption and a sound legal framework, the autos industry is nearing full capacity, which reduces production growth potential, while the high level of vehicle ownership also restricts possible sales growth. Labour costs are high, which adds to the cost of expanding production.

The Japanese market remains dominated by Toyota with a share of almost 29%, although the firm's sales did fall in 2007 in comparison with 2006. Nissan too lost any advantage gained in 2006 as its sales fell by 6%, despite retaining second place. Toyota can, however, take heart from the fact that its premium division, Lexus, achieved the highest growth of 11.91%. BMI would expect Honda to climb the rankings over the longer term owing to its new small car plant.