Japanese Automakers Struggle Through First Half

By Peter Nunn July 28, 2011

Japan 2011 H1 Struggle.jpg

Six months down, the second half of 2011 has just got to be better. For Japan’s hard pressed group of automakers, that has to be the belief right now, coming off an extraordinarily harsh 2011 first half that has seen production, sales and profits pushed off course as never before. The numbers for January through June are now in and, of course, reflect the massive disruption caused by the terrible March 11 earthquake and tsunami in northern Japan. It’s not every day, for instance, that you see Toyota’s global production plummet more than 20 percent year-on-year, to 3.38 million units with production at home down an even steeper 35.3 percent at 1.36m units. Honda’s output, in turn, fell a massive 45.7 percent domestically for January to June to 266,473 units while the global downturn at Honda was 27.7 percent at 1.3 million units.

Such has been the impact on Japanese manufacturing, which, of course, has also affected export numbers, not the least of which to North America, making this one of the roughest periods on record for Japan Auto Inc. Of Japan’s big five manufacturers, Toyota and Honda have clearly been the worst affected. Mazda’s numbers are also grim, with global production down 12.6 percent at 548,026 units and domestic manufacturing in Hiroshima sinking 20.3 percent for the six months to 356,791 units.

Nissan, Mitsubishi Suffer Least
But it is not all doom and gloom. Nissan has come through in surprisingly upbeat form, with global production increasing 11.1 percent to 2.15 million units, with overseas manufacturing surging an impressive 22.8 percent to 1.69 million units. How has Nissan done it? In a report, Nissan says production in China increased 18.6 percent to 578,526 units for the six months. U.S. production increased 5.4 percent to 274,809 units while Mexico surged 22.1 percent to 288,307 units. The UK, Spain and “other markets” also logged significant increases. Going the other way, Nissan’s production in Japan was down 18.3 percent to 449,492 units, but again a very different result to Toyota and Honda.

Nissan beat the odds with U.S. exports up 9.4 percent to 159,186 units while Toyota crashed 43.3 percent to 169,768 units. Honda’s U.S. exports also fell 29.5 percent to 63,973 units. Mazda posted a similar 25.4 percent decline at 102,017 units, with the vast majority of its production still based in Japan. So far, Nissan is the only one of Japan’s Big Five to post global sales numbers for January-June. Again, good news for Carlos Ghosn’s men with global sales up 12.1 percent year-on-year, to 2.25 million units, with the U.S., Europe, China and Russia especially robust.

Very quietly, Mitsubishi Motors has also come through the storm relatively unscathed. One reason is that it has a much smaller production footprint than Toyota and Honda and a more compact model range. While domestic production fell a scant 0.6 percent to 305,668 units, overseas manufacturing was up 10.3 percent to 280,858 units. Mitsubishi also posed a healthy 30.8 percent increase in exports to the U.S. to 28,690 units. But Europe was even better: shipments up 34.2 percent to 94,079 units with the Outlander family leading the way.

Seven Bad Things
For the most part, however, the January-June 2011 numbers are off not just because of the March 11 earthquake. This time last year, Japan’s auto industry was in high gear, aggressively boosting production and sales in a recovering world market. In Japan, a government-backed package of eco-car incentives saw sales surge. Once those incentives finished, so did the sales boom. The Toyotas and Hondas of this world were in the process of retooling production to reflect that weakened demand just as the March 11 quake hit, so making for a tragic double whammy.

While Japanese automakers have overcome insuperable odds to restore supply lines and production in the following weeks and months, there is still some way to go. While Toyota, the market leader, says domestic and overseas production levels hit 90 percent in June, it won’t be until November or December that things will be fully back to normal. Honda is predicting that it will be August or September in their case. To make up for the shortfall, Toyota plans to build an additional 350,000 units from October to March 2012 and others will surely plan similar moves.

These truly are testing times for Japan’s car making community, which is currently battling what it calls “rokkujuku” or “six bad things.” These include the absurdly high value of the yen (at 78 yen to the U.S. dollar, no Japanese automaker can turn a profit) and Japan’s high tax rates. The government-imposed high C02 reduction target is another hurdle. More flexible labor and trade agreements would also be welcomed by automakers. Automakers are also under severe pressure to reduce electricity consumption this summer, or face big fines, which has led them to shift production to weekends. It’s one solution but less than convenient for all concerned.

Going further, one might also add increasing competitive pressure from Detroit, the Korean brands and Volkswagen to make it “seven bad things.” While one obvious solution would be to move more production offshore, Japanese automakers are under concerted political pressure not to do so. Still, though the first six months of 2011 have been a hard road for Japanese automakers, once again they have shown their resilience under pressure, so a comeback in the second half looks more than on the cards.

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