Japan Autos Report Q4 2012

Includes 3 FREE quarterly updates

Executive Summary

Fuel efficiency will back up the replacement vehicle sales growth linked to last year's natural disaster in Japan, following the government's introduction of purchase incentives for small greener cars. Passenger car sales rose 46.8% year-on-year (y-o-y) in June 2012, taking total car sales growth for H112 to 56.6%.

However, June's data does support our view that the y-o-y growth will be slower as the year goes on, as the 46.8% increase compares with 68.6% in May and 99.5% in April, which were the months directly following the disasters in 2011.

We will closely monitor sales over the coming months to ascertain how much of an impact the incentives will have in bolstering car sales beyond the natural recovery from last year's disruption. We had already revised our forecast for the passenger car market upwards earlier in the year on the back of support for smaller car purchases. Taking into account the data for the year to July, we have now revised this up further with total passenger car growth expected to be around 41%, which would take total vehicle sales growth to 37%, and take the total sales volume back over the 5mn unit mark last seen in 2008.

Although domestic production by Japanese carmakers was also 53% higher y-o-y in H112, reflecting the disruption to manufacturing in the months following the earthquake and tsunami of March 2011, the most notable growth in production is from their overseas facilities. As carmakers continue to find more competitive manufacturing bases in a period when the yen looks unlikely to weaken significantly, BMI expects this movement toward foreign production to gain momentum.

Combined, Japan's eight major car producers reported almost 60% more output overseas than from domestic operations in H112. Combined production from foreign plants rose 27.9% to 7.95mn units, compared with 4.99mn units produced in Japan. This growth was attributed to a combination of new plants coming onstream and expanded capacity for popular models.

We have revised our production forecasts upward in light of our improved outlook for domestic sales, but we still forecast much slower average annual growth in output of 4.5% beyond the 2012 recovery year.

While this will be, in part, owing to the saturated nature of the domestic market, it will also be down to increased production overseas, reducing the need to export from a less competitive base.