Kenichi Ishida saw monthly sales at his Toyota dealership surge by up to 50 per cent under the Japanese government’s stimulus plans to boost car demand. Now he frets that famine will follow feast.
“I’m so afraid for next year,” Ishida, 47, said in his showroom in Tokyo’s Setagaya ward. “Our sales will plunge. I know it’s coming.”
As government incentive programmes end in Japan, Europe and the US, automakers and dealers say they may have to continue the discounts or face a return to declining sales. Either scenario may add to losses for carmakers including Toyota Motor Corp, the world’s biggest.
“We are very worried about the backslide after the programmes end,” said Kiyoshi Ozaki, chief financial officer at Hiroshima-based Mazda Motor Corp.
“We fear we may be forced to give incentives, in the place of the governments.”
Japan’s 370 billion yen ($4 billion) programme, which offers rebates of as much as 250,000 yen for people who trade in older cars for newer, more fuel-efficient models, is scheduled to end in March.
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Cars registered since April 10 are eligible for the programme. The initiative and new tax cuts for fuel-efficient cars may generate 1 million sales in the fiscal year ending March 31, according to the Japan Automobile Manufacturers Association.
In Europe, Ford Motor Co is lobbying governments to extend incentive programmemes, including Germany’s ¤5 billion ($7.1 billion) plan, which ran out of money September 2.
The $2.88 billion US “cash for clunkers” plan, which generated almost 700,000 new car sales, expired August 24.
The stimulus policies spurred car sales that were set to fall to the lowest in about three decades in Japan and the US Japan’s car sales rose 2.3 per cent last month from a year earlier, the first gain in 13 months, while US demand grew 1 per cent, the first monthly increase since October 2007.
European car sales rose 2.4 per cent in June, the first gain in 14 months.
“The impact of the incentives and tax breaks is huge,” said Atsushi Sugiyama, managing director of the Japan Automobile Dealers Association. “We hope the programme continues for a longer time, but we know there are budgetary limitations.”
Global auto sales fell 20 per cent to 17.8 million vehicles in the four months to April this year from a year earlier, according to the latest available figures from CSM Worldwide, a Northville, Michigan-based auto consulting company. The worst recession since the Great Depression pummeled demand, driving General Motors Corp and Chrysler LLC into bankruptcy and forcing Toyota to post a loss for the year ended March 31, its first in six decades.
Toyota has gained 33 per cent this year. Honda has risen 51 per cent.
The Toyota City, Japan-based company last month forecast a net loss of 450 billion yen for the year ending March 31. Nissan Motor Co is expecting a 170 billion yen loss and Honda Motor Co forecasts net income of 55 billion yen.
US consumer spending, which accounts for about 70 per cent of the world’s largest economy, fell at a 1 per cent pace in the second quarter this year. Forecasts call for below-average gains in spending because of stagnant incomes and an unemployment rate that may reach 10 per cent early next year for the first time since 1983, according to a Bloomberg survey last month.
Japanese wages fell for a 14th month and the jobless rate rose to a record 5.7 per cent in July. The International Monetary Fund forecasts economies in developed countries including Japan, US and the Euro zone will recover only 0.6 per cent in 2010 from a 3.8 per cent contraction this year.
While the US car-rebate programme provided a “short-term boost,” it may have taken away from future growth, said Peter Boockvar, an equity strategist at Miller Tabak & Co in New York.
Likewise, Japan’s incentives may be cannibalising sales that would otherwise have come later, Honda’s Chief Financial Officer Yoichi Hojo said August 5.
Goldman Sachs Group Inc predicts auto sales in Japan and Western Europe next year may drop 10 per cent from 2009 estimates to 4.27 million vehicles and 13 million vehicles, respectively, mainly due to incentive programmes phasing out.
“The market is seeing a temporary boom,” Toyota spokesman Yuta Kaga said. “For fiscal 2010, we can’t forecast sales as economic and business environments are still unclear.”
As incentives disappear, “carmakers will need to absorb the price gap to sell cars,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages 3.4 trillion yen.
Toyota and Nissan have said there’s no plan to offer discounts after the government rebates end.
“It’s too far away, and we don’t know at this point,” Honda spokeswoman Yasuko Matsuura said.
Compounding carmakers’ woes, the incentive programmes may also have accelerated a shift away from larger cars to smaller, more fuel-efficient models that generate less profit, said Hitoshi Yamamoto, chief executive officer of Tokyo-based Fortis Asset Management Japan Co.
Nine of Japan’s top-10 selling vehicles in July were compacts or minicars. Toyota’s Prius gasoline-electric hybrid topped the rankings with sales almost quadrupling from a year earlier to 27,712 vehicles, while Honda’s Insight hybrid ranked seventh.