Japan's car exporters warn on US trade

The slowing US economy will increase overcapacity

A trade war may be brewing as Japan's car makers brace themselves for a sharp fall in exports to the US, according to Japan Automobile Manufacturers Association (Jama).

Making cars for whom?

"The US auto market has been sharply deteriorating in the last two to three months of this year," said Jama chairman Hiroshi Okuda.

"I'm not expecting much from the United States next year," he said.

As the US economy continues to slow down, the American people buy less cars.

The competition for a share of the market could intensify, with clashes emerging between US and non-US car makers, Mr Okuda said.

This is a major disappointment for us, and we think this will be an important issue for the next Congress and the new [Bush] administration

Trade tension could intensify as a consequence.

"In this situation, some friction between Japan and the United States may emerge," he said.

Trade talks

On Tuesday, only two weeks ahead of the expiry date of a five-year-old agreement to open up Japan's car industry to foreign competition, talks between the two countries failed to secure its renewal.

The Japanese officials argued that US car makers have failed to adapt their products to the Japanese market.

"The government of Japan believes that the measure adopted in 1995, which focuses on bilateral trade and procurement, has outlived its significance" because of the increasing globalisation of the car industry, said a senior official with the Japanese trade ministry, Hajime Furuta.

"This is a major disappointment for us, and we think this will be an important issue for the next Congress and the new [Bush] administration," a US official said.

US car makers resent the imbalance between the Japanese onslaught on their domestic market and their own inability to sell cars to Japanese consumers.

Falling sales

Car sales in the US is expected to fall to between 16 and 16.5 million cars in 2001 from between 17 and 17.5 million this year, predicted Japan's second-largest car maker Honda.

In addition to a contracting economy, a collapse in the sale of so-called sports utility vehicles, large 4x4 trucks that are as comfortable as cars but often with much more sporty images, is blamed for the slide in sales.

US car sales due to fall

"For the last five years, sports utility vehicles have seemed to be in a bubble," said Honda's chief executive vice president, Koichi Amemiya.

Mr Amemiya expected car buyers to seek out more fuel efficient cars in the future, as high oil prices make driving more expensive.

This could enable Japanese car makers to grab market share in the US from their competitors in Detroit, he believed.

Rising sales

In Japan, the car market is expected to expand in 2001 for the first time in 4 years, according to Jama.

A recovery in consumer spending will aid the recovery in sales and push it up by 2.2% to 6.1 million car sales, Jama predicted on Thursday.

Many consumers are expected to replace cars bought between the late 1980s and the middle of the 1990s, said Salomon Smith Barney car analyst Noriyuki Matsushima.