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Thursday, 16 May, 2002, 07:59 GMT 08:59 UK
Japan's car firms defy tough times
Honda and Toyota toy Formula One cars
Honda and Toyota jump into Formula One
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By Jorn Madslien
BBC News Online business reporter

During a year when most of the world's car companies have been bemoaning tough market conditions, Japan's automotive sector has enjoyed bumper profits.

Mazda boss Mark Fields
Mazda boss Mark Fields says profits will double
Most Japanese car makers have defied both a lengthy recession in their home market, and widespread economic weakness in their international markets.

In the process, they have gained strong leads on their US and European peers.

"Honda in particular sees no end to its out performance, while Toyota is now looking at taking over global leadership from General Motors," observed sector analysts at

Making cars into cash

Toyota and Honda have firmly cemented their positions as Japan's leading car makers, and both have displayed their confidence by diving head-first into the competitive world of Formula One - a move which in Honda's case marked a return to the sport.

Mitsubishi boss Rolf Eckrodt
Mitsubishi boss Rolf Eckrodt: glad to be in the black
Both of them have, along with their smaller competitor Nissan, reported record profits for the year.

Mitsubishi and Mazda, meanwhile, have managed to leave their persistent losses behind.

"Mazda is back in the black," said president Mark Fields, predicting that profits would double this year.

And Mitsubishi has returned to profit for the first time in three years.

"We will now move steadily from cost reduction and process optimisation into further business consolidation and profitable growth in the years to come," declared the group's chief executive designate, Rolf Eckrodt.

American dream

Japan's car makers consider the US market their best hope to secure profits and growth in the future - even though the Japanese people buy 5.8 million cars a year, almost exclusively from domestic producers.

"The US is the most important market for anybody because it is the most profitable one," said Nissan Motor's chief executive, Carlos Ghosn.

Japan's car market shrank for the eighth month in a row in April, down 2.8% on last year, and profit margins are squeezed.

"The bulk of the Japanese auto companies' earnings comes from the US," UBS Warburg automotive analyst Xavier Gunner told BBC News Online.

Weak yen

But not, as is widely believed, in the form of export earnings,

Nissan boss Carlos Ghosn
Nissan boss Carlos Ghosn relies on US sales
"Seventy percent of [Japanese] cars sold in the US are actually built in the US," Merrill Lynch automotive analyst Takaki Nakanishi told BBC News Online.

Mr Nakanishi disputed the widely held view that Japan's car makers depend on the weakness of the country's currency, the yen.

Certainly, the weak currency is important, Mr Nakanishi acknowledged.

But only because it makes earnings in dollars, euros or pounds more valuable when they are translated into yen to appear in the parent companies' accounts in Japan.

It does not fuel sales of Japanese cars in foreign markets, hence "it is not really export driven profits," he said.

Superior cars

Instead, analysts have attributed the Japanese automotive groups' success to the quality of their cars, and to recent efforts to restructure their organisations.

"Japanese car companies are making competitive products that customers want to buy," Mr Nakanishi said.

"The Japanese have a very strong product positioning and they have a very lean cost structure," agreed Mr Gunner.

"The profit is a result of the product," insisted Mr Nakanishi, making a clear distinction between Japanese car makers and their US counterparts which, he said, rely much more on marketing and sales incentives.

Expensive cars

Mr Nakanishi's comment was a reference to the way the so-called Big Three US automotive manufacturers did their best to boost demand in the wake of 11 September.

General Motors, Ford and Chrysler launched a series of adverts designed to appeal to American patriotic instincts, and they introduced a range of incentives such as free credit.

Japanese car makers, meanwhile, held their prices, Mr Nakanishi said.

"I think the Japanese products are more expensive than the Big Three," he said.

And yet, 26.6% of all new cars sold in the US last year were Japanese, up by more than one percent on the previous year.

"We believe [the market share] will likely top 30% by 2005," said Mr Nakanishi.

"I think consumers are willing to pay the higher prices".

American trucks

The 30% target has already been reached in the market for passenger cars, but this is not where Mr Nakanishi predicts the growth will come.

"The light truck market is clearly the powerhouse for the Japanese brands' growth," he said.

Currently, one in five trucks sold in the US are Japanese. Both Mr Nakanishi and Mr Gunner believe this will rise to one in four by 2005.

By then, the American people are expected to be driving more trucks than cars.

Local loyalties

The Japanese automakers enjoy another advantage too: Their trucks are increasingly seen as American since they are often produced in the US.

"There's a lot of loyalty in the consumer's mind about where a car is being built," noted Mr Gunner.

Nissan, which produces cars in Sunderland, has experienced this in the UK, and Toyota is trying to take advantage of the phenomenon by setting up production facilities in France.

But for the moment, expansion in Europe - where competition is considered fierce - is not at the forefront of most Japanese car makers' minds.

"Because everyone else [in Europe] are at each others' throats at the moment, it could easily go wrong," said Mr Gunner.

See also:

09 May 02 | Business
Nissan results shine
27 Mar 02 | Business
Honda defies fall in Japan car sales
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