Moves by car makers could lead to glut

Press, 6 August 1987, Page 28

Moves by car makers could lead to glut

NZPA-Reuter Tokyo Moves by Japanese car makers to wean themselves from exports by boosting their production in the United States could lead to a serious glut in the American market, industry analysts said. The switch was also raising the prospect of layoffs and plants closing in Japan as exports declined, they said. "Japanese makers are starting to face a situation in which local output is replacing exports of completed units,” said Merrill Lynch industry analyst, Mr Ben Moyer. Total Japanese exports fell to 3.23 million vehicles in the first half of 1987, down 6.2 per cent from the same period last year, industry sources said. A drop in exports to the United States accounted for most of the decline.

But exports of “knockdown kits” for assembly at overseas plants rose 35.4 per cent to a record 858,969 units in the first half.

Fears of mounting United States trade protectionism prompted Japan to keep to an export ceiling of 2.3 million cars to the United States in the business year beginning April 1. Now, though, weak demand in the United States market and the stronger yen mean Japanese manufacturers might not be able to sell their full quotas, analysts said. “Many Japanese will not meet their full export quotas, especially the smaller ones like Mazda,”

said Jardine Fleming (Securities) analyst, Mr Stephen Marvin. Toyota and Nissan, Japan’s biggest car makers, both reported sharp drops in exports in the first half of the year.

Toyota’s exports to the United States fell 13.4 per cent from the previous year, while Nissan’s United States exports dropped 21.6 per cent, the two companies said. American demand for cars has been weak so far this year, in part because incentives by makers and imminent tax law changes lured many to buy in the final months of 1986, analysts said. Japanese makers’ ability to compete has been reduced by the sharp rise in the yen, which has forced them to raise prices by between 18 and 25 per cent since September, 1985, they said. “It’s getting harder for the Japanese to compete,” Mr Marvin said. “They are being squeezed by the yen and need to raise prices and at the same time they are under pressure to offer incentives.”

But exports are only half the picture. Japanese companies with factories in the United States are boosting production, while nearly all the rest plan to have their United States plants running by 1989.

Production at Nissan’s United States plant, for example, jumped 34.6 per cent in the first half of this year and the trend was expected to continue, a company spokesman said.

Honda planned to raise annual production at its Ohio plant to 320,000 cars this year and 360,000 in 1988, compared with 230,000 in 1986, a Honda spokesman said. By 1990, Japanese manufacturers will have the capacity to make about two million cars at their United States and Canadian plants, according to some industry estimates. The result would be an excess supply in the United States of up to five million cars — or more If South Koreans came in with their own United States-based plants, some analysts said. An initial drop in exports of completed cars will be offset by higher shipments of knock-down sets, but these too will fall as Japanese manufacturers increase their local procurement of parts. Honda planned to raise the local content ratio at its Ohio plant from 50 per cent to 66 per cent by 1990, the Honda spokesman said.

The expected result would be excess capacity in Japan with possible layoffs and plants closing, said analysts.

"There is a strong possibility labour and capacity will be in excess and plants have to be closed,” said a Japanese industry analyst.

"How much, depends on what new products they can develop and whether they can expand their non-auto-related business.”