Carmakers fret loss of stimulus

by Kiyori Ueno and Yuki Hagiwara

Bloomberg

Kenichi Ishida saw monthly sales at his Toyota dealership surge by up to 50 percent under the 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 Setagaya Ward, Tokyo. “Our sales will plunge. I know it’s coming.”

As government incentive programs end in Japan, Europe and the United States, 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 country’s biggest.

“We are very worried about the backslide after the programs end,” said Kiyoshi Ozaki, chief financial officer at Mazda Motor Corp. “We fear we may be forced to give incentives, in the place of the government’s.”

Japan’s ¥370 billion program, which offers rebates of as much as ¥250,000 for people who trade in older cars for newer, more fuel-efficient models, is scheduled to end in March. Cars registered since April 10 are eligible for the program. The initiative and new tax cuts for fuel-efficient cars may generate sales of 1 million units 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 programs, including Germany’s 5 billion euro (¥660 billion) plan, which ran out of money Sept. 2. The $2.88 billion U.S. Cash for Clunkers plan, which generated almost 700,000 new car sales, expired Aug. 24.

The stimulus policies spurred car sales that were set to fall to the lowest in about three decades in Japan and the U.S. Japan’s car sales rose 2.3 percent last month from a year earlier, the first gain in 13 months, while U.S. demand grew 1 percent, the first monthly increase since October 2007. European car sales rose 2.4 percent 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 program continues for a longer time, but we know there are budgetary limitations.”

Global auto sales fell 20 percent 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 U.S.-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 that ended on March 31, its first in six decades.

Toyota last month forecast a net loss of ¥450 billion for the year ending next March 31. Nissan Motor Co. is expecting a ¥170 billion loss and Honda Motor Co. forecasts net income of ¥55 billion.

U.S. consumer spending, which accounts for about 70 percent of the world’s largest economy, fell at a 1 percent 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 percent early next year for the first time since 1983, according to a Bloomberg survey last month.

Wages in Japan fell for a 14th month and the jobless rate rose to a record 5.7 percent in July. The International Monetary Fund forecasts economies in developed countries, including Japan, the U.S. and the euro zone, will recover only 0.6 percent in 2010 from a 3.8 percent contraction this year.

While the U.S. car-rebate program 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 cannibalizing sales that would otherwise have come later, Honda Chief Financial Officer Yoichi Hojo said Aug. 5.

Goldman Sachs Group Inc. predicts auto sales in Japan may drop 10 percent from 2009 estimates to 4.27 million vehicles next year and those in Western Europe will fall to 13 million units, mainly due to the phasing out of incentive programs.

“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.

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 programs 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.

Toyota dealer Ishida, who has sold cars for more than 20 years, said Japan’s incentive plan has drawn customers to his showroom in numbers he hasn’t seen since Japan’s last economic boom in the late 1980s and early 1990s. Consumers probably will balk at higher prices when the program ends, he said.

“I’m sure customers will continue to demand a discount,” Ishida said. “We’ll have to give them at least something.”