The fiscal year ending March 2015 is looking less rosy for Japanese automakers, who are unlikely to benefit any further from the weakened yen because of fierce overseas competition, experts say.
Profit growth at Toyota Motor Corp., Honda Motor Co. and Nissan Motor. Co. will likely slow this year, said Takaki Nakanishi, CEO of Nakanishi Research Institute.
In the year ending March 31, Toyota posted a record group operating profit of ¥2.29 trillion, jumping 73.5 percent from the year before. But this year the auto giant expects a mere 0.3 percent increase in operating profit to ¥2.3 trillion.
Similarly, Honda, which saw its operating profit rise 37.7 percent to ¥750.2 billion from the previous year, is now projecting a group operating profit of ¥760 billion, up 1.3 percent.
Nakanishi said Japanese automakers benefited a lot from the weakened yen last year but does not expect it to slide much further, meaning it will have little positive impact on profits.
The yen’s sharp fall against major currencies in the previous business year boosted Toyota’s consolidated operation profit by ¥900 billion, Honda’s by ¥288.7 billion, and Nissan’s by ¥247.6 billion.
However, for the current year, Toyota, Honda and Nissan are assuming an exchange rate of ¥100 against the dollar, which was virtually the same as last year.
The companies see exchange rates as one factor that could erode their profits in the current year. Toyota said it expects its operating profits to drop ¥95 billion, with Honda expecting a decline of ¥67 billion and Nissan ¥55 billion, mainly because the currencies of such emerging economies as Russia and Brazil are also fading.
“I expect earnings to change little for the current business year,” said Satoshi Nagashima, head of the automobile sector at German consulting firm Roland Berger. “As they already have yielded excellent earnings, I expect their profits to fluctuate a little, rather than rise further.”
Nagashima also said aggressive competition from foreign automakers like Volkswagen and BMW could hurt the Japanese firms’ domestic sales, which were expected to shrink due to the impact of the first stage of the consumption tax hike, which lifted the levy to 8 percent from 5 percent on April 1.
“Foreign makers have pumped affordable cars into the market, which is likely to prompt consumers to switch to imported cars from domestic cars,” Nagashima said.
Last year, sales of new imported foreign-brand vehicles surged 22.9 percent to about 302,000 units, which was the second-highest figure since data collection first began in 1966, according to the Japan Automobile Importers Association.
Domestic vehicle demand is expected to sink 15.6 percent this year to 4.75 million units, according to a March projection by the Japan Automobile Manufacturers Association.
Japanese automakers need to restore their competitive edge in the global market in order to secure further growth, Nakanishi said.
The competitiveness of Japanese cars is based on their high quality and affordable prices, Nakanishi said, but their appeal is being threatened by such companies as Volkswagen, Hyundai, General Motors and Ford.
Japanese automakers “need to restrengthen their products,” he said.
In addition to continued cost-cutting efforts, Japanese automakers also need to address a manufacturing system that enables them to produce automobiles more efficiently with fewer parts and modules.
“Big challenges are waiting for them, as they need to generate earnings and cover ballooning costs for research and development of automated driving and various types of powertrains,” Nagashima said.