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Auto sales fall to lowest in three years on sales tax hike

Bloomberg

Auto sales tumbled to a three-year low last month, the latest sign that consumer spending is slumping following the April 1 consumption tax increase.

Vehicle deliveries fell 9.1 percent from a year earlier to 333,471, the lowest since August 2011, according to industry figures released Monday.

Sales rose for seven straight months before the tax increase.

The drop comes amid economic data showing weakness in the economy. Household spending in July fell 5.9 percent from a year earlier, more than double the expected 2.9 percent decrease.

Further declines will run against Prime Minister Shinzo Abe’s efforts to revive the economy, which contracted the most last quarter since the earthquake and tsunami that ravaged parts of the Tohoku region in 2011.

Sales of minicars, which have smaller engines and cost less, fell 15.1 percent to 126,865 vehicles, according to the auto dealers association and the Japan Mini Vehicle Association. Deliveries of other autos fell 5 percent to 206,606.

The Abe administration raised the consumption tax to 8 percent from 5 percent to counter the world’s biggest national debt burden.

The effect on monthly deliveries was softened temporarily by back orders for models such as Honda Motor Co.’s new Fit and Vezel, which were delayed as the carmaker recalled them to check defects in a new transmission system.

Domestic auto sales fell for 21 straight months the last time the consumption tax was raised, in 1997. This year’s tax increase may have a smaller effect, Fumihiko Ike, chairman of the Japan Automobile Manufacturers’ Association, said in May.

Sluggish domestic demand is expected to weigh on earnings at automakers including Toyota Motor Corp., which reported record profit last fiscal year as a weaker yen boosted the value of overseas earnings.

Toyota’s net income will probably fall 2.4 percent to ¥1.78 trillion this fiscal year, the carmaker said in May, projecting Japan to be the only major market where vehicle sales may decline.