Japanese automakers enjoyed solid sales and profits in fiscal 2014 thanks to the benefits of the weakened yen, and fiscal 2015 looks set to drive further growth.
However, analysts say it is critical that companies invest in sharpening their edge by adopting systems that allow them to produce vehicles more efficiently during harder times ahead — when they might have less cash on hand.
“In terms of profit, I think (fiscal 2014) was a pretty good year overall,” said Satoshi Nagashima, co-managing partner at Germany-based consultancy Roland Berger, an auto industry analyst.
Toyota Motor Corp., Mazda Motor Corp., Fuji Heavy Industries Ltd. and Mitsubishi Motors Corp. all logged record net profits. Nissan’s net income rose for the sixth consecutive year.
A key factor behind their soaring revenues was the favorable exchange rate. The yen plunged from ¥102 per dollar in April 2014 to ¥120 in March 2015 under the unprecedented quantitative and qualitative monetary easing stimulus launched by the Bank of Japan.
Toyota, Japan’s top automaker, said the weakened yen helped increase operating profit by ¥280 billion, compared with ¥68.6 billion at third-ranked Nissan and ¥103.7 billion at Fuji Heavy Industries.
Honda Motor Co., however, was unable to reap the benefits of the battered yen because of the massive air bag recalls caused by Takata Corp., which battered Honda’s operating income.
Honda saw operating profit drop 13.1 percent on year to ¥651 billion, although sales rose to ¥12.6 trillion from ¥11.8 trillion. Net profit was ¥522 billion, down 8.9 percent from a year earlier.
While Honda has received plenty of negative press from the air bag recalls, Nagashima said Japan’s No. 2 automaker has actually been making progress in honing competitiveness, such as by building a more efficient manufacturing system.
“Honda’s efforts may not be visible for now, but I think they will slowly see the efforts pay off,” he said, adding that the fallout from the air bag scandal will likely haunt Takata’s biggest customer for the rest of the year.
Although automakers have shifted production overseas to temper the impact of exchange rate volatility, the weaker yen is nevertheless increasing domestic production.
“The production in Japan will go up,” Nissan CEO Carlos Ghosn said at a news conference Wednesday.
He said the Rogue sport utility vehicle is popular in North America and that more units are needed.
“Today, we have capacity available in Japan, so instead of adding new investments in foreign countries, we will be using Japanese capacity,” he said, adding that domestic production is expected to return to 1 million units, up from about 900,000 now.
But Ghosn said the most effective measure against currency fluctuations is localization of operations, so Nissan will be doing this “as much as possible, as much as it makes sense.”
Nagashima of Roland Berger said domestic production will increase in response to the yen over time, but manufacturers still plan to expand overseas production to mitigate the impact from currency fluctuations.
As for global sales, Japan’s automakers saw strong results in North America because the U.S. economy has been in good shape, and they expect the trend to continue this business year. They also expect Japan to recover from the first stage of the sales tax hike last April.
“I think North America will be a promising market . . . (but) the chances of increasing sales in the Japanese market are slim. It will be more like a struggle to stop sales from shrinking,” said Nagashima.
Even though Japanese automakers have seen strong sales and profit over the past few years, global competition is expected to intensify. At the heart of the competition will be new technologies, including automated driving systems and “connected” vehicles with new communications features. Cost competitiveness will also grow in importance.
Nagashima said Japanese automakers need to invest now in research and development and improve efficiency if they are to produce more cheaply.
This is something they all appear to be aware of.
Despite logging a staggering record net profit of ¥2 trillion, Toyota President Akio Toyoda repeatedly stressed the importance of developing sustainable growth at a news conference last week.
He said Toyota will start taking measures to achieve that starting this year, including the adoption of Toyota New Global Architecture, a new assembly-line philosophy aimed at increasing the use of standardized parts across multiple models.
Mazda, too, said it is planning to speed up investment in next-generation technologies this year.
“More cars with more functions will be introduced to the market in the coming years, so automakers need to make a lot of preparations” to compete with them, Nagashima said.
This includes innovations “that might take three or five years, as in the example of automated driving technologies. But getting ready for the future and preparing to produce cars with such new functions will be key to getting ahead of competition,” he said.
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