Japan’s Consumption Hangover Begins as Car Sales Decline

Photographer: Tomohiro Ohsumi/Bloomberg

A visitor looks at Toyota Motor Corp. vehicles at the company's showroom in Tokyo. Including deliveries for its Hino Motors Ltd. and Daihatsu Motor Co. units, Toyota’s sales rose about 6 percent to 2.58 million in the January-to-March period. Close

A visitor looks at Toyota Motor Corp. vehicles at the company's showroom in Tokyo.... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

A visitor looks at Toyota Motor Corp. vehicles at the company's showroom in Tokyo. Including deliveries for its Hino Motors Ltd. and Daihatsu Motor Co. units, Toyota’s sales rose about 6 percent to 2.58 million in the January-to-March period.

Call it Japan’s Great Hangover.

Vehicle deliveries last month in Asia’s second-largest auto market fell to the lowest since December 2012 after Japan raised its consumption tax for the first time 17 years, according to industry figures released yesterday. In the run-up to the levy being increased 3 percentage points to 8 percent on April 1, sales had surged for seven straight months.

More broadly, the figures may foreshadow the extent of the consumer backlash resulting from the higher taxes Prime Minister Shinzo Abe imposed to counter the world’s biggest debt burden. Economists estimate that this quarter, Japan will see its biggest economic contraction since the earthquake and tsunami that ravaged the country three years ago.

“Any sane person was buying big-ticket items in February or March rather than in April,” Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said by telephone. “The Japanese carmakers will have to prove how much they really can work this very difficult market.”

Total sales fell 5.5 percent to 345,226, according to the Japan Automobile Dealers Association and Japan Mini Vehicle Association. The slump may deepen this month as poor weather prevented some customers, who placed orders before the sales tax increase, from getting their cars delivered until April.

Yearlong Slump

The delay made industry sales for April artificially high, and the numbers could turn “very grave” starting this month, Yoshitaka Hayashi, a director at the dealer association, told reporters yesterday.

Carmakers are bracing for a yearlong slump, with the Japan Automobile Manufacturers Association’s forecasting a record 16 percent sales decline for the fiscal year ending in March 2015.

Toyota Motor Corp. (7203) and Mazda Motor Corp. delivered their fewest number of vehicles since 2011, according to the industry figures. Fuji Heavy Industries Ltd., maker of Subaru cars, saw sales tumble 41 percent to a record low, based on data stretching back to 1993.

Nissan Motor Co. (7201), Honda Motor Co., Suzuki Motor Corp. and Mitsubishi Motors Corp. bucked the slump by posting gains. Sales rose 7.1 percent for Nissan, 12 percent for Honda, 11 percent for Suzuki and 27 percent for Mitsubishi.

Shares of Japanese automakers, except for Honda and Daihatsu Motor Co. (7262), fell today in Tokyo trading as the benchmark Topix Index slipped 0.1 percent.

March Binge

Prior to the April 1 tax increase, consumers went on a binge as they helped push deliveries to more than 783,000 vehicles in March, the highest monthly tally in eight years. Japanese household spending in March jumped the most since 1975, even though real disposable incomes for working families dropped 3.2 percent, according to government figures released today.

A prolonged slump would undercut the benefits that automakers such as Toyota -- headed for a record profit this fiscal year -- have reaped from exports due to a weaker yen.

“There may be a temporary hangover,” said Kevin Tynan, an auto analyst at Bloomberg Industries in Skillman, New Jersey. “Japanese automakers’ production and earnings are at risk.”

Department Stores

A slew of retail data will be released in the coming weeks will shed more light on Japan’s downturn in consumption. Takashimaya Co.’s department store sales dropped 13 percent in April and J. Front Retailing Co.’s Daimaru Matsuzakaya saw a 15 percent decline, according to the companies yesterday. Japanese department store same-store sales surged 25 percent in March, the biggest gain since 1989.

Manufacturers are reining in output and cutting orders after the sales-tax increase, the Markit Economics and Japan Materials Management Association said this week. Their purchasing managers’ index for manufacturing in Japan fell to 49.4 in April, the lowest in 14 months. A reading of less than 50 signals contraction.

In the corner of a Toyota dealership this week in Osaka, about 200 kilometers (124 miles) west of the company’s headquarters in Toyota City, a space usually reserved for celebrating customers’ purchases and seeing them off was occupied by a Prius waiting to be fixed.

“It’s been several months since we have been so free,” said Isao Nakamura, a sales manager at the dealership, who estimates orders fell about 20 percent in April.

The last time Japan increased its consumption tax -- to 5 percent from 3 percent -- in April 1997, domestic car sales dropped 15 percent and declined for 21 months in a row.

Cigarettes

Japan’s recent slump isn’t confined to just automobiles. Companies from Japan Tobacco Inc. (2914) to Uniqlo store operator Fast Retailing Co. (9983) and electronics maker Panasonic Corp. (6752) are factoring weak domestic retail spending in their outlooks.

Panasonic this week forecast full-year profit that was 14 percent below analyst estimates as domestic consumers reduce purchases of electronics. Fast Retailing, Asia’s biggest clothing retailer, last month cut its annual net income projection by about 4 billion yen ($39 million), and cigarette maker Japan Tobacco estimated its profit would drop for the year.

For Toyota, the nation’s largest company, the decline in domestic demand adds to the challenges it faces as the carmaker looks to fend off General Motors Co. (GM) and Volkswagen AG (VOW) for global sales leadership.

Record Earnings

Including deliveries for its Hino Motors Ltd. (7205) and Daihatsu units, Toyota’s sales rose about 6 percent to 2.58 million in the January-to-March period. Deliveries in Japan surged 13 percent to 322,252 during the same span.

Toyota has projected a record 1.9 trillion yen profit for the fiscal year ending in March. Analysts have scaled back their estimates for Toyota’s earnings to below the company’s forecast after the automaker called back more than 6 million vehicles last month and agreed in March to pay a record $1.2 billion U.S. fine for misleading consumers about safety defects.

The average of 25 analyst estimates compiled by Bloomberg calls for net income of 1.87 trillion yen in the year ended March, which would still be a record. The company reports results on May 8.

Honda (7267) last week forecast its full-year profit may increase to 595 billion yen in the 12 months ending in March 2015, 14 percent below the average analyst estimate compiled by Bloomberg. Nissan releases its earnings results on May 12.

Japan cut its vehicle-purchase tax to 3 percent from 5 percent to cushion the effect of the sales tax increase, and plans to abolish the levy when the nation’s sales tax is raised to 10 percent in 2015.

To contact the reporters on this story: Craig Trudell in Tokyo at ctrudell1@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net; Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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