By on September 3, 2014

Kei Vans

Just like the player character after dying several times in the “Dark Souls” series, Japan may find itself hollowing out as a result of the country’s declining auto market.

Bloomberg reports 333,471 deliveries were made in August, the fewest since the same month in 2011, with sales of kei cars leading the way down at a decline of 15 percent after cushioning demand for the past few months; the overall decline for August 2014 was 9.1 percent.

The decline may only be the beginning, however, according to analysts at IHS Automotive, Advanced Research Japan and Barclays Plc. Despite a weakened yen, recent increases in Japan’s consumption tax knocked down demand for new vehicles. In turn, automakers are keeping annual production at low levels for the local market, while capital expenditure will fall 7.9 percent for FY 2014, 1.3 percent in FY 2015.

Should the trend continue, the Japanese economy as a whole could follow the automotive industry into a hollowed out new “lost decade,” undoing Prime Minister Shinzo Abe’s attempts to revive it, such as the aforementioned weakening of the yen. Production is predicted to decline by 1.6 million units in the coming decade while global production climbs to 22 million by 2021, according to IHS Automotive.

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47 Comments on “Japanese Auto Industry, Economy In Danger Of Hollowing Out...”


  • avatar
    Hummer

    How about instead of weakening the yen and hurting the economy as a whole, they proceed with the radical solution of simply fixing the problem; or are the Japanese adverse to admitting when they did wrong similarly to some politicians here?
    Get rid of the consumption tax, allow a free market, no displacement tax BS either.

    • 0 avatar
      juicy sushi

      Why get rid of the consumption tax? They need to fund gov’t activities somehow, and if they won’t increase income taxes, will need to do something else.

      You repeat the tired claims of a lack of a free market, but in what area? And compared to who? No market is “free.” You pick the rules you enforce and accept the limitations as necessary for the desired results. The Japanese did not want to encourage car ownership in large #s because the parking/traffic/road infrastructure made no sense give the geographic constraints of the country. The US car companies never have attempted to build cars which compete in that context until very recently, and have never tried to sell them outside of Europe. The results speak for themselves.

      The larger problems for Japan are induced by demographics and politics. There was a need for greater labour market flexibility, but that has been mainly achieved on the backs of younger generations, with older workers still in the traditional model. There are also extensive links between the traditional business community and political elites which have led to economic policies which were biased against new businesses in non-traditional areas, styming economic growth. Gov’t spending was also politically dictated on the basis of subsidizing key voting blocs/geographic areas at the cost of the most economically productive groups, which created a vicious cycle of over-spending on unproductive activities while failing to support beneficial ones. Leading to doing more of the same to keep voters happy and not punishing the politicians.

      • 0 avatar
        Hummer

        Yes because the consumption tax is the only way to get that money.
        There’s a laundry list of taxes the US Govt gets from cars.

        Using the entry point as the main source of income makes no sense.

      • 0 avatar
        Pch101

        By western standards, Japan’s sales tax is low. But increasing it by 3% during what should be an economic recovery was as foolish as the current wave of European uberausterity, which could lead to a double dip.

        The economy works when consumers consume. Encouraging consumers to hoard their cash during difficult economic times is essentially a recipe for recession.

        • 0 avatar
          juicy sushi

          Debt-to-GDP levels of 200+% make for difficult choices. Although essentially doubling down on the policies that created that debt (by the same guys who did it the first time) is a pretty amusing policy approach to balance the sale tax off against.

        • 0 avatar

          @Pch101

          +1

        • 0 avatar
          Roader

          “…was as foolish as the current wave of European uberausterity…”

          Bulgaria, Estonia, Lithuania, and Romania reduced spending as a percentage of GDP from 2007 to 2013. All the rest increased. No austerity for the major countries. France’s spending looks downright scary:

          http://www.bloomberg.com/image/iDwzQf8rHO9s.jpg

      • 0 avatar
        stuki

        So they need the consumption tax to help fund the subsidization of key voting blocs? Sounds quite familiar doesn’t it. Our politicians have learned a lot from the Japanese over the past three decades it seems…..

        More seriously: All any government ever does, is subsidize key voting blocs. Which is a pretty darned good argument for why they should, to the extent possible, be prevented from funding their desired activities.

      • 0 avatar
        Ron

        Nice analysis.

      • 0 avatar
        Ron

        Cogent analysis.

  • avatar
    petezeiss

    OMG, Monospace Porn!

    Want an EK Space!

    AIEEEE… them’re LHD, too!

  • avatar
    Pch101

    So consumption taxes are bad for consumption. Who knew?

  • avatar
    Secret Hi5

    “Hollowing out.” What does that term mean w/r/t the economy?

    • 0 avatar
      pdieten

      Disappearance of middle-class jobs pushes people who once held them into lower classes, while the wealthy are relatively unaffected.

      • 0 avatar
        stuki

        In Japan, the almost absolute lack of kids born in the past two generations, hollowing out can also stand for the disappearance of the age brackets where people are in the labor (and car buying) pool, leaving nothing but retirees. And Asimos, I guess.

  • avatar
    racer-esq.

    Sales tax is much worse for the economy than progressive income tax. It looks like the Japanese are learning that the hard way.

  • avatar
    th009

    The good thing is that even though kei car sales dropped by 15%, proper car sales were up by 6%. And those have higher prices and better profit margins, and per unit generate more employment as well.

  • avatar
    J.Emerson

    It’s long past due for a major revision of the historiography of the Japanese auto industry, and perhaps the Japanese economy as a whole. That means confronting a lot of hallowed chestnuts and management-speak that have been accepted uncritically since David Halberstam published “The Reckoning” and Womack and Jones followed up with “The Machine That Changed The World” (although it should be noted that Womack et al already admitted, in the new conclusion to the anniversary edition, that they were taken in by some of the more fanciful aspects of the ‘lean production’ model).

    There’s nothing “revolutionary” about low labor costs, an advantageous currency position, one-way trade barriers, and the gradual streamlining of production processes. These factors are identifiable in virtually industrialization success story since Britain. When these advantages withered relative to the competition, the Japanese car export machine shriveled. This surprised a lot of people; but not many of them were historians of business and technology. There will be a lot of resistance to this revision, for political and intellectual reasons, but for the sake of truth in history it needs to happen.

  • avatar
    FormerFF

    Japan’s population is both aging and shrinking. Auto sales are going to decline, there’s no way around it.

  • avatar
    philadlj

    Personally, when I hear “hollow” I think “Bleach”, the tenth anniversary of which is next month.

  • avatar
    Stephen7

    It’s a little early for doomsaying. No mention that YTD sales are still up 7% over 2013?

  • avatar
    jacob_coulter

    I’m sure their current gamble of printing their way into prosperity will fix everything. Their debt versus GDP is over 230%, the highest in the developed world

    Japan is going to have far more problems than the auto industry when there’s a currency crisis.

    You can’t print wealth, otherwise every country would be wealthy and prosperous. But every country thinks they can outsmart basic common sense with some technocrat pulling the right switches.

  • avatar
    sportyaccordy

    Japan’s problems are way bigger than consumption taxes. Govt could (and in the past, judging by their debts, essentially HAS) GIVE people money to spend, and it wouldn’t solve their problems. It’s only going to get worse. Japan’s population is shrinking, and they don’t have a low enough cultural inertia, demand for immigrants, or money to change that.

  • avatar
    petezeiss

    TTBOMK, Japan is the only former imperial power with the sense to not import the people it once oppressed and exploited. That leaves its decks unencumbered by an ever growing, truculent and parasitic underclass to support.

    Whatever they come up with, be it a careful increase and acculturation of immigrants or a crash program of producing robotic coolies, they won’t have to divert grotesque amounts of their budget to just keeping the riots and diseases at bay.

  • avatar
    ccode81

    As working in financial market industry, logically I should take these figures seriously. However watching the roads on Tokyo, emotionally I wonder if those relatively new and neat cars packing the street has to be renewed any faster..
    More and more average people here taking cars as appliance and changing mind to keep current one until it breaks. And they rarely break down to death with shortening driving distance and every 2 year mandatory inspection. Isn’t, it becoming old fashion to measure wealth by the amount of the steel we are consuming year on year?
    My nation with one of longest life expectancy, if population is aging, the problem is just about allowing retire too early, I think.
    Most government dept is borrowed from domestic investors such as pension and insurance, banks, and notional payment going back to the Japanese at seriously low interest rate. Some capital which not absorbed in domestic markets goes abroad and we lend 325 trillion yen to rest of the world. Being biggest lender for 23 consecutive years.
    And when we die one day, government is going to charge enormous inherit tax to what we leave.
    Some will say shrinking sales hurts manufacturing industry, but 70% of GDP generated by service industry these days.
    A very classic economy model of reduce spending,save money and earn return from lending, seems to be working to my eyes.


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