Japanese Automakers Stem Decline in Vehicle Production During May

Japan's eight major automakers have released their production and export data for May, reporting a strong recovery in vehicle output after record falls in the two preceding months in the wake of the devastating earthquake and tsunami that hit north-eastern Japan on 11 March. Although the traditional market leader, Toyota, reported a 54.4% year-on-year (y/y) fall in domestic production to 107,437 units, this decline was considerably smaller than the 78.4% drop it recorded in April as the company kept most of its domestic facilities open during the month. However, Toyota recorded a sharper decline in overseas production as it adjusted operations at its plants outside Japan to preserve inventory of critical components. As a result, the company witnessed a heavier decline in global production, of 49.3% y/y to 287,811 units. The recovery in domestic production nevertheless helped Toyota to curb the decline in exports during the month, although they did fall 63.3% y/y to 42,313 units. The company's domestic production in the first five months of 2011 declined 42.7% y/y to 808,352 units, while year-to-date (YTD) overseas production declined 13.3% y/y to 1.6 million units. Toyota thus reported a 26.1% fall in YTD global output to 2.4 million units compared with the first five months of 2010.

Nissan fared significantly better than Toyota, reporting an increase in its domestic production of 0.8% y/y to 80,036 units in May after witnessing a 48.7% y/y fall in April. The strong growth in domestic production was mainly due to increased demand for the Juke crossover and exported models led by the Rogue sport utility vehicle (SUV). The company recorded a strong turnaround in overseas production, reporting a 25.7% y/y increase to 288,878 units. This helped the second largest Japanese automaker to report a 19.3% y/y increase in global production to 368,914 units. However, Nissan recorded a 5.6% y/y fall in exports to 45,312 units in May, although this decline was considerably smaller than the 72% drop recorded in the preceding month.

Honda meanwhile reported a 53.4% y/y decline in domestic production to 34,746 units during the month, while its overseas production fell by 49.4% y/y to 103,106 units. The continuing heavy decline in both its domestic and overseas production meant that the company reported a 50.4% y/y drop in global production to 137,852 units. The company witnessed a 60.8% y/y fall in exports to 9,207 units during the month.

Similarly, other Japanese automakers recorded significant recoveries in vehicle production during May. Mitsubishi was the second automaker after Nissan to record an increase in domestic production during the month, of 7.7% y/y to 47,013 units. The company also recorded a 15.1% y/y increase in overseas production to 45,772 units, resulting in an increase in global production of 11.2% y/y to 92,785 units. Mazda reported an 11.8% y/y decline in domestic production to 62,208 units, while it registered a strong 23.4% y/y increase in overseas production to 20,366 units. This helped the company to limit the decline in global production to 15% y/y to 82,574 units. Suzuki reported a 5.2% y/y decline in its global production to 224,439 units despite a 7.1% y/y increase in overseas production to 159,591 units as the company witnessed a 26.1% y/y fall in domestic production to 64,848 units. Fuji Heavy, manufacturer of the Subaru brand, recorded a 39.4% y/y fall in domestic production to 22,438 units, while its exports plunged 22.6% y/y to 18,898 units. However, the company reported a strong 75.3% y/y increase in overseas production, which curbed the net decline in its global production to 21.9% y/y to 34,150 units. Daihatsu, the small-car unit of Toyota, witnessed a 7% decline in global production to 56,997 units. The company recorded a 14.8% y/y fall in domestic production to 41,893 units, while its overseas production improved 24.6% y/y to 15,104 units. The company witnessed a 72.5% y/y fall in exports to 750 units.

Outlook and Implications

Japanese automakers have recorded strong recoveries in vehicle production on the back of a better-than-expected improvement in the component supply situation in Japan. Although most of the Japanese automakers, except Nissan and Mitsubishi, continued to record declines in production compared with the same month a year ago, all of them reported a significant increase in output compared with April (see Japan: 27 May 2011: Japanese Automakers See Sharp Decline in Production During April on Full-Month Impact of Natural Disaster). According to an estimate by IHS Automotive, published on 10 June, the Japanese automakers had incurred a total production loss of 2.8 million units following the 11 March disaster, including 1.7 million units in Japan.

The strong recovery in the component supply situation in Japan has also led the Japanese automakers to bring forward their scheduled returns to pre-disaster levels of production. Toyota is now expecting to return to 90% of pre-disaster levels of production in Japan by the end of June, up from the 70% figure projected earlier (see Japan: 1 June 2011: Toyota Expects Domestic Production to Reach 90% of Pre-Disaster Level This Month). The company is expecting to return to normal levels of production at its overseas plants by September. Nissan has already reported an increase in vehicle production, both in Japan and overseas, for the first time after the disaster. The company is expecting to maintain normal levels of production in June as well. However, Nissan continues to maintain its official stance that it will not return to full and unrestricted production until October this year. The automaker is also planning to ramp up production during the second half of 2011 in order to make up output losses in the first half due to the disaster. Honda meanwhile is expecting to return to pre-disaster levels of vehicle production in Japan by the end of this month and overseas by August or September. However, the company is unlikely to recover its production losses caused by the disaster during the second half. Overall, the company is expecting a production loss of about 200,000 units as a result of the disaster (see Japan: 13 June 2011: Honda's Vehicle Production Set to Fall by 200,000 Units in FY 2011/12 Owing to 11 March Disaster—Report). Other automakers, including Mitsubishi, Mazda, and Suzuki, have also brought forward their scheduled returns to normal production. These automakers are also expecting to increase vehicle production during the second half of the year to recover, partially or fully, the losses incurred in the first half.

IHS Automotive believes that the losses in vehicle production due to the 11 March disaster are bottoming out faster than expected thanks to a strong recovery in the component supply situation. We expect that downtime at the Japanese automakers, both in Japan and overseas, will come to an end by September. This has led us to upgrade our 2011 Japanese light-vehicle production forecast by 129,000 units to 6.69 million units.