Dark clouds over the land of the rising sun. Japan Inc is deeply involved in the atrophy formerly known as the U.S. auto market. Two of what was known as the “Big Five” are Japanese: Toyota and Honda. Over the past 10 years, Toyota and Honda had been steadily taking market share from Detroit. Now, Detroit is in trouble. So is Tokyo, due to its inordinate exposure to the US auto market. Klaxons are sounding in Nippon. “Although their situations are not as dire as those harrying the top three U.S. automakers, major Japanese carmakers are rushing to review their operations and revise business plans in the face of quickly deteriorating auto sales worldwide,” writes the Nikkei (sub) today.
A side effect of Toyota’s race to become the world’s largest auto maker was that ToMoCo built more factories than some other companies built cars. Toyota’s production capacity rose by half a million annually since 2000. In North America, Toyota used to earn half of its worldwide profits. The crash in the US hit them real hard. Sales in Japan and Europe have also been decreasing faster than the firm can adjust production levels. To not end up like the formerly Big 3, Toyota has to act fast. A committee headed by President Katsuaki Watanabe is busy cutting costs and improving earnings in a stormy environment. What about Honda?
Honda is in slightly better shape due to its subcompact vehicles, which are suddenly all the rage. However, Honda also had to make painful cuts in Japan, the U.S. and Europe. Nissan, teamed up with Renault, is looking at near-zero profits in the second half of 2008. A radical cash saving plan is in place.
“If market conditions continue to deteriorate, major Japanese automakers will have to take more drastic actions, such as carrying out bold production cuts,” writes the Nikkei, and possibly, horror of horror in the former land of lifetime employment, “laying off full-time employees.”
And who’s the winner? Volkswagen. Like a rally driver who was far behind, but who finally wins because all the other ones break down, Volkswagen currently enjoys the dumb luck of someone who had made a mess out of the American market. If you are a near nobody in America, a crash in America can’t hurt you much.
Volkswagen was the first company that really invested in China (actually, first place goes to AMC/Chrysler, but Chrysler botched it.) Volkswagen is the clear Number One in China. China is the world’s second largest auto market (when you don’t count Europe as a single market.) China is the only significant market that is still growing and that has nearly unlimited growth potential. Volkswagen had fumbled in China and nearly lost the ball to GM.
However, with grit and sheer luck, VW China recovered. GM no longer looks so good in China. To some Chinese, GM looks like a take-over target. So while the formerly Big Three go begging to Congress, and even countries like Poland, while Toyota, Honda, Nissan & Co. want to make their operation slimmer than their women, Volkswagen is the only big company that doesn’t guide down for 2008. A little savings here and there while it’s fashionable and politically sellable. But otherwise: Full steam ahead. Volkswagen über alles? Say it ain’t true.
Being of German descent (despite the Russian pseudonym) I’d like to see VW crush the Japanese in the New World Auto Order.
Then again, I think back to the cold January day when my brother’s Beetle caught fire on our way to work and left us stranded, yet entertained. This was all pre-cell phone time BTW, so we walked….for a long, long time.
As someone who can’t stand VW and its products this is very dire news indeed.
VW… the Steven Bradbury of the car industry.
In the US context, the problem with any bailout of Detroit is that it not only punishes the taxpayer but also the consumer. People get hit twice. Rewarding the extortionists puts an extra burden on those providing a honest product with good value content.
Good one, yankinwaoz
Not quite so good in China
VW fires the first shot in car price war
THE unexpected sales dip in China’s auto market has prompted car makers to join a new round of price wars across all market segments.
The return of the price wars has ended an upswing in car prices since the beginning of this year, triggered largely by soaring raw material costs.
Market observers yesterday said they remained skeptical about whether lowering prices would be helpful in spurring sales. The price reductions have also triggered market concerns the sustained growth of the whole industry could be damaged, which would further erode car makers’ already declining profits.
http://www.chinacarforums.com/forum/showthread.php?t=621&page=12
@bluecon: What a silly post in Chinacarforum.
Market observers yesterday said they remained skeptical about whether lowering prices would be helpful in spurring sales. – Jeeez! We are in China! The land of eternal haggling.
Not here but on the original post:
Rising raw material prices, rising ore prices etc: Under which rock have they been? Commodities, especially steel is at an all time low!
In North America, Toyota used to earn half of its worldwide profits.
Coupled with the headline and content of this article, so much for the specious argument often ventured here that there’s no such thing as profits returning to HQ.
Phil