Export gains in June offered some respite for Japanese vehicle output, which declined at a lesser rate than in May

The Japan Automobile Manufacturers' Association (JAMA) has released vehicle production and export data for June. According to the data, Japanese automakers produced a total of 811,864 units at their domestic plants during the month, down 5.3% year on year (y/y). By vehicle type, passenger car output decreased 6% y/y during the month to 683,472 units and truck production declined 1.8% y/y to 115,485 units. Monthly production of buses increased 5.8% y/y to 12,907 units, but this was not enough to arrest the decline in overall output. Within the passenger car category, output of vehicles with an engine displacement in excess of 2.0 litres increased 5.4% y/y to 425,901 units, while production of small vehicles contracted 15.2% y/y to 132,849 units. Meanwhile, production of minivehicles suffered a massive decline of 25.2% y/y to 124,722 units.

Despite lower vehicle production, export volumes from Japan during June gained 3.3% y/y to 403,730 units. By destination, shipments grew by 5.8% y/y to 162,592 units to North America – the biggest destination for Japanese-made vehicles – while deliveries to Europe slipped 18.9% y/y to 54,489 units. Within Europe, shipments to European Union markets grew 4.4% y/y to 40,288 units. Shipments to the Middle East jumped 24.8% y/y but they were down 6.6% y/y to Asia and 5.0% y/y to Latin America. Deliveries to Africa and Oceania were up 5.0% y/y and 28.9% y/y respectively.

Toyota (excluding Daihatsu and Hino) was the outright leader in terms of domestic output during June, despite its domestic production declining 2.7% y/y to 285,797 units. Its exports were also down, by 10.8% y/y to 156,491 units. With its production jumping 7.7% y/y to 89,465 units, Mazda leapfrogged Suzuki to become the second largest vehicle producer in June. Production of the CX-5 SUV increased 2.6% y/y during the month, although output of the Axela declined 40.2% y/y. Mazda's exports, however, declined 11.5% y/y during the month. Mazda was followed by Suzuki, which recorded monthly output of 80,822 units, down 12.9% y/y, while its exports fell 24% y/y during the month. With output of 78,440 units, up 0.7% y/y, Nissan was the fourth largest player in June. Nissan also increased its export volumes, by 10.6% y/y to 50,048 units, thanks to increased demand for the X-Trail in markets outside Japan. Fuji Heavy – the manufacturer of Subaru-brand vehicles – witnessed a 7.5% y/y rise in monthly output, while its overseas shipments grew 7.8% y/y. Daihatsu languished in sixth position as its domestic output plunged 17.0% y/y to 57,745 units. Daihatsu was followed by Honda, which posted lower output (down 37.8% y/y) for the 11th consecutive month, to 54,473 units. With a 12% y/y decline in output to 52,935 units, Mitsubishi fell to the bottom of the list in June.

Outlook and implications

June was the 12th straight month of lower y/y vehicle production in Japan. However, although production contracted again, June's performance was better than the double-digit percentage decline witnessed in May. To some extent, output in June was supported by higher exports, although the continued weakness of domestic demand offset this. Although sales of mainstream vehicles in Japan jumped 5.4% y/y during June, total industry sales were pulled down by a 12.9% y/y decline in minivehicle sales. The fall in minivehicle sales in June was largely on account of the 50% increase in the tax on minivehicle ownership introduced earlier this year.

Compared with combined mainstream and minivehicle sales of 442,631 units in June, production stood at 811,864 vehicles, indicating the huge role exports still play for Japanese automakers. Although export volumes were down for most automakers in June, Nissan, Fuji Heavy, and Mitsubishi demonstrated support for their local plants through higher overseas shipments. At the other end of the scale, automakers such as Suzuki, Daihatsu, and Honda posted big declines in output as their production levels are largely guided by domestic demand. Apart from weak domestic demand, Honda is also reeling from the massive recalls related to faulty airbags and quality issues. Meanwhile, Daihatsu suffered as a result of the recent increase in minivehicle ownership tax.

The combination of weak domestic demand and certain automakers' focus on overseas production is likely to result in the continuation of the trend of lower domestic production. IHS Automotive forecasts that light-vehicle production in Japan will reach 8.59 million units in 2015, down 6.8% y/y. We expect Fuji Heavy to continue its focus on domestic output until next year when it is due to transfer output of the North American variant of the Impreza to the United States. Mazda is another automaker that is expected to do well in terms of domestic production, given its success in Japan with its diesel vehicles. On the other hand, we foresee difficult times for Mitsubishi, Honda, and Suzuki in the rest of this year as a result of difficult market conditions, tax increases, and lower export volumes.