Japan’s trade concerns

Mazda Hofu Plant, Nishinoura District, Japan

Japanese car manufacturers that rely heavily on exports to sell their models in the US would be hardest hit by trade restrictions the country is threatening to impose.

Analysts have said that Mazda is most exposed to any trade restrictions in the world’s biggest car market after China, and their knock-on effects.

Mazda’s operating profit could be cut by 8.5 per cent in the year to March 2019 as it faces risks from a stronger yen if the trade uncertainties weaken the U.S. dollar, while any trade restrictions would raise the cost of imported cars from Japan, they said. 

Japan’s “Big 3” carmakers – Toyota, Nissan and Honda – face risks if an updated North American Free Trade Agreement (NAFTA) raises tariffs on vehicles and parts made in Mexico, where all three operate plants, and Canada, where Toyota and Honda build vehicles.

But their relatively higher U.S. production levels than their smaller rivals and more diverse regional manufacturing and sales footprint could help to cushion any impact.

Nissan and Honda, among the Japanese automakers with the most production in North America, could see profit rises of 9 per cent and nearly 6 per cent, respectively, they forecast.

Japanese automakers are already struggling with sluggish sales in North America due to falling demand for sedans, a mainstay of their offering and deeper discounts to shore up sales are hitting margins.

“(W)e see risks to the sustainability of export operations at Mazda Motor and Mitsubishi Motors, which are highly exposed to exports and have no production bases in the U.S. at present,” Nomura analyst Masataka Kunugimoto said in a research note earlier this month to Reuters.

While analysts expect Mazda to post a median fall in operating profit of 8.5 per cent in the financial year underway, some forecasts are for a much steeper decline. A fall would reverse a 20 per cent rise forecast for the year ended March 2018 as a weaker yen boosted its earnings.

Mazda sold roughly 1.6 million vehicles globally in the year to March 2017, nearly 20 per cent of them – all imported – in the United States.

Both Mazda and bigger rival Toyota see roughly 30 per cent of their global sales from the United States, Canada and Mexico, but around 70 per cent of the nearly 3 million cars Toyota currently sells in North America are produced locally in North America.

Mazda, which operates a factory in Mexico, announced earlier this year that it and Toyota would jointly build a manufacturing plant in Alabama, although vehicle production will not begin until 2021.

 

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