Japan's two largest carmakers have arrived at the same conclusion: the U.S. auto market that's functioned as a growth engine has run out of gas.
Toyota Motor Corp. cut its forecast for North American sales this fiscal year by 60,000 vehicles and for the first time said it's expecting a decline for the year, as American consumers shift away from fuel sippers such as the Prius hybrid and toward trucks and sport utility vehicles. Nissan Motor Co., which posted a drop in profit as it gave heftier incentives that buoyed deliveries, said it's not seeing room for further expansion.
"The market turned out to be somewhat weaker," Takahiko Ijichi, a Toyota executive vice president, told reporters Tuesday after the carmaker reported a 43 percent drop in quarterly operating profit. The North American market "really requires very careful managing going forward," he said.
The more dour outlook is significant not only for Toyota and Nissan but for Japan's economy. For the nation's automakers, North America remains the biggest export destination, with more than 1.3 million passenger cars shipped during the first nine months of the year. That was double the number of vehicles exported to Europe and four times the number sent to the rest of Asia, including China, which has seen a tax cut-induced buying spurt.
The peak also has arrived at an inopportune time because the stronger yen continues to drag on earnings. Toyota City, Japan-based Toyota raised its profit forecast for the fiscal year after the yen rallied less than expected, but it's still projecting operating profit to slump by 40 percent to $16.3 billion for the year ending in March.
Nissan, meanwhile, said operating profit fell 19 percent last quarter, driven primarily by the effect of a stronger yen. For the year ending in March, operating income probably will drop by 10 percent to $6.8 billion, according to the Yokohama, Japan-based company.
"It's a peak and we don't see a potential for further growth" in the U.S. industry, Hiroto Saikawa, co-chief executive officer, said at a news conference Monday. "Incentives are rapidly growing in the industry, and we are paying close attention to it."
Automakers spent an average of $3,262 per vehicle on marketing promotions this year through October, up 13 percent from a year earlier, according to Autodata Corp. Both Toyota and Nissan are increasing incentives at a slower pace than the industry average, and the researcher estimates Nissan's spending at $3,607 per vehicle and Toyota's at $2,270 per vehicle.
Toyota has been using "appropriate levels" of incentives to buoy sales of its mainstay passenger models, the Camry sedan and Corolla compact, Ijichi said Tuesday. Nissan said incentive spending reduced operating profit in the U.S. by $386 million, raising concerns for Takaki Nakanishi, an analyst with Jefferies Group LLC.
"We cannot underestimate risk in this market," Nakanishi, who has a hold rating on Nissan shares, wrote in a report Monday. The drag on operating profit from incentives, after a $351 million reduction in the first quarter, "reconfirmed that Nissan has reached a peak in U.S. profitability," he said.
Toyota and Nissan are more upbeat about the prospects for markets in Asia outside Japan.
For Toyota, it's now forecasting 1.56 million vehicle sales for the region this fiscal year, 90,000 more than projected just three months ago. Nissan increased China sales by 8.2 percent this year through September and is targeting deliveries of 1.3 million vehicles to the market this year.
Industrywide, passenger-vehicle deliveries surged 20 percent in October to 2.22 million, the China Passenger Car Association said Tuesday. Consumers are rushing to buy models with smaller engines ahead of a tax cut expiring at the end of this year, even as the government said it's looking at extending the rebate.
"Regardless, it may impact buying behavior in the fourth quarter this year," David Schoch, president of Ford Motor Co.'s Asia-Pacific unit, said on Tuesday in Chennai, where the automaker will spend $195 million to open a technology and business center by early 2019. "There is still a lot of growth left in China, particularly in lower-tier cities. They still have millions and millions of people."
Information for this article was contributed by Ma Jie and Ganesh Nagarajan of Bloomberg News.
Business on 11/09/2016