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New auto sales plunge 23.3% in December, 6.5% for 2008

According to data released this week by the Japan Automobile Dealers Association, domestic auto sales in December fell by a whopping 52,593 units, or 23.3%. For the entire year of 2008, new auto sales fell by 221,487 units, which translates to a 6.5% drop. This is the lowest number of cars sold in Japan since 1974.

Meanwhile, new auto sales in the US fell 36% in December, while overall 2008 sales were down about 18%. This is all bad for Japan’s automakers, who continue to report a string a bad news. Toyota, which is faced with its first operating loss in 71 years, announced earlier this week that it would close all 12 of its domestic production facilities for six days in February and five days in March. Now, Toyota has announced that it is asking workers not to use personal holidays on these days, but instead to forgo wages. Union representatives are hoping that some form of kaizen sessions can be planned for these days off, so that workers may continue to earn partial wages.

Toyota is also seeking somewhere in the neighborhood of a 30% price cut from steelmakers, who have not reduced prices since fiscal 2002. Steel prices increased by about 30% in FY2008.

At the same time, Honda has announced that it will delay the opening of a manufacturing plant in Argentina by at least six months. Honda is looking at the possibility of encountering an operating loss for fiscal 2008, and has been cutting costs aggressively, most notably by pulling the plug on its Formula One racing team.

Tire maker Bridgestone is feeling the knock-on effects of reduced demand for new vehicles, and expects to see its sales fall by about 10% and operating profit slide by about 15% in fiscal 2009. While the stronger yen (or weaker dollar) has hurt Bridgestone the most, the firm can take some solace going forward in the fact that rubber prices have declined sharply from their recent peak.

With auto industry-related jobs continuing to be shed and consumer confidence remaining at all-time lows, it’s difficult to predict anything other than a continued decline in sales for the domestic market, at least for the first half of 2009. Certainly, declining auto sales are part of a long term trend; they fell by 7.6% in 2007, greater than the 6.5% seen in 2008.

2008 was thus the fifth year in which new auto sales have declined in Japan. Japan’s market for new cars peaked back in 1990, at about 5,975,000 million units. For contrast, in 2007, 3,433,829 units were sold, while that figure fell to 3,212,342 in 2008.

Thus, even without the global financial crisis hitting, it would be difficult to imagine domestic auto sales having done anything other than declined (albeit much more slightly) in 2008. Sales increased in January (3.7%), February (0.1%), April (6.9%) and July (5.4%), but fell in every other month of 2008.

A couple of years ago, Japan’s automakers abided by the idea that rolling out new models was the key to boosting sales. However, it looks as though development costs for new models - not to mention related marketing costs - will be increasingly difficult to sustain over at least the coming two or three quarters. The market for new autos, and young people in particular, seems very bent on cutting back spending. Fiscal stimulus in the form of 12,000 yen tax returns per person is unlikely to sway purchasing decisions toward buying new vehicles. For the short to medium term, it seems inevitable that Japan’s auto manufacturers will need to downsize, rely more on proven models for sales, push for reductions in steel costs (how far are they willing to go in such a push - is cheaper steel an option?), and cross their fingers in hope of a weaker yen (or stronger dollar).

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