According to the Japan Automobile Manufacturers Association (JAMA), auto production in Japan rose 7.1% y-o-y in February 2014 (latest available), to 863,397 units, bringing output for the first two months of 2014 to 1,724,251 units, an increase of 10.7% year-on-year (y-o-y).
Auto sales too, rose 17.4% y-o-y in March 2014, to 783,389 units. This was the seventh consecutive month of y-o-y growth and the best monthly sales figure in at least two years. March's performance brought total vehicle sales in Q114 to 1,844,464 units, an increase of 20.7% y-o-y.
While undoubtedly spectacular, we do not expect these phenomenal growth rates sustained for the rest of the year. The hike in the national consumption tax, which took place on April 1 2014, resulted in consumers bringing forward their auto purchases to avoid paying higher taxes. Indeed, the surge in March sales was aided by last-minute consumer buying sprees.
Another unfavourable development is the dim business outlook among corporates. The latest Bank of Japan Tankan survey for Q114 found that firms expect conditions to worsen more than they did during the previous consumption tax hike in 1997. This does not bode well for job creation or economic growth in subsequent quarters.
Against such a backdrop, it will not be surprising to see a precipitous decline in monthly vehicle sales in the near term as the market struggles to absorb the economic fallout from the sales tax increase. This will then negate the strong y-o-y sales growth in Q114. As such, we are happy to maintain our full-year total vehicle sales forecast of 5,418,000 units, an increase of merely 0.8%.
That said, we expect the mini vehicle (kei) segment to continue outperforming the market in 2014. As consumer prices begin to rise faster than wages on the back of 'Abenomics' (a set of economic policies which aim to generate inflation in the country), consumers will become more mindful of the rising cost of living and will seek to purchase fuel-efficient models...