Competitors beware. Global auto markets are strengthening and Japanese auto makers are coming back in force.

That is the unwritten message in a new, upbeat report by Goldman Sachs Japan.

“We are forecasting 112% operating profit growth this fiscal year (ending March 31, 2013) to ¥2.9 trillion ($36.2 billion) for Japan’s eight major auto producers combined, with an 11.4% increase in global shipments to 21.3 million units providing the main boost to higher earnings,” says senior analyst Kota Yuzawa.

Four key assumptions are made in the report:

  • The forecast of the seasonally adjusted annual rate of Japanese auto maker sales in the all-important U.S. market will reach 14.3 million units for 2012 and rise to 15.5 million in 2013.
  • Incentives per vehicle will increase $50-$150 in fiscal 2013.
  • This year the most critical foreign exchange rate is expected to remain around ¥80/$1 level, a welcome weakening from the record high ¥75.95:$1 set last August. The yen is seen weakening as well to ¥110:€1 from ¥105:€1 and to ¥85 from ¥80 for both the Australian and Canadian dollars.
    Every ¥1 change in the exchange rate against the U.S. dollar now results in a loss or gain in operating profits of about ¥30 billion ($373 million) for Toyota and ¥18 billion ($224 million) each for Nissan and Honda.
  • Input costs of raw materials, which are expected to fall an estimated ¥5,000 ($625) per vehicle in fiscal 2013, are seen rising ¥10,000 ($1,250) per vehicle in fiscal 2014.

“Assemblers that were heavily hit by natural disasters look likely to continue ramping up production substantially at least through the summer, with an estimated climb in April-June for Toyota and Honda shipments of 75.3% and 81%, respectively, year-on-year and a 7.6% increase for Nissan,” Yuzawa says.

He expects assembler operating margins to head higher as well, from an estimated 4.2% in January-March 2012 to 6.1% in April-June and 5.8% in July-September, and predicts operating profits will rise across the board this year and next.

The Goldman Sachs report also says:

  • Toyota is likely to target shipment growth in excess of 10% this year. Because the company’s earnings are the most foreign-exchange-sensitive of Japan’s Big Three, management presumably will build a ¥5:$1 buffer against volatility.
  • Given Nissan’s cost competitiveness and growth strategy, the auto maker should be able to capitalize on both cyclical recovery in the U.S. and sustained growth in emerging markets.
  • Honda’s model-refresh rate is expected to stay high at 30% or more in the U.S. It possibly could gain more than a 10% market share there, compared with 9% currently, given plans to refresh the Civic midyear and provide a full model change of the Accord in autumn.
  • Suzuki’s loss of market share and decline in profitability in India has been a short-term concern. A recurring profit margin of 6% targeted for fiscal 2015 by reviving earnings in India and increasing earnings in other Asian markets could be achieved a year ahead of time.
  • Fuji Heavy Industries (Subaru) will focus resources on the high-margin North American market rather than over-stretching for production in China.