Skip navigation
Toyota39s estimated 1 million annual hybrid sales in US nearly double all other OEMs combined report says
<p> <strong>Toyota&#39;s estimated 1 million annual hybrid sales in U.S. nearly double all other OEMs combined, report says.</strong></p>

Shifting Exchange Rates Foretell Japan-Korea Auto Makers’ Fortunes

A Goldman Sachs report predicts Japanese auto makers will see 50% growth in operating profits for the fiscal year beginning in April, while Korea&rsquo;s leading brands are expected to report an average 2% decline.

TOKYO – A new industry study by Goldman Sachs Global Investments Research reveals the beginnings of a reversal of fortune between Japanese and South Korean auto makers.

The main reason is shifting exchange rates.

The report predicts Japanese auto makers will see 50% growth in operating profits for the fiscal year beginning in April. In contrast, Korea’s leading brands, Hyundai and Kia, are expected to report an average 2% decline.

According to the investment forecast, Toyota will report ¥1.87 trillion ($19.9 billion) in fiscal 2013, up 53% from the current fiscal year’s projected ¥1.22 billion ($13.4 billion). Nissan will see 48% growth to ¥860 billion ($9.2 billion), while Honda will rise 46% to ¥820 billion ($8.8 billion).

Hyundai and Kia, although still operating at near-record earnings levels, are projected to report slightly smaller profits of 8.4 trillion won ($7.7 billion) and 3.3 trillion won ($3.0 billion), respectively.

Major factors contributing to the surging profits of Japanese OEMs are the weaker yen, which has fallen by nearly 20% since early November, and the effect of more than ¥3 trillion ($33 billion) in cost cuts over the past five years.

The yen’s recent decline coincides with an increase in the value of the won, which has risen nearly 10% since June. Goldman Sachs predicts that if the yen were to weaken to ¥100:$1 – it currently stands at ¥92:$1 – operating profits of Japanese auto makers would grow 70% on average.

In the case of Toyota, ¥100:$1 could bring the auto maker back to pre-Lehman Shock (2008 global recession) record earnings.

According to the study, each 1% decline in the yen against the dollar (assuming other major currencies move in the same direction) boosts the operating profits of Japan’s big three auto makers by an average 2%: Toyota, 1.9%; Nissan, 2.1%; and Honda, 2.4%.

This compares with a 4.3% decline in earnings for Kia and 2.8% for Hyundai with each 1% upward movement of the won against the dollar.

Among Japan’s smaller auto makers, the foreign-exchange effect ranges from 4.1% for Fuji Heavy Industries (Subaru) and 3.5% for Mazda to 0.7% for Daihatsu and 0.4% for Suzuki, the country’s two leading minivehicle brands.

Also contributing to Goldman’s upbeat outlook are plans by the Japanese auto makers to launch a series of core models in the upcoming fiscal year, whereas Hyundai’s next model cycle is not expected to pick up until third-quarter 2014 with the new Sonata. Already in the Japan pipeline are a redesigned Toyota Corolla, Acura MDX and Nissan Rogue.

As a result, Japanese auto makers are expected to expand production capacity 5%-10% in fiscal 2013, compared with 1.4% for Hyundai and Kia. The report says the Korean OEMs will shift focus to quality over quantity after their recent rapid expansion.

More generally, Goldman reports Toyota, Nissan and Suzuki have the highest growth potential in the coming year. “Toyota holds the dominant position in Southeast Asia,” says the report, “while Nissan and Suzuki are strong in China and India. In addition, Toyota’s Lexus (luxury) brand has enormous upside potential.”

Lexus sales currently stand at about 500,000 units annually, and Goldman Sachs projects growth of between 600,000 and 700,000 by fiscal 2015.

Moreover, the report says combined profits from luxury-car sales (all brands) account for an estimated 33% of global automotive profits.

Among other findings in the report, Goldman Sachs predicts that by 2020 all global Asian auto makers will achieve 30%-50% sales growth over 2012 levels. In Asia, that includes:

  • Toyota, 29%, to 10.4 million units.
  • Nissan, 33%, to 6.2 million.
  • Honda, 30%, to 5.0 million.
  • Suzuki, 64%, to 4.3 million.
  • Hyundai, 42%, to 5.8 million.
  • Kia, 49%, to 3.9 million.

Kota Yuzawa, Goldman Sachs’ analyst in Tokyo, advises the forecast is conservative and actual amounts may be larger. For instance, he predicts Toyota sales will grow to 9.5 million units in fiscal 2014, up from 8.1 million in fiscal 2012.

Meanwhile, the investment house predicts global vehicle demand will grow to 81.0 million units in fiscal 2013, up 3.1%, and to 85.2 million in fiscal 2014.

By market, Goldman forecasts light-vehicle demand in the U.S. will grow to 15.5 million units and in China to 20.2 million in fiscal 2013, while Western Europe will fall to 12.9 million and Japan will drop to 4.3 million.

The remaining world markets, including India, Brazil and select Southeast Asian countries (Thailand and Indonesia), will remain relatively flat.

In North America, Toyota, Nissan and Honda reported 7%-9% operating profit margins in fiscal 2012, the Goldman study says, while the market accounted for 30%-40% of consolidated earnings.

In China, Japanese plant utilization tumbled to 87% in fiscal 2012 and is expected to drop again over the next two years, reaching 75% in fiscal 2014, adversely impacting operating margins. The brokerage house says only Nissan will be able to maintain double-digit profit margins, because of new model releases and strong sales activities.”

Elsewhere, Goldman is projecting plant utilization in fiscal 2014 of 82% in India, 89% in Thailand, 83% in Indonesia and 84% in Brazil. 

Among global auto makers, Toyota still has the largest market cap at $169.6 billion, nearly triple Volkswagen’s $66.5 billion, Daimler’s $61.3 billion and BMW’s $58.8 billion. Honda ranks second at $68.0 billion and Nissan seventh at $46.8 billion. Hyundai is eighth at $41.2 billion and Shanghai Auto 10th at $39.9 billion.

In the field of future powertrains, Goldman Sachs says Japanese auto makers, particularly Toyota, are a step ahead of other manufacturers in meeting the U.S. Department of Energy’s 2025 fuel-economy standard of 54.5 mpg (4.3 L/100 km).

“Toyota’s yearly hybrid sales of around 1 million units are nearly double that for all other makers combined,” Yuzawa says. “More importantly, its hybrid-vehicle profit margin is in line with the company’s per-vehicle average. Next-generation powertrain alliances with Mazda, Fuji Heavy and BMW support our view.”

In contrast, Hyundai and Kia have focused their research and development on conventional internal-combustion engines, the source of their recent success. However, the report cautions the two brands have not made much progress toward developing next-generation powertrains.

“To achieve the U.S. DOE’s 54.5 mpg target,” the report concludes, “requires a 5% annual improvement in fuel economy from the department’s 2016 target of 35.5 mpg (6.6 L/100 km). In addition to increasing hybrid sales, auto makers will need to come up with electric vehicles and other technological innovations.”

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish