Ann99 4

Summary of the Auto Industry in Japan

 The Year in Perspective

During 1998, the Japanese economy was knee-deep in recessionary turmoil from the worst
economic downturn in its post-war period. Consumer confidence was shaken badly by a number
of factors including the impact of the so-called Asian flu and severe debt problems in the
Japanese financial and banking sector. While analysts suggest that the reforms required to
bring about a recovery in economic growth are difficult and daunting, signs that the
financial system is being restructured is evident in terms of foreign ownership and direct
investment in Japan’s banking, insurance and financial services sectors. And the
process of industrial restructuring is also underway in the automotive sector, seen
recently in the deeper international alliances between Ford & Mazda and General Motors
& Suzuki, as well as the new alliance between Nissan & Renault.

The economic slump has also taken its toll on the domestic automotive industry in
Japan. Sales of all new vehicles fell 12.6% overall in unit volume to just under 5.8
million from 6.7 million in 1997. Passenger cars were down 8.9% to 4.0 million units,
trucks were off 20.1% to under 1.8 million units, and buses slid 10.3% to 14,141 units.
Sales of mini vehicles were the only bright spot, showing remarkable strength in the last
quarter of 1998 to close up 4.1% overall at almost 1.56 million units.

Vehicle production in Japan fell to its lowest level since 1979 with total output of
just over 10 million units. Passenger car production dropped 5.1% to just over 8 million
units, while truck output plunged 20.0% to 1.9 million units. Bus production was off 8.5%
to almost 57,000 units.

Exports of finished vehicles from Japan to markets around the globe retreated slightly
in 1998 after sharp gains in 1997. Shipments fell 0.5% to 4.5 million units in total.
Passenger cars were up 2.9% to under 3.7 million, while trucks declined 13.4% to almost
796,000 units. By destination, export shipments increased marginally to major markets in
North America, Europe, Latin/South America and Oceania, but dropped rather precipitously
to Asia.

Import vehicle sales in Japan were hit hard by the slump in demand from the ailing
economy for the second year in a row. Sales registrations of imported vehicles including
models built overseas by Japanese automakers posted a drop of 24.4%, from 364,882 in 1997
to 275,869 in 1998. Imported passenger car sales fell 22.2% to 265,848 units, while trucks
and buses lost 57.2% over the previous year to 10,021 units. Foreign automakers sales in
Japan slipped 19.8% to 252,065 units, while the sales tally of imports built overseas by
Japanese automakers sank 53.0% to 23,804 units from 50,601 in 1997.

The Outlook for 1999

Overall, the outlook for the auto industry, like the Japanese economy as a whole, is
still rather gloomy; although there are a few glimmers that the bottom of the recession
has been reached and a gradual recovery may begin in the latter half of 1999. Some
positive signs include a continuing commitment by the Japanese Government to deregulation
together with countermeasures to stimulate economic activity, a 20% gain in the Nikkei in
the first quarter of 1999, and a number of new foreign direct investments into Japan,
notably in the investment banking and financial services sector, including Merrill Lynch,
Goldman Sachs, and Manulife, a Canadian insurance company.

In the auto sector, industrial restructuring will continue to impact both production
and sales as companies struggle to find the right balance between global competition and
cooperation and at the same time, to maintain their focus on meeting the ever demanding
needs of the consumer. Mini vehicle sales in Japan have continued to show robust results
over the last six months of the fiscal year, and automakers have been aggressive in
introducing new eco-friendly models, such as direct injection engines and hybrid
(gas/electric) vehicles. And the 1999 Tokyo Motor Show in October is an international
showcase of new automotive technology and design that generates widespread interest among
Japanese consumers.

The forecast for motor vehicle demand in the Japanese market in 1999 optimistically
projects some overall growth to just over 6 million units. In the face of many challenges
in the years ahead, Japanese automakers intend to focus on three specific areas in 1999:

1. Revitalization of domestic demand
2. Environmental protection and vehicle safety
3. Promotion of international mutual understanding and co-operation.

Note: Percentage figures represent the
change from the preceeding year

Source: Japan Automobile Manufacturers Association

Source: Japan Automobile Manufacturers
Association

Note: Percentage figures represent the
changes from the preceding year

Source: Japan Automobile Importers Association * Data included in European/U.S.A. figures

The Chairman’s Report | Review of the Japanese Auto Industry in Canada – 1998 | Overview of the Canadian Auto Industry – 1998 |  Summary of the Auto Industry in Japan – 1998 |