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Thursday, Feb. 19, 1998

On Paper: Electronics firms, automakers adapt to slump

Second in a series

Staff writer

The continued economic slowdown in Japan and the rest of Asia is likely to force the nation's automakers and electronics firms to make a major shift in their business practices.

Decades of steady expansion in the global market may be over. "We are predicting that our sales in Indonesia, Thailand, Malaysia and the Philippines in 1998 are likely to plunge by 40 to 50 percent compared with 1997," said a spokesman for Toyota Motor Corp.

Toyota is not isolated in its predicament. Japan's major electronics firms, as they approach the March 31 close of the 1997 business year, have downwardly revised their earnings expectations, and some automakers are likely to follow suit.

"In addition to the lackluster sales in the domestic market, some Japanese automakers are suffering severely from the recent economic turmoil in Asia," said Noriyuki Matsushima, senior analyst at Nikko Research Center. "Automakers, whose market share in Asia is high, will have to revise their profit forecasts downward before they announce the current business year's financial report in May."

Many analysts say that Japan's major electronics and automobile manufacturers will have to conduct a drastic review of their short- and long-term strategies, which may involve restructuring, price hikes and diversifying to meet the demands of the next century.

In November, Japanese automakers were able to announce profits in their half-year financial reports because of increased exports to the United States and Europe, which were boosted by the weak yen and booming economies in the U.S. and Europe.

But so far, the yen's depreciation against the dollar seems to be the only factor that could increase their earnings this year.

In January, domestic auto sales tumbled 23.5 percent from a year earlier to 257,568 units. It was the 10th straight month of decline, a skein that began in April when the consumption tax was increased.

Figuring that Southeast Asia -- which once looked like a promising market for the world's leading automakers -- is unlikely to be back on track for at least two years, firms recently began reducing production in the region.

One company, however, is already accelerating in a new direction. In December, Toyota began importing diesel engines produced in Thailand; it also plans to export the Thai-made sedan Soluna to other markets such as South America.

As for other Japanese automakers, Nissan Motor Co.'s production lines for commercial vehicles in Thailand have been stopped since August, and most Japanese auto plants there are now producing at half of their capacity.

Isuzu Motors Ltd. has halted construction of a new plant in Thailand and has no plans to resume work. Under the original plan, the plant was scheduled to open by 2000 and produce 200,000 trucks annually.

Of Mitsubishi Motors Corp.'s four factories in Thailand, only one that produces vehicles for exports is running at full capacity. What's more, Mitsubishi's losses from dollar-denominated loans to the Thai plants are likely to increase from an earlier estimate of 40 billion yen, according to the firm.

Although the Thai baht and the nation's stock exchange began to rebound at the start of the year, any talk that the worst might be over was quickly quashed when Indonesia backtracked on agreements with the IMF and sparked a new round of Asian Contagion.

Indonesia's auto market, which had grown steadily until mid-1997, was expected to reach 400,000 units by the end of 1997; it closed the year at 387,000 units. "In 1998, some are predicting 200,000 units and others are forecasting only 100,000 units," lamented an MMC spokesman. "Everything is totally unpredictable in Indonesia."

While Toyota has so far raised its car prices by an average of 10 percent in Indonesia, Nissan Motor Co. has reportedly increased prices of some vehicles to be sold there by a maximum 36 percent.

Seiji Sugiura, an analyst at Nomura Securities Co.'s Financial Research Center, said that the full impact of Asia's economic turmoil will not appear until the 1998 business year. He's urging manufacturers to review their strategies in the region.

"They must further increase product prices in the region to cover the losses incurred by the depreciated local currencies," he said. "And they will also have to use more locally produced components and stop relying on importing key components such as engines from Japan."

The carmakers are not alone.

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The Japan Times

Article 8 of 9 in National news

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