Japan’s automakers scramble to fill truck gap

on May14

TOKYO — Stung by lower profits and softening sales, Japan’s automakers are scrambling to produce more of the only vehicles that seem to sell these days: crossovers, pickups and SUVs.

Virtually every company — from Japanese juggernaut Toyota to Mazda and Mitsubishi — amplified plans to tilt lineups more toward light trucks and, in some cases, even introduce new nameplates in the segment.

“We have been increasing capacity for SUVs and pickups, and we will make full use of that to increase supply of light trucks,” Toyota Executive Vice President Osamu Nagata pledged last week while announcing a 30 percent slide in operating profit in the fiscal year ended March 31.

Toyota and its Japanese rivals need to do so, and fast.

Japanese brands long have banked on their fuel-efficient small cars and family sedans to drive profits. But U.S. car sales tumbled 12 percent in the first four months of the year while light-truck sales climbed 4.4 percent.

Not having a bigger piece of the light-truck market was one reason every major Japanese automaker except Honda reported collapsing operating profit in the fiscal year ended March 31.

And Honda’s profits increased only in comparison to miserable earnings the prior year when results were hammered by mammoth costs to cover recalls of faulty Takata airbag inflators.

Market shift

Massive foreign exchange losses took the biggest bite out of balance sheets in the just-ended fiscal year, as the Japanese yen appreciated against the dollar and other currencies.

But the cooling U.S. market also pinched Japan brands. They ramped up incentives to move slow-selling cars, which undercut profits. More light trucks — with their fatter margins and lower discounts — could have buoyed profits.

Some executives think the shift toward light trucks isn’t ending anytime soon.

Masuko: No end to sales growth

“I think SUV sales will continue growing even if gas prices rise,” Mitsubishi CEO Osamu Masuko said, noting that customers prefer the higher seating and sense of safety in crossovers.

“The SUV segment is increasing its market share worldwide, and this is where we have long been strong,” he said. “So, we will continue to make full use of this technology.”

Honda said it is getting some traction from last year’s rollout of the redesigned Ridgeline pickup and CR-V crossover. It is meanwhile dialing down output of the Accord sedan.

“We are working to increase the output of SUVs,” Honda Executive Vice President Seiji Kuraishi said. “If we can put that on a steady track and sell SUVs, we believe we can make use of our strengths.”

Japanese earnings

Converted based on Oanda exchange rate of 111.26?=$1 on March 31, 2017, last day of quarter
  FYE 2017 Change Forecast FYE 2018
Revenues $28.85 billion –6% $30.11 billion
Operating profit $1.13 billion –45% $1.35 billion
Net income $843.1 million –30% $898.8 million
  FYE 2017 Change Forecast FYE 2018
Revenues $125.83 billion –4.1% $127.63 billion
Operating profit $7.56 billion 67% $6.34 billion
Net income $5.54 billion 79% $4.76 billion
  FYE 2017 Change Forecast FYE 2018
Revenues $17.17 billion –16% $18 billion
Operating profit $45.8 million –94% $629.2 million
Net income (loss) –$1.78 billion N/A $611.2 million
  FYE 2017 Change Forecast FYE 2018
Revenues $105.34 billion –3.9% $106.06 billion
Operating profit $6.67 billion –6.4% $6.16 billion
Net income $5.96 billion 27% $4.81 billion
  FYE 2017 Change Forecast FYE 2018
Revenues $29.9 billion –2.9% $30.7 billion
Operating profit $3.69 billion –27% $3.69 billion
Net income $2.54 billion –35% $2.56 billion
  FYE 2017 Change Forecast FYE 2018
Revenues $165.38 billion –2.8% $247.17 billion
Operating profit $25.62 billion –30% $14.38 billion
Net income $20.76 billion –21% $13.48 billion
Source: Company filings

Chasing 60%

Light trucks account for about 52 percent of American Honda’s U.S. volume. That compares with 56 percent at Toyota Motor Sales U.S.A. and 53 percent at Nissan North America.

At all-wheel-drive specialist Subaru, the light-truck share is 72 percent. Mitsubishi’s is 58 percent, and Mazda generates about 53 percent of its U.S. volume from trucks. Yet all the Japanese trail the industry.

Overall, light trucks accounted for 63 percent of U.S. sales in the first four months of the year. At General Motors, for instance, the truck ratio stands at a whopping 73 percent.

Nissan aims to boost its truck ratio to 60 percent, said Chief Performance Officer Jose Munoz, who is also chairman of Nissan’s North American operations. He offered no timeline.

The rollout of the Titan full-size pickup will help. The redesigned Titan debuted with a segment share of about only 0.4 percent, Munoz said. Its share grew to more than 2 percent in March, and Munoz said it should exceed 5 percent by April 2018.

Titan sales in the U.S. more than tripled to 15,328 vehicles in the first four months of 2017.

“This implies a significant volume and profit contribution,” Munoz said. “We are on our way to 60-40, 60 for trucks, 40 for cars, to be adjusted 100 percent to the market.”

Mazda said it will increase global crossover output by up to 8 percent in the current fiscal year, which started April 1. That will partly feed the rollout of a redesigned CX-5 crossover.

Moreover, Mazda will bring a long-delayed diesel variant of the popular CX-5 to the U.S. this year to vacuum up any incremental volume, no matter how meager.

New entries

Mazda is also among the Japanese carmakers planning new entries in the segment.

While announcing its 45 percent plunge in operating profit for the fiscal year ended March 31, Mazda said it will introduce the CX-8. Arriving this year, it will be a three-row crossover for Japan, where Mazda does not sell the larger CX-9.

Toyota, Nissan, Subaru and Mitsu- bishi are following suit with new vehicles, but with an eye on America. Toyota’s funky new C-HR subcompact crossover landed stateside last month. Nissan is bringing over the Rogue Sport, a U.S.-oriented version of the Qashqai sold overseas. And Subaru will start building its new three-row Ascent utility vehicle in the United States next year.

“The Rogue Sport is going to help us close the gap,” Munoz said.

Beleaguered Mitsubishi, which is positioning crossovers at the center of its global revival plan, has high hopes for the new Eclipse Cross compact crossover going on sale early next year.

Mitsubishi’s operating profit plunged 94 percent in the fiscal year ended March 31, broadsided mostly by foreign exchange losses and costs from a fuel economy scandal. But earnings also were undercut by falling sales in every market except North America.

Even as fuel economy regulations make it harder for bigger vehicles and awd offerings, Mitsubishi will stay in the segment by electrifying its SUVs, Masuko pledged.

Kuraishi said Honda also would consider an all-electric SUV after the rollout of its of Clarity eco-sedan, which is offered in plug-in hybrid and all-electric variants.

“By using the common platform, we can commonize basic parts and production lines,” Kuraishi said. “Regarding an SUV electric vehicle, we would like to consider that going forward.”

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