TOKYO - Squeezed by a continuing decline in exports and a chronically weak domestic market, Japanese automakers have at last begun to tackle the socially sensitive issue of cutting production capacity at home.
Nissan Motor Co. captured headlines and the nation's attention in October with a dramatic restructuring plan calling for the closure of a major assembly plant and cutbacks at several others. But other makers also have been moving to 'adjust' their production capacity.
According to estimates by Standard & Poor's DRI Global Automotive Group, Japan's vehicle producers will slash capacity nearly 16 percent over the next five years, from 13.4 million units to 11.3 million. About half of that reduction will be in commercial vehicles, reflecting the abysmal state of Japan's economy.
Passenger-car capacity will be cut by more than 1.2 million units by March of 2003, from 10 million currently, according to Ashvin Chotai, London-based head of the automotive group. Truck capacity will be slashed from 3.4 million units to 2.5 million by early 2005, he predicted.
The cutbacks come as vehicle production at home continues to fall. Output last year slipped 1.5 percent to 9.9 million, the first time since 1979 that Japan's automakers have built fewer than 10 million cars and trucks at home.
The problem of overcapacity is especially acute in the commercial truck sector, hardest hit by the downturn in Japan's economy. Commercial-truck output tumbled 18.5 percent last year to 1.15 million, the lowest level since 1965, and the industry is buried under an estimated 51/2-month supply of unsold medium- and heavy-duty trucks.
TOUGH TO FIGURE
Measuring capacity is an inexact proposition, of course. Nissan COO Carlos Ghosn illustrated the difficulty of the task in October, when he announced plans to close the company's Murayama plant.
The plant, which opened in 1962 in suburban Tokyo, assembles five small and full-sized car models.
Until the October announcement, Nissan had said its assembly capacity in Japan was 2 million units per year. But Ghosn recalculated the total on a new assumption: a 'fully loaded two-shift operation.'
The new result: capacity of 'a minimum of 2.4 million vehicles,' he said. That put Nissan at a capacity-utilization level of 53 percent - far below the level needed to make a profit. He said Nissan would cut its capacity by nearly one-third, to 1.65 million units, which would push the carmaker's capacity utilization to 77 percent. The bulk of those cuts will be achieved by the closure of the Murayama plant.
To be sure, most of Japan's automakers are operating close to, or even far above, break-even levels of plant use, generally accepted as 70 to 75 percent of two-shift capacity. According to DRI estimates, which assume two-shift operation, Japan's principal automakers are operating at these levels of capacity:
Toyota: 77 percent
Honda: 92 percent
Mitsubishi: 72 percent
Mazda: 76 percent
Fuji: 82 percent
Suzuki: 107 percent
Isuzu: 76 percent
Even so, analysts agree, further capacity adjustments are in the cards. These are being driven more by the long-term decline in Japan's auto exports as production shifts overseas than by the current economic recession and weak home market, they agree.
'Are we going to go back to 7 million or 7.5 million units in the domestic market, the 1990-91 levels? I think not,' said Howard Smith, auto analyst at ING Baring Securities (Japan) Ltd. in Tokyo.
'But I think Japan can maintain a domestic market at or above 6 million units for several years. The key ultimately will be exports, and at what point do they trend to zero?'
As Japanese carmakers continue to expand their production bases in North America, Europe, Asia and Latin America, those markets no longer provide the outlet for exports that they once did. Japan's auto exports peaked at 6.7 million in 1985 and declined steadily to 3.7 million in 1996.
Exports rose slightly in 1997-99 on the strength of the North American market and Japan's attempts to boost exports to offset the slumping home market. But the long-term trend is clear: Exports will continue to decline.
While those trends have been in place for years, several factors are forcing Japanese carmakers to get serious about cutting capacity now, Chotai said.
'The financial problems have become more conspicuous in recent years,' he said. 'The sense of urgency to do something to the cost base has been highlighted this year compared to last year.'
The Asian financial crisis exacerbated the problem, he said. Seeking to bail out their troubled plants in Thailand, Toyota, Mitsubishi, Mazda Motor Corp. and other Japanese makers boosted exports of pickups from Thailand, displacing exports from Japan in the process.
Trimming capacity should boost the profitability of the entire Japanese industry. On the passenger-car side, industrywide capacity utilization rates should jump to 90 percent in the fiscal year ending March 2003, from barely 80 percent currently, according to DRI.
The improvement will be even greater on the truck side, although the industry still will be plagued by overcapacity. There, capacity utilization rates should jump from a dismal 50 percent in early 1999 to as high as 79 percent by early 2005, DRI estimates.
Nissan's high-profile closure of Murayama has made it easier for other companies to take painful steps to cut capacity, Chotai said.
'If everything happens without too much labor unrest,' he said, 'then Toyota, Mitsubishi, Honda - everybody, really - will say, `We can take those steps, too.' '