TOKYO -- Brace yourself for some stunning numbers.
When Japanese carmakers and parts suppliers in mid-April release their earnings for the fiscal year that ended March 31, you may wonder if you work in the same business.
Nine of 13 Japanese vehicle and motorcycle makers will report record profits, predicts Koji Endo, director of equity research at Credit
Suisse Securities (Japan) Ltd. So will 25 of the 35 Japanese parts makers that are listed on the Tokyo Stock Exchange, he says.
At the carmakers, he adds, 60 to 80 percent of their profits come from North America -- the same market where losses have driven a dozen or so American suppliers into bankruptcy court.
Next year also should be a strong one, although there certainly are risks for Japanese carmakers. Endo and Kunihiko Shiohara, director of Japan investment research for Goldman Sachs Group Inc., gave their forecasts at a luncheon at the Foreign Correspondents' Club of Japan.
Among the risks they see:
- Rising currency exposure. For more than a year, a favorable dollar-yen rate has nudged Japanese automakers' profits higher. Each dollar received in America was booked in Japan as ¥115 in revenues, up from an earlier range of between ¥100 and ¥110.
As Japanese carmakers' profits fatten on higher exports to America, they face a harder landing if the yen-dollar rate turns against them.
If the yen strengthens against the dollar by ¥1, Toyota Motor Corp.'s operating profits drop by ¥25 billion, or $212.5 million at current exchange rates, says Shiohara.
- A GM or Ford bankruptcy. Shiohara believes GM's net cash of $27 billion will keep it out of Chapter 11 bankruptcy court protection from creditors. But bets are off if a strike by Delphi Corp. workers pushes GM to file for Chapter 11, he says.
In that case, a GM Chapter 11 filing would be "quite negative" for Japanese carmakers, he says.
Endo worries about a political and trade backlash that could lead to export quotas, tariffs on Japanese cars, or currency manipulation by the United States.
Shiohara worries about falling prices. The United States will still have 2 million units of overcapacity, even after the restructurings announced by Ford Motor Co. and GM, says
Shiohara. That will lead to a steady decline in net prices of 2 percent a year through 2008, he says.
If GM were able to shed some of its $1,500 to $1,700 per-car legacy costs, such as retiree health care, through a bankruptcy filing, he predicts that would drive a "more dramatic" price decline, hurting Japanese profits.
You may e-mail James B. Treece at [email protected]