TOKYO -- An imminent slowdown in Japanese domestic auto sales is expected to trigger a surge in exports to the United States. It also might speed investment in overseas plants, particularly for hybrid vehicles.
The shift could start as early as this month, when eco-car incentives funded by the Japanese government are expected to expire. The subsidies, offered since last December, have been a boon to Japan's auto industry after last year's devastating earthquake.
Domestic sales jumped 51 percent through July to 3.5 million vehicles, including buses. The year-to-year comparison is skewed because of last year's quake-induced slump. But some analysts estimate the eco-car incentives -- which especially benefited hybrids -- added around 500,000 more sales this year. In January, Toyota Motor Corp. predicted it would see a 100,000-unit sales rise.
Once the spiffs disappear, sales are expected to plunge. Automakers are scrambling to limit the damage.
Some plan their own Japan-market incentives. But others may boost exports to keep factories running. The prospective slump comes on top of two decades of sliding sales in Japan. As such, it could accelerate the exodus of car manufacturing from Japan.
"We are expecting a decline, but the scale is uncertain," says Takahiro Ijichi, a Toyota senior managing officer. "We are studying various countermeasures in how to deal with that."
The government budgeted ¥300 billion, or about $3.05 billion, in subsidies for fuel-efficient cars, offering buyers up to $1,015 on a qualifying new car. But the payouts end when the cash runs out -- expected sometime in September.
As a result, IHS Global Insight sees Japan sales dropping 20 percent in the October-December quarter from the year-earlier period. In turn, PWC Autofacts says, domestic production will slow to 4.1 million units in the second half of the year, from 4.7 million in the first half.
Sales are weak in Europe and China. That leaves U.S. consumers to pick up the slack.
Toyota "has already announced a phased reduction in domestic output starting in October," IHS said in an Aug. 21 report. "However, continued robust growth in other countries, including the United States, will probably still enable Toyota to top global sales, ahead of main rivals General Motors and Volkswagen."
With more vehicles from Japan soon to be available to U.S. dealers, Toyota Motor Sales U.S.A. Inc. is ratcheting up incentives, on top of spiffs that have helped push its sales up 30 percent so far this year.
Toyota already offers a lease deal on the Camry, the best-selling car in the United States, with monthly payments below $200. In September it will begin offering 0 percent financing on the 2012 Camry.
Toyota may be seeking to sell Camrys before a key rival, the redesigned 2013 Honda Accord, arrives. But the 0 percent financing also will apply to the 2012 Corolla, Avalon, Tundra, RAV4, Venza, Highlander and Sienna. The implication: Toyota wants plenty of space available on lots when the 2013s start to arrive.
The decline in demand at home also could accelerate the shift of more production overseas. Kohei Takahashi, an auto analyst at J.P. Morgan Securities in Tokyo, wrote in a recent report about the end of eco-subsidies: "Automakers can offset the impact on domestic output to a degree by maximizing the ongoing expansion in overseas markets."
Already, overseas output by Japan's vehicle makers is up 24 percent in the January-July period from the year-earlier level to 1.2 million, Takahashi says. Honda and Toyota had the biggest overseas surge, rebounding from last year's earthquake disruption.
Automakers also have been ramping up investments in assembly plants outside Japan, especially in emerging markets such as Mexico, to offset the bite of the yen's strength against the dollar and euro.
But declining demand at home will only add impetus to the long-term need to trim Japan production capacity closer to domestic needs, and reduce the share of Japanese output dedicated to exports. In 2010, before the March 2011 quake distorted the numbers, Japanese companies exported half of the 9.5 million vehicles they built.
Production has declined steadily since the early 1990s, when it topped 13 million. Output slipped to 8.3 million last year. PWC Autofacts predicts Japanese production will decline by another 1 million light vehicles by 2018.
Hybrids, in hot demand at home because of the subsidies, could take a disproportionate sales hit as the program ends.
In July the Toyota Prius was the best-selling car in Japan for the 14th straight month. Hybrids have accounted for half of Honda Motor Co.'s Japan sales this year.
To make up for the expected drop in hybrid sales at home, car companies could try increasing shipments overseas and brace for the currency hit. Or they could realign global hybrid production.
Toyota executives have said privately that they want to build the Prius in North America around 2015. Japan's slowdown will add urgency to that plan.
Mark Rechtin contributed to this report