TOKYO -- Japan is back.
Enjoying a huge windfall from a weakening yen, Japan's automakers are putting a half-decade of travails behind them and entering a golden age of record profits.
Mounting cash hoards mean they can better withstand another downturn, plow more money into new factories, invest more in r&d and make products more attractive by adding content, holding the line on price increases or offering enticing incentives.
"This is a kind of renaissance for Japan's carmakers, after the dark ages of the financial crisis, the tsunami and the exceptionally high yen," said Tatsuo Yoshida, an analyst at Barclays Securities Japan. "They have much more freedom and latitude."
Consider r&d spending, the seed money that yields better products down the road. In the fiscal year that ends March 31, Toyota plans to raise its r&d spending 12 percent from a year earlier to a whopping $8.55 billion. That is more than double General Motors' 2013 net income of $3.77 billion. Even at the much smaller Honda, r&d spending is forecast to rise 13 percent in the current fiscal year to $5.99 billion.
As Japanese automakers report earnings for the October-December quarter, they are issuing buoyant forecasts for the entire fiscal year ending March 31. Four companies -- Toyota, Mazda, Mitsubishi and Subaru parent Fuji Heavy Industries -- are forecasting record net profits, in each case representing a rise of more than 20 percent.
Honda Motor Co. predicted a 58 percent surge in net to ¥580 billion ($5.51 billion), just shy of its record of $5.7 billion. Nissan Motor Corp. was due to release its October-December results and full fiscal year forecast on Monday, Feb. 10.
Japanese automakers say it's too early to detail how they will spend the additional income. But the windfalls will help them afford expansions that are under way, such as new factories in Mexico from Mazda Motor Corp. and Honda, and put them on more solid footing to risk bigger investments in new markets or new technologies, such as costly hydrogen fuel cell vehicles
The carmakers are eclipsing prerecession peaks largely due to the tail wind from a Japanese currency that has lost about 20 percent of its value against the dollar in the past year, following the election of Shinzo Abe as prime minister and his endorsement of a weaker yen, among other economic stimulus policies. But the automakers are also reaping the rewards of years of belt-tightening during the global financial crisis and a four-year stretch during which the yen marched to record highs.
Toyota, for example, reckons its currency windfall will total $8.36 billion this fiscal year, accounting for more than a third of its projected record operating profit of $22.81 billion. At the same time, cost-cutting efforts are chipping in $2.28 billion toward that impending record.
A new dynamic also is at play. When Toyota posted operating profit of $21.57 billion -- its record until now -- in the fiscal year ended March 31, 2008, U.S. demand exceeded 16 million vehicles a year, and the yen-dollar rate was even more favorable than it is today. Now, Toyota is poised to top those profits on much lower U.S. industry volume and an exchange rate that is favorable, but hardly at maximum-gain levels.