TOKYO -- In a sign of how morose the Japanese auto market has become, the automakers' association just slashed its full-year sales outlook. Why? Because the government has not raised the national sales tax as planned.
Perversely, carmakers in the world's third-biggest market were banking on a tax hike and consumers' desire to buy ahead of the higher taxes as their best hope for stoking sales.
They had been counting on the threat of higher taxes to power a 6.5 percent increase in overall domestic sales, to 5.3 million vehicles, in the current fiscal year ending March 31, 2017, vs. the previous fiscal year.
Now, they are bracing for a 1.9 percent decline to 4.8 million vehicles.
The Japan Automobile Manufacturers Association reversed its outlook this month, saying the government's decision to delay the tax increase, to 10 percent from 8 percent, would deflate a much-anticipated spending boom ahead of the hike.
Prime Minister Shinzo Abe's government put the tax increase on the back burner, fearing it will chill Japan's already fitful economic recovery.
A drop this year in total vehicle sales, including buses and medium- and heavy-duty trucks, would follow a 6.8 percent decrease to 4.9 million vehicles in the fiscal year that ended March 31. Volume last year was torpedoed by slumping demand for minivehicles.
Volume in Japan's domestic market has declined steadily since peaking at 7.8 million vehicles in 1990, when Japan's economic bubble burst.
Japan's population is aging rapidly, with older drivers eventually giving up their car keys. It also is declining. That means fewer people buying cars. Rapid urbanization undercuts demand because Japan's cities have top-notch public transportation. In addition, Japan's economic stagnation means fewer people have the money to spend on cars, even if they want them.
A stack of taxes upon taxes on auto purchases does not help.
In addition to the national sales tax, a prospective owner of a Toyota Corolla, for example, has to pony up an "auto acquisition" tax, a tonnage tax based on vehicle weight, plus an annual automobile tax based on engine displacement. The government plans to scrub the auto acquisition tax if the consumption tax is increased, but the Tokyo Metropolitan Government is expected to replace that with a new tax based on a vehicle's environmental performance.
In the meantime, any bump in demand ahead of an eventual sales tax hike has receded further into the future. But if the tax increases, so should sales -- at least momentarily. For Japan's automakers, anyway, that's the hope.