BMI View : In line with our view, Japanese auto sales enjoyed spectacular growth in Q114, rising 20.7% y-o-y. However, this was due to consumers bringing forward their purchases to beat the increase in sales tax on April 1 2014, and we expect the tax hike to pressure sales for the rest of the year.
According to the Japan Automobile Manufacturers Association (JAMA), Japanese auto sales rose 17.4% year-on-year (y-o-y) in March 2014, to 783,389 units. This was the seventh consecutive month of y-o-y growth and the best monthly sales figure in at least two years. March's performance brought total vehicle sales in Q114 to 1,844,464 units, an increase of 20.7% y-o-y.
While undoubtedly spectacular, we do not expect these phenomenal sales growth rates to be sustained for the rest of the year. The hike in the national consumption tax, which took place on April 1 2014, resulted in consumers bringing forward their auto purchases to avoid paying higher taxes. Indeed, the surge in March sales was aided by last-minute consumer buying sprees.
|Calm Before The Storm|
|Japan - Domestic Auto Sales, Units (LHS); % chg y-o-y (RHS)|
We have held the view since 2013 that we expect the recently initiated consumption tax hike to hurt sales for the latter part of the year ( see 'Consumption Tax Increase Poses Risk To Sales', January 10). Having already taken some demand from the future, the higher sales tax will also have the effect of hurting consumer sentiment, discouraging purchases for some buyers and further hurting demand.
Automakers themselves are also gearing up for a contraction in demand following the increase in the consumption tax. Toyota Motor, the country's largest carmaker, is set to reduce its daily output by 15% y-o-y in April, to about 12,200 vehicles.
Another unfavourable development is the dim business outlook among corporates. The latest Bank of Japan Tankan survey for Q114 found that firms expect conditions to worsen more than they did during the previous consumption tax hike in 1997. This does not bode well for job creation or economic growth in subsequent quarters.
Against such a backdrop, it will not be surprising to see a precipitious decline in monthly vehicle sales in the near term as the market struggles to absorb the economic fallout from the sales tax increase. This will then negate the strong y-o-y sales growth in Q114. As such, we are happy to maintain our full-year total vehicle sales forecast of 5,418,000 units, an increase of merely 0.8%.