Impending Tax Hike Will Boost Sales In Short Term

According to the Japan Automobile Manufacturers Association (JAMA), September vehicle sales surged 17.0% year-on-year (y-o-y), to 522,760 units. BMI put out a view back in August that favourable base effects would help sales for the rest of the year and upgraded our forecast accordingly ( see 'Upgrading Sales Forecast Due To Favourable Base Effects', August 12). September's sales performance goes on to validate our view.

Consumer Sentiment Turning Positive
Japan - Domestic Auto Sales, Units (LHS); % Chg y-o-y (RHS)

Consumer Optimism Rises

The rising consumer optimism is evident, with September auto sales registering their first y-o-y gain since April. According to Honda Motor's senior managing officer, Sho Minekawa, customers have slowly been returning to showrooms. We believe this positive sales momentum will continue for the rest of the year as Abenomics (a set of aggressive fiscal and monetary stimulus policies introduced by Japan's new Prime Minister Shinzo Abe) finally begins to loosen consumer purse strings.

Another development, which would also provide a boost to car sales in the short term, is the recent decision by Abe to raise the consumption tax from 5% to 8% in April 2014. We had highlighted that this increase was likely and we now expect to see buyers front-loading their auto sales purchases for the rest of 2013 and Q114.

Luxury Segment Another Beneficiary Of Abenomics

The luxury car segment has been another beneficiary of Japan's recent economic upturn. Abenomics has provided a big boost to asset prices and the 60% rise in the TOPIX over the past year is testament to that. Anecdotal evidence points to strong growth in luxury car imports and we believe this is due to investors experiencing a positive wealth effect. The recent uptrend in foreign branded car imports (of which luxury brands are a part) supports this view.

Luxury Segment A Beneficiary Of Abenomics
Japan - Foreign Brand Car Imports, Units (LHS) ; % Chg y-o-y (RHS)

Corporates Could Gain From Stimulus Programme

Besides the lift in consumer sentiment, the outlook among firms has also become more favourable. The latest Bank of Japan Tankan survey has shown that confidence among large Japanese manufacturers has risen to the highest it has been since 2007. Furthermore, Abe has pledged a JPY5trn (US$51bn) stimulus programme to help firms mitigate the effects of the impending sales tax hike. One of the ideas being mooted is a corporate tax cut, which we believe will be beneficial in accelerating firms' capital expenditure plans. This could then increase hiring and wages, further boosting consumption.

Therefore, against such a promising backdrop, we are prompted to upgrade our 2013 passenger car sales growth forecast to 2.5%, to 4.7mn units, from 0.5% previously. This then revises our total vehicle sales growth forecast to 2.3%, to 5.5mn units, from 0.6% previously. We have left our 2014 auto sales growth forecast unchanged for now as it is slightly early to predict the consumer fallout from the hike in the consumption tax.

This article is tagged to:
Sector: Autos
Geography: Japan

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