May 22, 2012
What to Expect: Trends and Analysis with Deutsche Bank’s Kurt Sanger
Kurt Sanger, analyst at Deutsche Bank in Tokyo, joined me in the studio for a quick chat about industry expectations as we step into fiscal 2012. Sanger discussed the resilience of the Japanese car industry post 3/11, Infiniti in China and the most salient trends he envisions for the industry in the coming year.
Q1. Following the annual earnings reports of the past weeks, what is your take on the Japanese car industry’s ability to counter headwinds this fiscal year – from the uncompetitive yen and Japan’s earthquake and tsunami to the crisis in Europe?
Kurt Sanger, Analyst
It’s been nothing but impressive across the board, frankly. The expectations following the earthquake and tsunami were pretty dire. And then recovery from that showed a lot of flexibility on the part of the auto makers. Some benefitted from luck and others a bit more hardship. But in the end, the flexibility to work with the suppliers was nothing but impressive.
And in mid-year, you run into the flooding in Thailand, which is another challenge, and yet we’ve seen automakers respond to that as well. I think the most impressive statement is that of the big three Japanese automakers, not a single one of them lost money in an extremely challenging year. Indeed, Nissan came out at the top as far as profit generation ability, given their impressive volume growth and, one would argue, their more flexible response due to some of the challenges that they faced.
Q2. Where is the yen headed and what do you foresee as the continued impact of a strong yen on manufacturers’ bottom lines as we head into FY12? Can Japanese manufacturers actually afford to pledge building “X million cars” in Japan?
The question is, at 80 or even 85 are you better off building a car locally or exporting it from a certain manufacturing base. And as difficult as it is to say to some folks who are working very hard, local production makes sense more times than not. So the aspirations to make X number of cars in Japan at 80 or 85 yen to the dollar really is going to take a lot of effort either to suppress the cost of the materials and parts going into the product and becoming more efficient doing what you do, or raising prices to offset some of those pressures. That latter one is more difficult, because this is a very competitive environment.
So, a lot of automakers are looking to Japan to grow and to absorb some of the local capacity. My biggest fear of the current fiscal year that just started is the projections of everyone’s growth in Japan do not add up to a market that can grow maybe 1% or 2% with some external factors, this eco-tax incentive, this year. So, there are going to be some plans that aren’t met this year for sure. Japan could be one of the most challenging markets this year and ahead as people try to justify the capacity that they would like to maintain in this market.
Q3. What three top industry trends do you expect will be the most prominent in FY12? Will there be any surprises?
One topic in the coming year is clearly going to be the Japanese makers’ recovery in the critical market of North America – recovery from the impact of the earthquake and the decline in market share for some of your competitors last year, and whether everyone as a group can continue to perform quite strongly. Within that, Nissan will be producing the new Altima. That’s going to be in a segment where Ford will have a new product; GM, Honda will have a new product. Toyota and Volkswagen recently launched their new products. So you’re going to get hyper-competitive environment in a critical segment of the market. And how the Japanese perform within that and how much market share they can claw back from depressed levels last year will be certainly an issue.
A second issue I’ve seen in results and projections is a return to growth and investment. We’re seeing a cumulative capex from the Japanese automakers of 30-35% year-on-year on a projected basis. And we’re getting back to a growth phase after 3 or 4 years of belt tightening and companies trying to make due with what they had. Now, a bit more confidence is back and the product cycle shifts in the favor of major Japanese automakers. Nissan is very much included in that. So, investment is going to be increasing and it’s nice to see some confidence reappear in the growth figures again.
The third theme will be how China deals with slower growth – and who the winners and losers are. Year-to-date we’re seeing some firms growing, strong double digits – Nissan included – and others clearly lagging in the market.
You’re going to get segmentation of winners and losers in China as growth normalizes to the 5-10% range, unlike when everybody was growing in the heyday of 30-35% growth. So, execution on product, execution on brand, and really critically finding the new customers in places is going to really be part of the winning formula for anyone looking to succeed in China.
Producer, Global Media Center