Japan's Automakers Forecast Record-High Profits

24 February 2014 Dashboard Insights Blog

Japan’s automakers are forecasting record-high profits for the fiscal year ending March 31, 2014. The weakening yen is a big contributor to this phenomenon, but it isn’t the only factor.

By February 10, 2014, Japan’s big seven automakers – Toyota, Nissan, Honda, Suzuki, Mazda, Fuji Heavy (Subaru’s parent), and Mitsubishi – all reported their forecasts. Except for Nissan, the forecasts are pretty good. The combined forecasts of the seven automakers for net profit amount to 3.37 trillion yen ($33.0 billion). If achieved, it would break their record high of 3.25 trillion yen ($31.9 billion), which they marked in March 2008 just before the financial crisis. Similarly, the combined forecasts for operating profit amount to 4.46 trillion yen ($43.7 billion), which comes very close to their record high of 4.48 trillion yen ($43.9 billion) in March 2008. Five out of the big seven expect to break their own record on both operating profit and net profit.

Why is this happening? There are several factors that lead to this phenomenon. Obviously, the main factor is the weakening yen. A total of 1.74 trillion yen ($17.1 billion) is expected to be generated from the depreciation of the yen. This is equal to approximately 40% of their total operating profit.

But what about the remaining 60%?  There are several factors. One big factor is their growing sales worldwide, particularly in North America. For example, Fuji Heavy’s Subaru is selling very well in the US and is expected to sell close to 830,000 vehicles worldwide during this fiscal year. This would be Fuji Heavy’s new record high in sales volume. Another factor is their recent cost-reduction efforts. For example, Japan’s automakers have been expanding their list of parts suppliers and shifting production to overseas plants. As a result, their operating margins (operating profit on sales) increased dramatically. Fuji Heavy’s operating margin is 13.0%; Toyota’s is 9.4%; and Honda’s, Suzuki’s, and Mazda’s are above 6.0%.

How long will this phenomenon continue? No one knows. The yen could strengthen again. The sales in North America and Asia could drop. Their American, European, and Korean counterparts could become more competitive. The true challenge for Japan’s automakers still lies ahead in the coming years.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services

Insights

Do You Know What IMMEX Stands For?
16 July 2019
Dashboard Insights
Does The U.S. Need STRONGER Patents?
16 July 2019
PTAB Trial Insights
California Establishes Fund to Combat Wildfire Threats
15 July 2019
Renewable Energy Outlook
There’s No Place Like Home – But Is That a Reasonable Accommodation?
15 July 2019
Labor & Employment Law Perspectives
Review of 2020 Medicare Changes for Telehealth
11 December 2019
Member Call
2019 NDI Executive Exchange
14-15 November 2019
Chicago, IL
MAGI’s Clinical Research Conference
29 October 2019
Las Vegas, NV
Association for Corporate Counsel Annual Meeting 2019
27-30 October 2019
Phoenix, AZ