1 Apr 20

COVID-19: Mixed messages from Japan

Japan is used to deal with emergency situations. The country is well prepared for earthquakes, typhoons and other natural disasters. Where Japan’s preparations score less, however, is with equally fundamental topics such as an ageing population and its Japan-centric island economy. GDP Growth used to be staggering in the 60s and 70s of last century (7.18% in average between 1961 and 1979), a lot less impressive in the next 20 years at 2.92% and below 1% over the last 20 years (average of 0.93% between 2000 and 2018). (Source: WorldBank). In other words, at similar growth levels as South-Africa and the Republic of Congo, it’s a fragile economy. And now, the coronavirus has hit the country hard.

A difficult status-quo

Much alike other global OEMs, the Japanese car industry has been betting high on the Chinese market. Japan struggled to get feet on the ground on the fasted growing car sales market, as it had trouble keeping up with ever changing consumer preferences and local regulations. Also, from a cultural perspective, the Japanese and the Chinese are very much opposites: the Chinese do first and correct afterwards whilst the Japanese prepare first and act later. The Chinese economy and cars sales slowing down, was not part of the roadmap and an important lesson for the Japanese car industry: China was for a while the single factor of success but became rapidly the single factor of failure.

2019 was also for other reasons a difficult year for the car industry. Various natural disasters had disrupted production and key models (Toyota Yaris and Honda Fit, for example) were due for updates beginning of 2020 only, which has led many consumers to postpone purchasing a new vehicle and new car sales to fall 1.5% to 5.2 million units in 2019. The decline explains how Japan’s car park has been ageing from an average of 7.48 years in 2009 to 8.6 years in 2018.

Finally, 2019 saw a rise of the consumption tax from 8% to 10%, leading to a jump prior to October, but also a decline of 25% in October and another 13% in November. Sales didn’t recover in December.

Annus horribilis

Industry’s car sales predictions for 2020 where 5.1 million units in December 2019, without taking the impact of coronavirus into account. The results are now in for February and they’re not reassuring: 430.185 passenger vehicles were sold in Feb 2020 versus 479.427 units in Feb 2019. This is a year-on-year decline of 10.3% and the industry is bracing itself for annual sales below 5 million units domestically.

The chaos is worsened by production interruptions due to the Chinese suppliers not being able to deliver parts to the manufacturing lines and a lack of support from dealer networks, preferring to postpone marketing activities rather than investing when times are tough. As corona is not foreseen to have a formal “end date”, the conservative small businesses in Japan are unlikely to change their strategy soon.

Normalising the crisis? What about the Olympics?

Prime Minister Shinzo Abe as well as the popular Tokyo Governor Yuriko Koike have been maintaining their position on keeping the Summer Olympics as planned. However, as a poll demonstrated that 2/3 of the Japanese voters think that the Games should be postponed and G-7 leaders are unanimously promoting the postponement of big events, Abe’s position is becoming weaker every day.

It looks like Japan will be, just like most countries, taking a big hit in 2020. Hopefully, the country has now received enough stimuli to reinvent itself, as it was able to do so many times across history. Adopt globalization, modernize and diversify should be the pillars upon which to rebuild a powerful economy.

Picture Credit: Shutterstock

Authored by: Yves Helven