25 May 22

Price increase Japanese OEMs. Unavoidable?

Whereas European or US brands will be less shy to pass on increases of production cost or raw materials, the reality is slightly different in Japan. Japanese brands will do their utmost best to improve production efficiency to keep retail prices stable; a strategy that finds its origins in domestic – Japanese – sales.

The Nippon reality

The Japanese market remains a key target for domestic OEMs; Toyota sells about 20% of its global volume to Japanese consumers and corporates whilst for Nissan and Honda, the figure is around 10%. As Japan hasn’t known a significant inflation for decades, price increases are unusual, and OEMs feel fundamentally uncomfortable implementing them.

But the current situation prompts the Japanese OEMs to think differently. The combination of raw material shortages, a lack of semiconductor availability and shareholders pushing for profits, has put price increases on the agenda.

This will be a challenge to explain to the Japanese customer. Toyota has just announced positive results for the last fiscal year, some of which are due to a very weak yen, that make it difficult to justify price increases to the general public, that doesn’t necessarily understand that the impact of a weak yen does not deliver a long-lasting effect on a company’s results.  

The global reality

Then again, Japanese OEMs operate globally, and have the option to divert from domestic-only strategies. In the US, for example, it is more custom for OEMs to translate production cost hikes to retail prices. Japanese brands will adjust, on the US market, their prices at the launch of a new model.

Another opening for the Japanese OEMs is competitor behavior. Especially the higher-end segment has increased pricing significantly over the last year or so, and Japanese OEMs are looking into simulating that behavior. Translating this into the Toyota reality, it’s likely that Lexus models will see a proportionally higher price surge than Toyota models.

For the Fleet Manager: prepare for higher prices

Japanese brands are announcing conservative profit projections for fiscal year 2023, and facing shareholder pressure. Choosing not to increase pricing is not a realistic approach. Nonetheless, the Japanese OEMs will try to keep status quo in the domestic market, but will almost certainly adapt pricing in the rest of the world.

Authored by: Yves Helven