Japan Posts First Auto Sales Gain Since Consumer Tax Increase

Jul 01, 2014 1:45 am ET

July 1 (Bloomberg) -- Japan automobile sales rose for the first time in three months, adding to evidence the world’s third largest auto market is withstanding a tax increase.

Vehicle deliveries last month climbed 0.4 percent to 452,555 units, the Japan Automobile Dealers Association and Japan Mini Vehicle Association said today. The increase compares with a 5.5 percent drop in April and 1.2 percent decline in May.

The monthly sales rebound is the first since Prime Minister Shinzo Abe pushed through Japan’s first consumption tax hike since 1997 as part of efforts to rein in the world’s biggest debt burden without harming economic growth. The higher levy on purchases has failed to dent demand for minicars, which have posted sales gains in 12 consecutive months.

“Minicars have been helping the overall unit sales,” said Satoshi Okumoto, the chief executive officer in Tokyo at Fukoku Capital Management Inc., which oversees the equivalent of $18 billion. “The unit sales didn’t plunge as much as last time when Japan increased consumption tax because more carmakers are introducing minicars.”

Deliveries of minicars, which comprised more than 40 percent of new car sales this year, rose 1.9 percent in June after a 2.9 percent increase in April and 5.3 percent gain in May. Sales of non-minicars fell 0.7 percent.

Fumihiko Ike, chairman of the Japan Automobile Manufacturers Association and Honda Motor Co., told reporters in May that the effect of Japan’s consumption tax increase would be less drastic than in 1997, when the levy was last raised and triggered 21 consecutive months of declining domestic car sales.

Automakers led by Toyota Motor Corp. have forecast weak domestic demand would drag on earnings after Japan’s largest company reported record net income last fiscal year, buoyed by a weaker yen that boosted the value of overseas earnings.

Consumer spending slumped 8 percent in May as consumer prices rose the most in 32 years. Abe is weighing a further increase in the consumption tax to 10 percent in October 2015 and will base the decision on the strength of the economy later this year.

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--With assistance from Craig Trudell in Tokyo.