Japan Auto Sales Fall to Lowest in Three Years on Higher Tax

Sep 01, 2014 2:32 am ET

(Updates with comment from auto dealers group in fourth paragraph.)

Sept. 1 (Bloomberg) -- Japan’s auto sales tumbled to a three-year low last month, the latest sign that consumer spending is slumping in the world’s third-largest economy following a sales-tax increase.

Vehicle deliveries fell 9.1 percent from a year earlier to 333,471 units, the lowest since August 2011, according to industry figures released today. Sales rose for seven straight months before the April 1 tax increase.

The drop comes amid economic data showing weakness in Japan’s economy. Household spending in July fell 5.9 percent from a year earlier, more than double the expected 2.9 percent decrease. Further declines would run against Prime Minister Shinzo Abe’s efforts to revive the economy, which contracted the most last quarter since the earthquake and tsunami that ravaged the country’s northeast three years ago.

“Looking at current dealer orders, it’s difficult to see sales rising even after September,” said Yoshitaka Hayashi, a director at the Japan Automobile Dealers Association. Sales had been expected to rebound in the July-September quarter when many Japanese workers typically receive a bonus, Hayashi said.

Deliveries of minicars, which have smaller engines and cost less, fell 15.1 percent to 126,865 vehicles, according to the Japan Mini Vehicle Association. Sales of other autos fell 5 percent to 206,606, according to the auto dealers association.

Abe’s government raised the consumption tax to 8 percent from 5 percent to counter the world’s biggest national debt burden. The effect on monthly deliveries was softened temporarily by backorders for models such as Honda Motor Co.’s new Fit and Vezel, which were delayed as the carmaker recalled them to check defects in a new transmission system.

Sluggish Demand

Japan’s domestic auto sales fell for 21 straight months the last time the consumption tax was raised, in 1997. This year’s tax increase may have a smaller effect, Fumihiko Ike, chairman of the Japan Automobile Manufacturers Association, said in May.

Sluggish domestic demand is expected to weigh on earnings at Japanese automakers including Toyota Motor Corp., which reported record profit last fiscal year as a weaker yen boosted the value of overseas earnings.

Toyota’s net income will probably fall 2.4 percent to 1.78 trillion yen ($17 billion) this fiscal year, the carmaker said in May, projecting Japan to be the only major market where vehicle sales may decline. The company kept the forecast unchanged when it reported first-quarter earnings last month.