Japanese OEMs' Financial Outlook for FY 2016: Downturn in sales and profit due to foreign exchange

OEMs to increase capital and R&D spending in pursuit of mid-term goals



Ten Japanese OEMs'Sales

 (Translation note: the Japanese fiscal year runs from April to March of the following calendar year. Because of this, some Japanese OEMs report their fiscal years one year ahead of what is the current fiscal year. In this report, all fiscal years are written so that they roughly correspond to the calendar year. For example, fiscal year 2016 indicates the period from April 2016 to March 2017.)

 Ten Japanese OEMs continued to achieve favorable financial results in the fiscal year 2015 (ended in March 2016). Consolidated sales increased by 6.6% year-over-year (y/y) to JPY 69.21 trillion and operating profit was JPY 5.45 trillion (up 6.3% y/y). The consolidated operating profit margin was unchanged from FY 2014 at 7.9%. In FY 2015, the yen weakened by JPY 11 y/y to JPY 120 to the US dollar. However, the increase in operating profit due to gains from the exchange rate diminished to JPY 140 billion from JPY 590 billion in FY 2014. The Japanese OEMs are assuming an average exchange rate of JPY 106 to USD 1 for FY 2016 owing to the rapid appreciation of the yen that started early in the year. Unfavorable currency exchange rates are projected to decrease the OEMs' total operating profit by JPY 1.8 trillion for the year. Consequently, the OEMs forecast a decrease of 5.2% in their total sales, and 25.5% in the total operating profit in FY 2016. The automakers' average operating profit margin is forecast to decline to 6.2%.

 However, the companies will continue actively investing for their mid-term goals by increasing their total capital spending 4.5% and R&D spending 2.2%. Toyota is making efforts to “create ever-better cars,” as exemplified by its TNGA, and “ever-better plants” that will be represented by its new Mexican plant. Nissan, Mazda, FHI, Suzuki, and Isuzu are planning double digit y/y increases for their capital investments. Suzuki in particular plans to increase its spending by a substantial 28.3% for construction of its new plant in India, which will go on stream in 2017.

 Nissan announced in May 2016 that it will take a 34% stake in Mitsubishi Motors for JPY 237 billion and become the largest shareholder of the OEM, which is in turmoil due to its fuel economy scandal.

 The related reports below are cited to show the efforts of OEMs for overall management efficiency in consideration of their changing earnings situations. In April 2016, Toyota reorganized its structure and created seven product-focused in-house companies that are highly independent and can quickly respond to shifting circumstances. In the new organization, Daihatsu has been given charge of developing the Toyota Group's small cars. Honda announced in February 2016 that it will reform its six region development and production structure, further strengthen its global models, and re-build its supply network to mutually complement products among the various regions.

Related reports:

Honda to reform six-region development strategy (May 2016)

Toyota to make Daihatsu a 100% subsidiary; entrust A-segment development(March 2016)

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