Japanese OEM's financial outlook: Expectation of declining profits

Amidst concerns about profits, largest capital and R&D investments in history planned for FY 2017

2017/06/23

Table of contents

Summary
Japanese OEMs: Decrease in operating profits for second consecutive term in FY 2016-2017
Impact of exchange rate fluctuations in FY 2016 amounts to JPY 2 trillion, causes a decrease in profits; stagnation of the North American market also takes a toll
Global sales of passenger vehicles steadily increasing
Implementing largest ever capital and research and development investments in FY 2017
Results of the seven passenger vehicle OEMs in FY 2016 and plans and policies for the years beyond FY 2017
Production Forecast by LMC Automotive: Japanese light vehicle production hover around 8.8 million in the medium to long term
Fact sheets (part 1): Consolidated sales/ operating profit/net income, Operating profit margin/net income margin, Foreign exchange rates
Fact sheets (part 2): Seven OEMs' Light vehicle sales by region, Capital investment/Depreciation expenses/R&D costs

Summary

(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.)

The financial results of nine Japanese OEMs (excluding Mitsubishi Fuso and UD Trucks, which do not release statements) in FY 2016 saw decreases in both sales and profits for the first time since FY 2011 (in FY 2016, sales decreased year-over-year (y/y) by 3.4% to JPY 66.8861 trillion, and operating income decreased 16.8% to JPY 4.5319 trillion). The impact of exchange rate fluctuations has caused operating profits to fall short of JPY 2 trillion, and the North American market has stopped expanding, leading to intensified price competition and a decrease in profits that has also affected the OEMs.

The FY 2017 earnings forecast projects a 1.2% increase in sales at JPY 67.66 trillion, but operating income is expected to decline 11.5% to JPY 4.12 trillion for the second consecutive term.

Although profits will stagnate, the OEMs have not restrained themselves from investing for the future, and in FY 2017, they plan to make capital investments of JPY 3.2 trillion (6.9% increase, exceeding JPY 3 trillion for the first time), and research and development expenditures of 2.95 trillion (6.8% increase). President Toyoda of Toyota commented, "The present automobile industry is being asked to make a paradigm shift, for which, as I see it, especially AI, autonomous driving, robotics, connected systems and other new domains will hold important keys. I want to continue planting seeds looking to 10 or even 20 years into the future." Additionally, Japanese OEMs plan to actively invest in electrification technology.

Nine Japanese OEMs' Consolidated Sales and Profit

(in billions of JPY)

	FY2010	FY2011	FY2012	FY2013	FY2014	FY2015	FY2016	FY2017 Plan
Sales	46,462	45,211	50,847	59,910	64,925	69,208	66,886	67,660
Operating profit	1,919	1,418	2,822	4,535	5,123	5,448	4,532	4,012
Operating profit margin	4.1%	3.1%	5.5%	7.6%	7.9%	7.9%	6.8%	5.9%
Net income	1,364	936	2,039	3,460	3,893	4,056	3,543	3,262

Year-over-year comparison

	FY2010	FY2011	FY2012	FY2013	FY2014	FY2015	FY2016	FY2017 Plan
Sales	6.5%	-2.7%	12.5%	17.8%	8.4%	6.6%	-3.4%	1.2%
Operating profit	99.0%	-26.1%	98.9%	60.7%	13.0%	6.3%	-16.8%	-11.5%
Net income	152.9%	-31.4%	117.8%	69.7%	12.5%	4.2%	-12.7%	-7.9%
Source: Nine Japanese OEMs' Financial Results

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