Sure, the past two years have given us production upsets from a tsunami, the Tsunami and a hyper strengthening of the yen all while the US auto market has bounced back from historic lows during the financial crisis. Japanese brand market share peaked in 2009 and 2010 with 40% of US sales. But since then, they have settled back down around to their 10 year average of 34-36%. So far in 2013, they are only slightly behind in market share from 2012.
I see two interesting points in the mix:
First is that Toyota’s position is relatively low compared to its peers. Toyota had been flying way to high with U.S. volume leading into the 2009 crash and was hardest hit by the 2011 natural disasters. They have pulled back above the 14% share level. I look for them to methodically gain back share with new products. At the same time I hope they avoid the deadly all-out war to gain “best” selling brand in U.S. or globally.
Whenever I hear reporters hyping the battle for best seller, I cringe. These last-minute assaults don’t burnish the image as they once did when Toyota was looking for credibility as an American brand and only assault the bottom line. If Toyota holds back in the coming months and lets GM get back in the ring with Volkswagen, that’s good news for their FY 2012 results.
The second point is the winners in market share. On one side, we see Nissan which had been bumping its head on the 6.5% share level for more than a decade finally breaking out. New expansion products like the Rogue, Juke and a more exciting sedan lineup have helped. But also has a new strategy of lower prices, lower incentives. Unfortunately, it may turn out to be a lower price, higher incentive strategy. You know what this means to margin. This could be an even bigger impact than margin compression in China for the OEM.
Also take a look at chart below. I don’t want to mix the J3 with the surging Korean brands, but the rise of Hyundai Kia can’t be ignored. In the old days (aka the 90’s), “Asian brands” meant, Toyota, Honda, Nissan, Mitsubishi, Mazda, Subaru, Isuzu. Today, the concentration is with the J3 plus HK. Hyundai Kia has plateaued out in the 8% range, and will need to build out its model lineup to grow beyond that. From a consumer point of view, there are few if any points of demarcation between the brands. Hyundai is established and the Kia design revolution has made it just about the hippest Asian brand out there. In an industry built on leverage, the past five years have been a boon. Prepare for a couple of years of stability rather than just extrapolating straight line.
• As the U.S. industry shifts from rapid growth to more stable annual growth, look for the J3 to be more price disciplined while still trying to pick off market share. Among the three (and Hyundai KIA) the new product cadence is not that big a difference.
• Nissan is the weak link. The company has been obsessed with market share in the past few years, and is capable of initiating a sustained price war. They’ve picked up a good chunk of market share and the new management coming into the U.S. won’t be willing to let it go.
• Toyota still has room to rebuild and Honda which had stumbled badly post Tsunami seems to have regained some footing. Overall, they are better positioned than the Detroit/Milan 3.
Some data of note: Combined, the J3 have ¥80 billion sensitivity to the $/¥ rate.
• Toyota: ¥40 billion
• Nissan: ¥20 billion
• Honda: ¥18 billion
As a reminder for every ¥1 yen change, operating profit for the automakers moves up, or down, compared to the previous year’s results. For sure, Japanese OEM’s and suppliers have made huge inroads in increasing $ based content. But in the end, those U.S. profits have to be translated back into yen.