The Zacks Analyst Blog Highlights: Volkswagen, Toyota, Nissan and Honda

For Immediate Release

Chicago, IL – June 10, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Volkswagen AG VWAGY, Toyota TM, Nissan NSANY and Honda HMC.

Here are highlights from Tuesday’s Analyst Blog:

Japan Auto Sales in Free-Fall: No Recovery in Sight

Japan’s auto market slump persists, as is evident from the latest data from the Japan Automobile Dealers Association. Auto sales in May declined almost 45% year over year to 218,285 units, representing the eight consecutive month of decline. As we know, auto sales for April fell 29% year over year to 270,393 units, marking a nine-year low level amid coronavirus woes. In May, the Japanese auto market worsened further.

Diving Into the Dismal Sales Numbers

Sales of minivehicles tanked 52.7% year over year to 70,307 units in May, which marks the sharpest year-over-year fall since 1968. Sales of cars, trucks and buses fell 40.2% year over year to 147,978 units during the month. This represents the second lowest volume since 1968.

Imported vehicle sales for May fell nearly 46% from a year ago to 12,554 units. Mercedes-Benz sales declined 41% year over year to 2,694 units. Sales of BMW dropped 53.9% to 1,706 units. Volkswagen AG’s Audi sales were down 45.7% year over year to 1,072 units in May and that of its namesake brand slid 57.4% to 1,605 units.

Auto sales in Japan during January to May 2020 declined 19.2% to 1,860,404 units from the corresponding period of 2019. During the first five months of 2020, passenger car, truck and bus sales fell 19.6%, 17.2% and 16% to 1,542,089, 313,021 and 5,294 units, respectively. Minivehicles registered the maximum decline of 21.2%, with sales plummeting to 675,567 units during the same period. Vehicle imports during the January to May 2020 period dropped 20.9% from the corresponding period of 2019 to 93,300 units.

What’s Behind the Dull Show?

The coronavirus outbreak has crashed Japan’s auto market, with depressed demand and restricted business at dealerships. With COVID-19-induced shelter-in-place orders since April, factories and stores were temporarily shuttered and demand pummeled. Japan-based auto biggies including Toyota, Nissan, Honda, Suzuki, Mazda and Mitsubishi resorted to significant production cuts in the wake of coronavirus induced-low demand.

Prior to the virus eruption, the market was bearing the brunt of consumption tax increase. Last October, the government raised the general sales tax from 8% to 10%. Resultantly, sales volume increased 12.9% in September as customers wanted to avoid the hike. Since October, sales have been on a decline.

Timing has also been an issue. The government’s stay-at-home orders coincided with the spring Golden Week holiday in late April to early May, in turn resulting in lost revenues. While businesses seem to gain from these holidays, the state of emergency and lockdown restrictions during the period adversely impacted vehicle sales.

It should also be noted that even before the virus outbreak, millennials in Japan had been showing lesser interest to purchase cars. They seem to be more attracted to ride-sharing options instead.

And of course, weak consumer confidence amid a sluggish economy is a major dampener. Notably, the nation’s economy contracted an annualized 2.2% in the January to March period, which followed a 7.3% plunge in the final quarter of 2019, the sharpest fall in more than five years. As it is, Japan’s economy was getting stagnant and the coronavirus outbreak added to the woes.  Data released by the government last month indicated that Japan had entered into a recession in first-quarter 2020 for the first time in 4.5 years amid sales hike, COVID-19 impacts and the U.S.-China trade tiff. Various economic parameters including private consumption, capital expenditure, private residential investment, exports, imports, factory output and job figures witnessed a decline in April.

How Did Japan’s Big 3 Automakers Fare Amid COVID-19 Crisis?

Japan’s woes have put the auto bigwigs of the nation in a tight spot. During the first five months of 2020, sales of Toyota, Honda and Nissan declined 12.6%, 21.2% and 24.8%, respectively. While Honda and Toyota carry a Zacks Rank #5 (Strong Sell), Nissan holds a Rank #4 (Sell). On a year-to-date basis, shares of Toyota, Nissan and Honda have declined 6%, 0.8% and 22.1%, respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Late last month, Nissan reported fiscal 2019 results (ended 31 Mar, 2020), wherein consolidated net revenues came in at 9,878.9 billion yen, down 14.6% year over year. The firm incurred net loss of 671.2 billion yen — its first annual loss since 2009. This marks the company’s biggest loss in two decades. The downside was mainly due to the COVID-19 pandemic, which marred its production, sales and other business activities across all regions. Nissan aims at reducing global production capacity by 20% and slash 20,000 jobs in a bid to survive the coronavirus crisis.

Toyota and Honda were also severely affected by the pandemic, which caused declines in sales and earnings across all major markets served. While in fourth-quarter fiscal 2020 (ended 31 Mar, 2020), Honda’s revenues declined 13.6% year over year to $31,752 million, Toyota recorded consolidated revenues of $65,190.6 million, down 7.3% year over year. Toyota expects the coronavirus outbreak to deal a major blow to earnings and sales in fiscal 2021. It forecasts operating income to decline 79.5% year over year to ¥500 billion, which would mark the lowest profit in nine years. Meanwhile, Honda refrained from providing any dividend forecast and financial outlook for fiscal 2021 amid coronavirus-induced uncertainty and financial crisis.

Is There Any Ray of Hope?

With the pace of coronavirus infections slowing down, the state of emergency was lifted in stages toward the end of May. However, economic activities are yet to attain normalcy. The outlook for new vehicle sales still appears gloomy. Customer sentiment is not upbeat yet, as they are still putting off the purchase of big-ticket discretionary items like cars in anticipation of further economic slowdown.

With major COVID-19 impacts likely to be felt in the second quarter, Japan is bracing for the worst economic slump since the Second World War. While U.S. and European policymakers are now directing their thoughts on ways to boost growth, Japan is still focused on preventing a second wave of infection.

Japan needs to rev up stimulus measures for boosting sales. Improvement in the economy and consumer spending will be crucial for the auto sector to recover from the slump. Automakers are waiting with bated breath to witness a rebound in Japan’s auto market. Until then, they will have to resort to cost containment and other strategies to overcome the resultant challenges.

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