Monday, February 22, 2010

Japan - GDP – exports - manufacturing – autos – Toyota

An article I wrote on Angry Bear:

Forget the Eurozone for just a minute. Japan's problems are big: Toyota is a major exporter/employer. Last year 48% of all new standard passenger vehicles sold in Japan were Toyota (or its Lexus brand). The WSJ article describes Toyota's status in Japan as the following:
In short, Toyota is to Japan what General Motors Corp., in its heyday, was to America. And for a beleaguered country that has suffered a series of institutional blows in recent months—the collapse of the long-ruling political party, the bankruptcy of its champion national airline, a renewed bout of deflation— the global humiliation of Toyota may be the most psychologically damaging blow of all.
Psychological blow, what about an explicit economic blow! Toyota is certain to drag the only Asian G7 economy down due since auto exports are big in aggregate export income.

Japan’s single largest export category in December was, of course, manufacturing: 22% of total exports. And a huge 14% of the total value of exports in December came from motor vehicles (auto sales, that is - separate from parts).

The Japanese economy grew 1.14% in Q4 2009 with a huge 0.67% contribution from exports. The second major contributor was private consumption, which added 0.39%. Going forward, consumption and export contributions are likely to wane from the major Toyota recall campaign that is underway.

First the direct export channel will probably crumble as demand for Toyota cars derails. Second, there will be a lagged labor market effect. Sure, workers will be needed to address the recalls; but the the loss in hours stemming from a drop is sales is likely to be much larger, and the net jobs effect negative.

Toyota is a major employer in Japan that currently has 320,808 employees and has already shuttered doors (at least temporarily) in other countries. It's only a matter of time before the effect hits the home labor market.

This is big. I wouldn’t be surprised if the IMF downgraded their forecast of Japan based solely on Toyota’s misstep.

Rebecca Wilder


  1. Rebecca: Indeed, Toyota have made many "missteps" as you call them, and I too would jnot be surprised to see Japan Inc take a hard blow from this.

    But be aware, these same problems do/will plague many carmakers. Modern cars are like 'computers on wheels'...and we've all had to deal with absolutely intolerable aspects of computers doing wild things.

    I'm deeply into electronics, but for some things, the KISS principle is unmistakably the cheapest, most dependable and easy-to-service option. Why use a pocket scribe when a pen and paper do remarkably well? When's the last time batteries went dead in your pencil?

    Fly-by-wire still remains problematic in many aircraft, even with numerous redundant back-up systems built-in. Still the safest backup is a mechanical or hydraulic system that is barely within the muscular power of a pilot to work, but given the alternative of complete failure, adrenalin provides the fuel to muscle the craft.

    In autos, no such *computer* system does! I the older hydraulically *assisted* power steering. redundancy is inherent, again, requiring undue muscle, but do-able.

    Toyota's p[problems are not just their own. They are common across the entire over-teched auto-industry. Toyota is merely the first of the giants to fall on it.

    In a way, this is the sci-fi manifestation of 'robots gone wild'. Be very surprised if the Congressional Inquiry doesn't decide to encompass the entire industry, not just Toyota.

    Mistakes are man-made. Toyota's mistake was attempting to deny their responsibility. I'm sure they're not alone.

  2. japan has a serious long term demographic problem as well...they have a declining population, with one of the lowest birth rates and longest life expectancies on the planet, resulting in an inverted population pyramid...


  3. We are not just in a bear market. Crashes are now imminent in both Japan & US markets (I doubt that Congress & the FED’s technical staff will see this coming). Even so, stimulus measures will come up short.

    We are destined for a “double dip”. The FED’s liquidity funding facilities have expired. LSAP has expired. Fiscal stimulus has expired. Monetary stimulus has ended, etc. However most importantly, the lags in the proxies for real-growth & inflation are due to reverse.

  4. Hi flow5,

    Fiscal stimulus has not expired - it will add to growth until 2011, until the programs unwind (see Macro Advisers post - the html link button is not working, so here it is..full url and all

    Also, the Fed is still buying agencies and MBS, but at a slower rate. But the Fed can very easily start its measures again. They will assess how the unwind of the big MBS program continues.


  5. Yes, and this is my one reason to worry about aggregate saving in Japan (which is really high, by the way). Public saving is the quoted measure of saving in the media, but in aggregate Japan is like a saving locomotive compared to the US (slight digression there).


  6. The only way that I see the electronic issue affecting the car industry as a whole, is if the community of Los Angeles (for example) started taking the grossly underinvested public transportation. Other than that, GM, Ford, Honda, etc., will simply capture market share, in my view.


  7. Rebecca writes in answer to my earlier post:
    [qt]The only way that I see the electronic issue affecting the car industry as a whole, is if the community of Los Angeles (for example) started taking the grossly underinvested public transportation. Other than that, GM, Ford, Honda, etc., will simply capture market share, in my view. [/qt]
    I don't want to continually digress from your central point of this posting, but other car manufacturers are very worried about Toyota's conundrums. Having visited LA many times (spent much time in San Diego) I agree, albeit I thin CA is not a fair bellwether for the US. Santa Monica has the largest Prius dealer in the US.

    Whether auto market-share ever returns to previous levels is doubtful. One would presume that the US (and by extrapolation, 'the West') are permanently left with a new austerity...but then again, bankster bonuses might indicate that some things never change.

    It is an interesting point of digression between you and me, Rebecca.

    Now...getting back to your taking my "10% unemployment" to issue two years back...


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