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Market Trends: the Outlook for Japan's Automobile Industry
- Taking account of birthrate decline, population aging and overseas demand -

October 4, 2006

Overview

The automobile industry is a large part of Japan's economy and the trend of production in that industry has an influence on the trend of the economy as a whole. A survey of demand in recent years shows a high level of domestic demand since 2000, but population decline is likely to be a negative factor in the future. External demand has been rising since 2002, but it is uncertain whether this growth can be maintained. This report separately analyzes domestic and overseas demand, and considers the medium-term outlook for automobile market trends.

Projections of numbers of new vehicles purchased, allowing for the impact of population trends, which are a cause of growing concern, suggest that domestic demand peaked in 2005 and is set to begin falling. This is because the number of households in younger age bands, which show a high propensity to purchase automobiles, is falling, and the propensity to purchase is weaker among households in older age bands, whose numbers are rising. However, given that there has been no sharp drop in the number of new vehicles purchased and the pace of decline remains gentle, at an average of –0.7% per year, while the trend towards models with greater added value and the growth of incomes are making it possible to increase the purchase price per vehicle, it is likely that the market will maintain its current size in value terms. However, model ranges are likely to undergo considerable change as a result of ongoing birthrate decline and population aging. Although demand for models with an engine displacement of 1500 cc or less will remain firm, the fall in demand for models with displacements of 1501-3000 cc is likely to be relatively large.

Turning to external demand, the continued rapid growth of overseas economies makes it likely that external demand will continue to rise. One noteworthy factor behind the acceleration of export growth since 2002 is the rise in the contribution to growth made by exports to Asia, the Middle East, Russia, Latin America, and other developing economies. Looking to the future, automobile exports are likely to see rapid growth, and, alongside shipments to the traditional markets of Europe and the United States, shipments to developing countries are likely to provide increasing pulling power, as these countries continue to enjoy rapid economic growth. Export model ranges are also likely to diversify as the share of exports to developing countries increases.

In conclusion, the automobile industry is likely to see continued market growth overall size, with a further increase in dependence on external demand and significant changes in the model ranges in both domestic and overseas markets. If Japan's automobile industry is to adapt to these changes and increase its competitiveness, it is urgent that it should set about marketing products with greater added value, restructuring production organizations both in Japan and overseas, and addressing foreign exchange risk.

For more information on the content of this report, please contact Hideki Matsumura, the Japan Research Institute, Limited.

Tel: 03-3288-4524
E-mail:matsumura.hideki@jri.co.jp

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