ANALYSIS - Japanese truckmakers stall on slumping demand
Date: 07-Mar-02
Country: JAPAN
Author: Edwina Gibbs
"The sector looks terrible," said Stephen Usher, auto analyst at J.P. Morgan Securities. "Japan has too many truckmakers and demand is such that two would be enough."
Years of economic decline have taken its toll. Domestic sales for medium-to heavy-duty trucks slid to roughly 80,000 vehicles last year, less than half the peak in 1990.
As their troubles mounted, the truckmakers, since the late 1990s, ceded more control to their backers.
The biggest truckmaker by domestic market share, Hino Motors, was made a fully consolidated unit of Toyota Motor Corp, while second-ranked Mitsubishi Motors Corp is 37 percent-owned by DaimlerChrysler AG.
General Motors Corp has a 49 percent stake in Isuzu Motors Ltd, and the smallest truckmaker, Nissan Diesel Motor Co, is owned 22.5 percent each by Renault SA and Nissan Motor Co.
The slump in the world's second-largest economy has shrivelled demand for freight, while construction firms, key customers for truckmakers, are in the throes of a major shake-out as the government squeezes what was once a free-flowing faucet of funds for public works.
Different U.S. and European truck body types mean exports to those markets are not an option and Asian markets are still very small.
Even the brightest light on the horizon - a boost to sales from tougher environmental regulations - looks to be fleeting.
From next year, under new rules to cut nitrogen oxide and particulate matter in exhaust fumes, older trucks registered in large metropolitan areas or travelling through Tokyo will have to use expensive filters or be replaced by cleaner vehicles.
But analysts at Mitsubishi Research Institute said they expect a sales boost of only 10,000 trucks in the next year or two from the new eco-friendly rules and even that will only be pulling demand for new models forward.
"The rules are difficult to enforce and as they are limited to urban areas, there'll probably just be more second-hand vehicles in rural areas being sold," said Ryuichiro Inoue, auto analyst at Mitsubishi Research.
SAD SACKS
Of the four, Nissan Diesel and Isuzu are the saddest sacks.
Debt-ridden and more reliant than their peers on small businesses for sales, Nissan Diesel and Isuzu's continued existence is largely dependent on the goodwill of their backers and main creditor banks.
Isuzu, in particular, has been hit by a recent crisis of confidence from investors worried about Japan's fragile banks cutting off life-lines to their weakest borrowers.
That comes despite years of restructuring, including a planned 34 percent cut in its workforce, a plant closure, and the fire sale of its headquarters building.
Shares in Isuzu are now 75 yen, one-third their value of a year ago. Its bonds due in February 2005, which have a face value of 100 yen, are trading at a steep discount, priced at 68.28 yen.
GM has said it expects Isuzu's banks "to help tremendously". But the U.S. auto giant has also often said it would not pour more money into Isuzu and has written its investment in the truckmaker down to zero.
GM, however, agreed to pay five percent more for diesel engines it buys from Isuzu's Polish unit.
The sharp dive in value in Isuzu shares and bonds indicates the market is pricing in risk of bankruptcy, but most analysts believe the odds are against failure.
"Authorities bailed out retailer Daiei because of the potential economic impact but look at Isuzu and take into account all the suppliers dependant on it - it's much bigger," said Seiji Sugiura, auto analyst at Nomura Securities.
With luck and more restructuring, analysts said it is possible for Isuzu to eventually pay down its group interest bearing debt - 818 billion yen ($6.19 billion) at the end of September.
Although Nissan Diesel, which does not have any corporate bonds issued, has not been in the market limelight as much as Isuzu, its relative debt of 428 billion yen, or 88 times equity compared with 11 times for Isuzu, is enorm