Japanese May Prefer to Pay Tariff Themselves : Trade: In the event of sanctions, Japanese executives say, they may decide to continue to sell their cars at current prices.
The threatened U.S. tax on Japanese luxury autos could eventually damage Japan’s auto makers so much that they might decide to continue selling the cars at current prices, swallowing heavy losses to maintain their position in the critical U.S. market and keep their luxury-car dealer networks intact, company officials say.
Japanese manufacturers sold about 200,000 of the affected models in the United States last year, representing just 4.6% of Japan’s global exports. But, analysts estimate, the vehicles account for more than 20% of profits at some companies.
With prices for affected models now running from $28,000 for the Mitsubishi Diamante four-door sedan up to nearly $60,000 for Nissan’s Infiniti Q45, manufacturers typically earn $5,000 to $10,000 in profit for every car sold.
“The U.S. tariffs take the jewels out of the industry’s crown,” said Jesper Koll, vice president of J.P. Morgan Securities Asia Ltd.
“As a high-cost producer, Japan has to climb the value-added scale, shifting to produce luxury cars in Japan while producing high-volume low-margin cars abroad,” Koll added. “If the tariffs bite and reduce sales volumes and cut distribution networks, this strategy gets undermined.”
If tariffs knock out 90% of U.S. sales of the targeted vehicles, Koll said, the lost profit from those lost sales would equal about 14% of Toyota’s profits, 21% of Honda’s and 11% of Mitsubishi Motors.’ For Nissan and Mazda, which have been losing money, the additional losses would boost total losses by about 32% for Mazda and 28% for Nissan, he said.
Officials said the importance to profits of luxury-car sales in the United States might prompt Japanese manufacturers to respond, at least for the time being, by paying the 100% tariffs themselves rather than passing on price increases that nobody would pay. This would amount to tens of thousands of dollars of loss on each sale.
Kyodo News Service quoted officials at Nissan Motor America Inc. and Toyota Motor Sales U.S.A. Inc. as saying they “are considering shouldering the possible tariff hikes on their own rather than transferring the hikes to product prices.”
The goal of such action would be to ensure that U.S. dealers continue to handle Japanese luxury cars, because otherwise such networks might collapse, and “it would likely cost huge amounts of money to rebuild dealer networks from the beginning,” Kyodo said.
The tariffs would hit Nissan and Mazda especially hard. Nissan is expected to report a loss of about $750 million for the fiscal year ended March 31, and Mazda is likely to report one of about $350 million, according to J.P. Morgan estimates.
Nissan President Yoshifumi Tsuji, acting chairman of the Japan Automobile Manufacturers Assn., told reporters Wednesday that if 100% tariffs are imposed, “sales of luxury cars in America will go to zero and dealerships won’t be able to keep going.”
Nissan production in Japan would have to be cut by 50,000 cars and “employment problems will arise,” Tsuji added. Nissan sold 30,129 of the affected models in the United States last year, but it had planned to boost that figure this year with 20,000 more of its new Infiniti I30, which went on sale last month.
When asked about the Kyodo report on how companies might cope with tariffs, Nissan spokesman Koji Okuda confirmed that “for now, we have no plan to increase the price” of Infiniti models sold in the United States.
“We have inventories [in the United States] for one month or 1 1/2 months,” Okuda said. “After June or July, we have to study . . . does Nissan shoulder the tariff or pass on the tariff charge?”
