Japanese Car Makers Brace for Brexit -- WSJ
June 28 2016 - 3:03AM
Dow Jones News
By Megumi Fujikawa
TOKYO -- Concerns grew Monday over the impact on Japanese auto
makers from Britain's vote to leave the European Union,
particularly Nissan Motor Co. because of its heavy investment in
U.K. auto production.
Nissan shares fell 2.5% in Tokyo trading on Monday, after a
decline of more than 10% Friday, when news of the British
referendum result landed in the middle of Tokyo trading hours.
Toyota Motor Corp. shares fell 1.7% Monday after a nearly 9%
decline Friday.
Executives of Toyota, Nissan and other top Japanese companies
huddled with government officials at the industry ministry in Tokyo
to discuss "Brexit" scenarios.
"We will carefully analyze various aspects of the matter, given
that there are still many uncertain factors," said Shigeru
Hayakawa, a Toyota senior managing officer, after the meeting.
Nissan, Toyota and Honda Motor Co. produce about half of all
vehicles made in the U.K. each year. Most of the U.K.'s auto output
is exported, and more than half of the exports go to EU nations,
according to the U.K. automotive industry's trade organization.
Nissan has invested GBP3.7 billion ($4.9 billion) in the U.K.,
where it has a plant in the northeastern city of Sunderland that
produced nearly 500,000 vehicles in 2015. Toyota's total investment
is more than GBP2.2 billion.
Nissan declined to comment on the referendum result, although it
had been outspoken about its desire for the U.K. to remain in the
EU. It took legal action when a group favoring "Leave" used the
Japanese auto maker's logo in promotional material.
Honda said it planned to produce a new model of its popular
Civic within the country as scheduled. "We continue to prepare for
the production launch of the 10th generation Civic from our Swindon
plant," it said.
The biggest danger for the Japanese auto makers, as with other
companies that manufacture in Britain for export, is the
possibility that Brexit would lead the EU to raise tariffs on
British goods. Currently, plants such as Nissan's in Sunderland
enjoy preferential terms on exports to EU nations such as Germany
because Britain is an EU member.
Japanese companies with European headquarters in the U.K. may
transfer them to other European nations, or even wind down their
European businesses altogether, said Daisuke Iijima, an official at
market-research firm Teikoku Databank. Of 1,380 Japanese companies
that have operations in the U.K., around 50 are in auto-related
areas, he said.
Higher tariffs could force British auto plants to pay more to
procure auto parts, said Daisuke Yamaguchi, a director at Japan
External Trade Organization's business research department
overseeing Europe. And depending on the terms of Britain's
departure from the EU, Japanese auto makers might have to seek
visas for immigrant workers from other EU nations who can currently
travel freely to Britain.
The Brexit vote sent the yen sharply higher against the U.S.
dollar and the pound, with investors viewing the Japanese currency
as a haven. That is a particular problem for Japanese auto makers,
which get most of their sales outside of Japan. They had seen
profits surge on the weak yen in recent years, which inflated the
value in yen of the dollars and euros they earned abroad.
Reflecting the potential Brexit impact, Nomura Securities'
analyst Masataka Kunugimoto downgraded his estimate for the
combined operating profit of the seven major Japanese auto makers
for the year ending March 2018. He now expects Yen4.15 trillion
($41 billion) in operating profit versus an earlier estimate of
Yen5.07 trillion.
However, Mr. Kunugimoto predicted Britain and the EU would agree
to divorce terms that would limit the damage to Japanese auto
makers. "We think the risk is relatively small given the high
volume of automobile trading between the U.K. and the EU and the
negative impact for both sides from higher tariffs and changes in
regulations," he said.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
June 28, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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