Japanese Automaker Subsidy to End – Say What?

Many Americans are irate that the U.S. government, during two different adminstrations, helped bailout General Motors and Chrysler. Little do they know that Japan helped out their automakers too. That subsidy, though, is about to end.

Toyota is hoping its Prius Hybrid will help keep demand up and offset the expected losses from subsidies that are about to end.

Toyota and Honda Motor Co. both benefited from the Japanese governments subsidy of vehicle sales according to Bloomberg.com. Estimates are that sales were up 53 percent through July of 2012 thanks to a $3.8 billion subsidy. This subsidy is now 88 percent used up and could be gone by the end of the year. Analysts expect a big drop off in the next quarter if this happens.

Another government program that was similiar to the subsidy expired in September 2010. The resulting quarter vehicle deliveries fell 29 percent.

Toyota hopes a cheaper version of the Prius hybrid will keep demand high while Honda is planning to simply offer help when needed to its dealers.

The subsidy was huge for Toyota and Honda that saw government aid go as high as 100,000 yen (about 1,250 U.S. dollars) per vehicle. Now comes news that Japan is considering doubling its national consumption tax. The current plan is to raise the consumption rate tax to 10 percent by 2015. Recently, the nation’s parliament approved an interim rate increase of 8 percent. These two developments could cause catastrophic issues for both automakers.

General Motors could be rejoicing with this news since Japan accounted for about 27 percent of Toyota’s sales. The thinking is that a big drop there would mean Toyota could lose its title of world’s largest automaker (an often debatable and mostly truly inaccurate distinction for GM who counts sales from companies it owns part/not all of). Analysts don’t think Toyota will lose that distinction though since a 20 percent drop would reduce deliveries by just 5.4 percent.

“It would take some kind of pretty major development to knock them off course at this point,” said Kevin Tynan, automotive analyst for Bloomberg Industries in New York was quoted by Bloomberg. “In the U.S. Toyota is still turning product very quickly, and it gives them enough room to grow sales. They are largely protected from the downturn in Europe, which is going to hinder GM, Ford and VW going forward, and they are doing well in emerging markets. This gives them an advantage in the global race.”

What do you think? Did you know that Japan was subsidizing Toyota and Honda?