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Economy

Honda's production shift hits Japan's exports

TOKYO -- Like a soccer team that depends too heavily on its star player, Japan's trade can rise and fall on the moves of just one or two big names.

        According to statistics released by the Ministry of Finance on Wednesday, Japan's exports fell 2.7% on the year in May, the first year-on-year decline in 15 months. The main culprit was a fall in U.S.-bound shipments, which were down 2.8% on the year for the first decline in 17 months.

     The U.S., along with China, is one of Japan's main export destinations. Though its economic growth slowed for the three months through March due to extreme winter weather, most indicators, including employment, have remained relatively stable. The Japanese government stated in its monthly economic report in May that the U.S. economy is slowly recovering.

     Yet Japan's car exports to the U.S., which are responsible for 23% of the country's total U.S.-bound shipments, plunged 23.6% on the year in May. Looking at that number alone, it would be easy to conclude that all is not well with the U.S. economy. But there is another factor at play.

Away game

Much of the responsibility for this massive drop in car exports rests with Honda Motor. In February, the company began full-scale production of its Fit compact vehicles at a new factory in Mexico. The company has long produced the model in Japan, but it stopped shipping domestic-built Fits to the U.S. immediately after the Mexican plant went online.

     According to Honda's latest export data, it shipped a total of 1,499 Japan-built vehicles to North America in April, down 7,520 units -- or 83.4% -- from a year earlier. That decrease is equivalent to 5% of the roughly 136,000 cars Japan exported to the U.S. in April.

     Mazda Motor is also using Mexico as a base for U.S. exports. It started commercial production there of the Mazda3 sedan, which it had long exported from Japan. Industry observers expect Mazda to further bolster production of U.S.-bound vehicles in Mexico, meaning its shipments from Japan are not likely to rise in tandem with growth in U.S. sales.

     While Honda and Mazda are not solely responsible for the 23.6% plunge in U.S.-bound car exports in May, it is fair to say that their production shifts to Mexico played a major role in the April figure falling by 7.9%. The main reason exports have remained stagnant despite the weakening of the yen is that major manufacturers like them are shifting production overseas.

     Japan's consumer spending has yet to recover from the sales tax hike in April, and many people are hoping robust exports will breathe life into the Japanese economy. But moving production overseas, a strategy that has allowed Japanese companies to survive on the global stage, weighs on Japan's trade. Honda's production shift to Mexico will likely send Japanese exports down year on year for at least another 12 months.

     At the same time, Honda's worldwide production for April hit a record high this year, a sign that the once-strong link between the global economy and Japan's exports is weakening.

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