Though auto production for Japanese auto makers Toyota (NYSE:TM) and Honda (NYSE:HMC) have largely returned to normal following the devastating tragedy earlier this year, Japan’s auto lobby Japan Automobile Manufacturers Association (JAMA), recently indicated that the effect of the March 11th earthquake in Japan on domestic auto sales is worse than earlier anticipated. It slashed its previous forecast for 2011 domestic vehicle sales by more than 14% to 4.25 million because of months-long reduction in vehicle output.  It is the lowest level since JAMA started maintaining annual vehicle sales data in 1993 and according to a JAMA Chairman it is about the same level as around 35 years ago. We believe that the contraction in the Japanese automotive market will weigh on the Japanese auto makers that compete globally with GM (NYSE:GM), Daimler AG (NYSE:DAI), Ford (NYSE:F), Hyundai (SEO:005380) and Nissan (PINK:NSANY).
Industry Appeals to the Government for Help
The Japanese auto market has already been declining steadily over many years due to its aging and shrinking population, rapid urbanization, leading to space constraints in many Japanese cities and high tax burden on car owners. We believe that the continuing deterioration of the economic environment in the U.S. and Europe and the resulting historically strong Yen will further prolong the recovery of the Japanese market and will continue to hurt both Honda and Toyota in the near-mid term.
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Industry leaders have appealed to the new Prime Minister of Japan Yoshihiko Noda to take certain steps to help the industry like reducing automotive taxes and intervening in foreign exchange markets to try to curb further appreciation of Yen.
Toshiyuki Shiga, Chairman of the Japan Automobile Manufacturers Association wrote recently:
Paramount among our industry’s immediate concerns are the yen’s excessive appreciation and the resulting impact on auto manufacturing in Japan. The extraordinarily high value of the yen has created an uneven international playing field which very seriously affects production activity here, raising the risk of nothing less than the hollowing out of the industry.
With that prospect all too close at hand, we request that the new administration not only address the rising yen, move forward with the conclusion of economic partnership agreements and secure a stable electrical power supply, but also take the measures needed to improve the environment for automobile use in Japan, including auto-related tax reform, so as to provide fresh stimulus to the domestic vehicle market. 
You can drag the trend lines in the modifiable charts above to see the impact of these trends on Honda’s and Toyota’s stock value.Notes:
- Reuters: Japan auto lobby cuts 2011 sales outlook by 10 pct, 27 September 2011 [↩]
- JAMA Requests to Japan’s New Prime Minister [↩]