Auto sales are among the earliest indicators of demand in
global economies and U.S. auto sales have proven to be a bright
spot while negative headlines from euro zone countries dims the
outlook there.

Hyundai’s total sales rose 8 percent and Kia’s sales jumped
21 percent in May from a year earlier, driven mainly by overseas
sales.

Hyundai and Kia have gained market share in the United
States, Europe and other key markets since the global financial
crisis by offering stylish cars at competitive prices. They have
also been helped by the cheaper South Korean currency and South
Korea’s free trade deals with Europe and the United States.

South Korea’s exports of automobiles, which also include
Europe-bound Chevrolet cars made by General Motors’ South
Korean unit, rose 4 percent in value terms in May from a year
earlier, thanks to the recovery of the U.S. market, according to
government data released on Friday. In contrast, overall exports
dipped 0.4 percent in Asia’s fourth-biggest economy last month.

Shares in Hyundai closed down 2.5 percent and Kia shares
dropped 1 percent in a wider market that fell 0.5
percent following disappointing Chinese factory activity data
released on Friday.

China’s factory activity data fell more than expected in May
to its weakest reading this year, highlighting concerns the
worsening euro zone debt crisis will further undermine global
economic growth.

JAPAN FIGHTS BACK

In Japan, car sales soared 66 percent in May to 394,950
vehicles, rebounding from a trough in the months following the
earthquake and tsunami a year earlier when carmakers slashed
production due to a disruption in the supply chain.

Demand for new vehicles has also been supported by the
government’s subsidies on fuel-efficient cars, designed to keep
domestic factories humming as the strong yen forces automakers
to reduce loss-making exports.

Excluding 660cc minivehicles – a segment unique to Japan -
sales of new cars, trucks and buses also rose by two-thirds,
driven by hybrids such as Toyota Motor Corp’s Prius and
Honda Motor Co’s gasoline-electric Fit.

That marked the biggest rise on record for the month of May,
but an official at the Japan Automobile Dealers Association said
there was little room for optimism.

“The sales volume itself was low and only barely exceeded
the tally from two years ago,” said Michiro Saito, a manager at
the dealer association. “We can’t call this a real recovery and
the outlook is uncertain.”

Non-mini vehicle sales totaled 236,366 in May, compared with
228,514 vehicles two years ago. Toyota’s sales more than
doubled, while Honda’s grew 48 percent. Nissan Motor Co
, which recovered its supply chain faster last year,
posted a 17 percent rise in non-minivehicle sales.

Without the help of government tax incentives, the Japanese
car market has been trending downwards due to urbanisation, a
declining population and the loss of interest in owning cars
among young people.

THREATS TO HYUNDAI, KIA

The revival of Japanese rivals and limited production
capacity of South Korean carmakers threaten to slow the growth
of Hyundai and Kia.

Industry research firm TrueCar.com expects U.S. light
vehicle sales to be up 32 percent in May to the highest level in
five years, helped by pent-up demand and as the Japanese
automakers bounce back from last year’s earthquake-related
vehicle shortages. Hyundai’s unadjusted light
vehicle registrations jumped 26 percent in May, despite the
market’s drop.

Hyundai and Kia, which rank fifth in global car sales, and
U.S. carmakers General Motors and Ford, lost market share
in May in the U.S. market as Toyota and Honda were set to post
U.S. market share gains, according to TrueCar.com.

“The U.S. market is recovering fast, but Hyundai, Kia are
falling short of catching up with market demand, although they
are running plants at full capacity,” Dongbu Securities analyst
Yim Eun-young said.

Toyota, which lost the crown as the world’s top automaker last year, is looking to reduce its dependence on the mature North American, European and Japanese markets. It wants to shift more of its weight to growth markets such as China, India and Brazil, where Volkswagen, GM and Hyundai Motor Co (005380.KS: Quote, Profile, Research, Stock Buzz) have taken the lead.

The Japanese automaker aims to sell half of its vehicles in emerging markets by 2015, up from around 45 percent last year and 18.6 percent in 2000.

“In emerging markets, there are four or five automakers vying to take the lead in sales volumes,” Toyota Executive Vice President Yukitoshi Funo told reporters.

“Particularly in the Southeast Asian region, Volkswagen and others are looking to challenge our lead so we can’t be resting on our laurels,” he said.

Including the Etios model that it launched in India in December 2010, Toyota plans to introduce eight compact cars by 2015, targeting combined annual sales of more than 1 million vehicles in over 100 countries during that period.

The upcoming cars will be priced around 1 million yen ($12,600) or higher and produced in local markets such as India, Brazil and China. Toyota said it would aim to procure 100 percent of the cars’ components locally to lower costs – a move that would require a stronger R&D function in those markets.

By 2013, production capacity in emerging markets will rise to 3.1 million vehicles a year, from 2.38 million in 2010, matching the level in Japan, Toyota said.

Funo dismissed a report published in Japan’s Asahi newspaper on Thursday that Toyota was working on a car priced around 500,000 yen ($6,300) for the Indian market, to be sold under a new brand from around 2016.

“We won’t go to the 500,000 yen segment – it’s not our category,” Funo said. “We want to beef up our presence in segments where we can be competitive. There are many other options for customers looking in that price range, including used cars.”

Funo added that the cheaper segments were the territory of subsidiary Daihatsu Motor Co (7262.T: Quote, Profile, Research, Stock Buzz), which has expertise in smaller, lower-cost vehicles.

Carmakers such as Nissan Motor Co (7201.T: Quote, Profile, Research, Stock Buzz) and Hyundai are considering ultra-low-cost cars, potentially tapping a huge base of consumers trading up from motorcycles.

Toyota’s cheapest car is the Etios, which sells for about $9,000 in India, or double the price of market leader Maruti Suzuki India’s (MRTI.NS: Quote, Profile, Research, Stock Buzz) Alto. ($1 = 79.4150 Japanese yen)

(Editing by Chris Gallagher)

Automakers around the world have been forging partnerships
to share the rising burden of research and development as
governments tighten environmental and safety regulations, and to
lower costs amid stiffer competition.

Japan’s fifth-largest car maker and Fiat have agreed in
principle to develop and build two-seater sports cars for their
respective Mazda and Alfa Romeo brands based on Mazda’s MX-5
model, the companies said in a statement. The deal does not
include a capital tie-up.

Mazda has posted four straight years of losses as it has
struggled with a strong yen, which makes its cars less
competitive overseas. It builds most of its cars in Japan and
exports almost 80 percent of that output.

The car maker is also keen to form project-based
partnerships to get back on a revival path after losing its
strategic partnership with Ford Motor Co.

While the deal would not bring significant immediate gains
for Mazda, it will be positive long-term, especially if the
collaboration deepens, some analysts said.

“I see this as positive news,” said UBS auto analyst Tatsuo
Yoshida.

“The MX-5 is an iconic car in Mazda’s line-up, and the
lightweight roadster is part of its heritage as a maker of
sporty cars. But developing the next iteration for Mazda alone
would have been difficult to justify, and this arrangement
allows them to do that,” Yoshida added.

NO EQUITY ALLIANCE

The MX-5, which debuted in 1989, was declared the
best-selling two-seat convertible sports car in history by the
Guinness Book of World Records in 2000.

Fiat has been especially vocal about looking for more
automotive alliances, particularly with an Asian partner, after
taking control of Chrysler to help it reach global sales of 6
million vehicles in 2014.

Both Mazda and Fiat played down the possibility of an equity
alliance, saying their non-binding memorandum of understanding
did not involve such talks. The companies will, however, discuss
further opportunities to cooperate in Europe, they said in a
statement.

The cars under the collaboration will be powered by their
respective engines and be built at Mazda’s Hiroshima plant, with
production of the Alfa Romeo version due to start in 2015.

The Italian sports car will be sold worldwide, including as
the Alfa Spider in the United States to mark the brand’s hotly
awaited return to the world’s biggest market for two-seater
sports cars, Fiat said.

A final agreement is expected to be signed in the second
half of this year, the companies said.

FUNDAMENTAL PROBLEM

Mazda’s shares jumped as much as 4.7 percent at one point in
Tokyo after Japanese public broadcaster NHK reported the tie-up
plans before the market closed. Before the announcement, Mazda
closed up 0.9 percent, giving up much of the gains in a broad
sell-off of exporters as the dollar dipped against the yen.

Shares in Fiat were down 0.7 percent in Milan.

Mazda, the maker of the Mazda3 and other sporty cars, is
among the few automakers with no strategic capital alliance
after Ford sold down its controlling one-third stake starting in
2008. After a nearly $2 billion share offering earlier this
year, Ford’s stake has fallen to a nominal 2 percent.

Some analysts were skeptical the cooperation of this scale
with Fiat would do much to fix Mazda’s ills in the short-term.

“The fundamental problem at Mazda is its currency exposure,”
JP Morgan auto analyst Kohei Takahashi said. “The tie-up with
Fiat won’t do anything to alleviate that.”

Nissan has outshone domestic rivals Honda Motor Co (7267.T: Quote, Profile, Research) and Toyota Motor Corp (7203.T: Quote, Profile, Research) in the past year as Chief Executive Carlos Ghosn has pushed aggressively into fast-growing markets such as China and Russia.

January-March operating profit at Japan’s No.2 automaker rose 33 percent to 118.1 billion yen $1.48 billion (918.45 million pounds), against an average estimate of 120 billion yen from 20 analysts polled in the past 90 days by Thomson Reuters I/B/E/S.

Net profit for Nissan’s fourth-quarter grew 145 percent to 75.3 billion yen.

For the year to next March, Nissan projected an operating profit of 700 billion yen – the best since the global financial crisis – and net profit of 400 billion yen. Consensus forecasts from 26 analysts put the profit at 710.5 billion yen.

Nissan, valued at $44 billion and 43.4 percent-held by France’s Renault SA (RENA.PA: Quote, Profile, Research), has also recovered its supply chain faster than its competitors after last year’s earthquake and tsunami and widespread flooding in Thailand. It has also been more ruthless in replacing more of the parts for the cars it makes in Japan with imported components, taking advantage of the strong yen.

The automaker’s global sales grew 16 percent to a record 4.845 million vehicles in the business year ended March, handily beating the total industry’s 4.2 percent rise.

Ghosn told a news conference Nissan expects to beat the industry again this business year with a sales increase of 10.4 percent to another record, of 5.35 million vehicles.

“As we start the new year, Nissan stands as a company re-tooled and ready to accelerate its growth,” he said.

“Together with a stronger brand, investments in products, technologies and global capacity, we have the tools to achieve Nissan Power 88 and beyond,” he said, referring to Nissan’s six-year growth plan that aims to achieve an 8 percent global market share and 8 percent operating profit margin by March 2017.

Nissan is planning to launch 10 all-new models in the year ahead, including the high-volume Altima sedan and Pathfinder sports utility.

For the year to end-March, Nissan managed a slight rise, of 1.6 percent, in operating profit to 545.84 billion yen, compared with a 60 percent decline at Honda and 24 percent drop at Toyota.

Ghosn repeated Nissan’s aim of becoming the top Asian automaker in China, Brazil and Russia, markets in which all global automakers are aiming to grab a bigger pie.

In Russia, Renault-Nissan last week signed a long-awaited deal that would give them effective control of Lada maker AvtoVAZ (AVAZ.MM: Quote, Profile, Research), creating a group that would rank third in global sales behind General Motors Co (GM.N: Quote, Profile, Research) and Volkswagen (VOWG_p.DE: Quote, Profile, Research), and ahead of Toyota.

But Ghosn stressed that BRICs countries were not the only fast-growing markets, adding that automakers would be at risk if they did not pay attention to newly emerging markets such as Indonesia, Vietnam and pockets of Africa and the Middle East.

Nissan shares are up more than 12 percent year-to-date, about half the increase Toyota has seen, and lagging Honda’s 16 percent gain.

Nissan ended up 3.3 percent in Tokyo before the results were announced.

(Editing by Ian Geoghegan and Jacqueline Wong)

January-March operating profit at Japan’s No.2 automaker rose 33 percent to 118.1 billion yen ($1.48 billion), against an average estimate of 120 billion yen from 20 analysts polled in the past 90 days by Thomson Reuters I/B/E/S.

Net profit for Nissan’s fourth-quarter grew 145 percent to 75.3 billion yen.

For the year to next March, Nissan projected an operating profit of 700 billion yen and net profit of 400 billion yen.

Nissan has outshone domestic rivals Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) and Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) in the past year as CEO Carlos Ghosn has pushed aggressively into fast-growing markets such as China and Russia.

Nissan, valued at $44 billion and 43.4 percent-held by France’s Renault SA (RENA.PA: Quote, Profile, Research, Stock Buzz), has also recovered its supply chain faster than its competitors after last year’s earthquake and tsunami and widespread flooding in Thailand. It has also been more ruthless in replacing more of the parts for the cars it makes in Japan with imported components, taking advantage of the strong yen.

For the year to end-March, Nissan managed a slight rise, of 1.6 percent, in operating profit to 545.84 billion yen, compared with a 60 percent decline at Honda and 24 percent drop at Toyota.

The maker of the popular Tiida and Rogue models pushed up global retail sales by 15 percent last year to a record 4.88 million vehicles, with demand growing in all major markets including a crisis-hit Europe.

Nissan executives have said they expect to keep up that momentum, with the launch of one all-new or face-lifted model on average every six weeks until March 2017, including the next generations of the high-volume Altima, Sentra and Versa cars in the United States.

In Russia, Renault-Nissan last week signed a long-awaited deal that would give them effective control of Lada maker AvtoVAZ (AVAZ.MM: Quote, Profile, Research, Stock Buzz), creating a group that would rank third in global sales behind General Motors Co (GM.N: Quote, Profile, Research, Stock Buzz) and Volkswagen (VOWG_p.DE: Quote, Profile, Research, Stock Buzz), and ahead of Toyota.

Nissan shares are up more than 12 percent year-to-date, about half the increase Toyota has seen, and lagging Honda’s 16 percent gain.

(Editing by Ian Geoghegan and Jacqueline Wong)

Operating profit jumped more than five-fold in January-March to $3 billion, with all production centers back up and running after last year’s earthquake, tsunami and Thai floods disrupted supply chains and cost Toyota around 400,000 cars in lost output – roughly 9 weeks’ worth of U.S. sales.

With robust top-line growth a given in the current year – the company predicts operating profit of 1 trillion yen ($12.54 billion), in line with market forecasts – Toyota is looking to squeeze further cost cuts in a battle to offset a strong yen. Executives say they have gone back to a war on waste – or “muda” – a key component of its vaunted production system.

At a briefing on Wednesday, Chief Financial Officer Satoshi Ozawa noted the “huge contribution from all the (cost-cutting) efforts we’ve been making.”

Toyota President Akio Toyoda, the 56-year-old grandson of the automaker’s founder, said everyone in the company had worked towards improving profitability, and “the focus on making good cars has translated into sales volumes and profits. That in turn is leading to investments for even better cars,” he said.

With U.S. dealerships humming again, Toyoda and his aides have sketched out a strategy aimed at stripping costs from everything – from production lines in Japan to Mississippi to the years of design and engineering that go into making new cars and parts.

The goal is to push up profit margins even as Toyota rides a wave of recovering demand while tapping into its tradition of incremental improvement – or “kaizen” – the corporate creed that once made it the world’s most feared and studied manufacturer.

Toyota expects operating margins to improve this year to 4.5 percent from 1.9 percent in the year just ended. That gets it closer to a target of a minimum 5 percent margin before 2015, but is still short of Nissan Motor Co’s (7201.T: Quote, Profile, Research, Stock Buzz) 7.1 percent margin and 6.5 percent at Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz), the Japanese automaker that was slowest to recover from last year’s lost output. South Korean rival Hyundai Motor’s (005380.KS: Quote, Profile, Research, Stock Buzz) operating margin tops 10 percent.

Toyota said sales in emerging markets were in line with its plans, including in China where January-April sales were heading for a full-year target of 1 million vehicles.

“As we seek growth in emerging markets, a big challenge for us in a market like China, for example, is how to speed up product launches and come up with the right products for the market,” Toyoda said.

HOME PRODUCTION

Despite the pain of building cars at home with the dollar far below the 85 yen breakeven level in Japan, Toyota has committed to build at least 3 million vehicles a year at its domestic factories – roughly triple the output at local rivals Nissan and Honda. Among the hurdles Toyota faces in Japan are the strong yen, costly labor regulations, high corporate taxes and an energy policy deadlock that has shut all Japan’s nuclear reactors and driven up costs.

Toyota last month unveiled a new scheme aimed at slashing development costs by more than a fifth, in part by using more shared components. This allows automakers to cut procurement costs on the bits customers don’t see or necessarily appreciate, such as the metal brackets that hold seats in place.

Toyota was once considered a benchmark in this, but rivals now look to follow Volkswagen’s (VOWG_p.DE: Quote, Profile, Research, Stock Buzz) lead in using a wide range of shared parts in both its luxury Audi and mass-market Volkswagen brands.

The Japanese firm is also renewing efforts to step up its manufacturing efficiencies – something executives concede fell by the wayside when the company raced to add factory lines to meet soaring demand before the global financial crisis brought growth to a shuddering halt.

In the United States, where its reputation for quality with vehicles like the Camry was once unassailable, Toyota is under pressure from Hyundai and the recovering Detroit automakers. Its U.S. sales jumped 12 percent last month – though that’s still nearly a fifth below April 2008 before the financial crisis.

“Toyota’s recovery will make the overall auto industry’s competitive landscape tougher this year,” said Song Sang-hoon, analyst at Kyobo Securities in Seoul. “For Toyota, the big risk factors will be how much the yen could strengthen and the outlook for the U.S. market. It has competitive models from the Camry to the Prius and the Corolla, and how that trio of flagship models can perform will decide its recovery pace.”

Toyota forecast current year net profit of 760 billion yen, its best in five years.

Toyota shares, valued at more than $134 billion, have gained more than a third since the broad market trough in late-November, outperforming Nissan, Honda, General Motors (GM.N: Quote, Profile, Research, Stock Buzz), Ford (F.N: Quote, Profile, Research, Stock Buzz) and VW, but lagging BMW (BMWG.DE: Quote, Profile, Research, Stock Buzz). The main Topix share index .TOPX is up by a tenth over the same period.

Toyota closed flat on Wednesday ahead of the earnings in a broader Topix market that fell 1.4 percent. ($1 = 79.7750 Japanese yen)

(Additional reporting by James Topham in TOKYO and Miyoung Kim in SEOUL; Editing by Ian Geoghegan)

Now, the 56-year-old grandson of the automaker’s founder is
ready to go on the offensive.

With Toyota’s U.S. dealerships humming again, Toyoda and his
aides have sketched out a strategy in recent weeks aimed at
stripping costs from everything – from production lines in Japan
to Mississippi to the years of design and engineering that go
into producing new vehicles and parts.

The goal is to push up profit margins even as Toyota rides a
wave of recovering demand while tapping into its tradition of
incremental improvement – or “kaizen” – the corporate creed that
once made it the world’s most feared and studied manufacturing
enterprise.

At stake is Toyota’s ability to keep building some 3 million
vehicles a year in Japan – roughly triple the equivalent output
at Nissan Motor and Honda Motor and about 40
percent of the cars and trucks Toyota builds globally.

The first down-payment on Toyota’s emerging plan comes on
Wednesday with earnings for the just-ended fiscal year and its
forecast for the current year.

Senior executives pull no punches about both the scope of
the challenge Toyota faces and how it lost its way when demand
was booming. In the key markets of China, Brazil, Russia and
India, “we’ve let Volkswagen and Hyundai Motor
take the lead,” Toyota Executive Vice President
Atsushi Niimi said recently.

In the United States, a market where Toyota’s reputation for
quality with vehicles like the Camry was once unassailable, the
Japanese firm is under pressure from both the rapid rise of
South Korea’s Hyundai and the recovery of the Detroit
automakers, Niimi said.

And in Japan, Toyota is handcuffed by a strong yen,
costly labour regulations, high corporate taxes and an energy
policy deadlock that has shut down all Japan’s nuclear reactors,
driven up costs and raised the prospect of summer blackouts.

But the failure that stings most for Toyota executives was
self-inflicted.

MARGIN ENLARGING

When Toyota was racing to add factories to meet booming
demand in the last decade, it stopped finding new ways to make
the process better. “We hardly achieved any innovation in
production engineering,” said Niimi, noting a more flexible
assembly line design promises to cut by 40 percent the time it
takes to switch models on the floor.

Skeptics believe Toyota will have to take more drastic
action than turn around by a thousand cuts.

“What we need to see now from Toyota is further cost
cutting, a shift of production out of Japan so they can compete
on prices,” said Julie Boote, auto analyst at UK-based research
firm Pelham Smithers.

Importantly, although Toyota’s sales and production have
come roaring back, analysts still expect it to trail both Nissan
and Honda as well as overseas rivals in operating margin.

Toyota is expected to forecast a more than quadrupling in
operating profit for the year to next March, according to a
survey of analysts by Thomson Reuters I/B/E/S. That would put
Toyota’s operating margin near 4.8 percent from an estimated 1.8
percent for the year just ended.

While that would set Toyota within reach of its target of at
least a 5 percent margin before 2015, it would fall short of
Nissan’s 7.1 percent margin and 6.5 percent at Honda, the
Japanese automaker that was slowest to recover from last year’s
lost output, and lag well behind Hyundai’s 10 percent margins.

WAR ON WASTE

To do better, Toyota executives say they have gone back to
war against waste – or “muda” – one of the key components of the
automaker’s vaunted production system.

At a factory tour in Toyota City last month, Toyota showed
off some of those innovations, including an assembly line that
can be more rapidly reconfigured during model changes. The
technique, developed in Japan, has been adopted at the
Mississippi plant that builds the Corolla and factories in India
and Changchun, China.

At the same time, Takeshi Uchiyamada, the Toyota executive
vice president who heads engineering and research, wants to cut
vehicle development costs by more than a fifth, in part by
driving for a greater use of common parts.

The use of shared parts across a range of models allows
automakers to cut the procurement costs on items that customers
don’t see or necessarily appreciate like the metal brackets that
hold seats in place.

While Toyota was once considered a benchmark of success in
that area, rival automakers now look to follow VW’s progress in
using a wide range of shared parts in both its luxury Audi and
mass-market Volkswagen brands.

The reforms at Toyota come with the automaker showing signs
of new momentum in the United States market – still its largest
and most important. Toyota’s U.S. sales jumped 12 percent in
April – though that’s still close to a fifth below the same
month in 2008 before the financial crisis triggered the car
industry’s worst downturn in a generation.

Christopher Richter, Tokyo-based auto analyst at CLSA
Asia-Pacific Markets, expects the recovery to pick up pace this
year.

“They’ve got a pretty aggressive product offensive coming
up, and if you add what we’ve seen in their cost structure,
we’re looking for a (big jump) in operating profits this year.”

The maker of Subaru cars had mapped out the plan in July
last year, aiming to boost global sales by 40 percent to 900,000
vehicles by March 2016, driven in large part by a tripling in
Chinese sales.

Fuji Heavy said on Tuesday that it would continue to import
cars into China after an unsuccessful bid to obtain Chinese
government approval for a joint venture with local car maker
Chery Automobile Co Ltd to build Subaru cars there.

Foreign automakers are required to partner with a Chinese
company to produce cars for the local market, and Beijing
recently tightened the approval process to favour ventures that
plan to make technologically advanced vehicles such as hybrids
and electric cars. A Chinese tariff of 25 percent on imported
cars makes it difficult to sell in large volumes.

“We haven’t given up on local production in China,”
President and Chief Operating Officer Yasuyuki Yoshinaga told a
news conference.

“We’ll keep waiting patiently for any progress,” he said,
conceding that plans to start building in the world’s biggest
car market next year were no longer realistic.

He did not give a new target timeframe for China production.

Yoshinaga will take over as chief executive of Fuji Heavy
from June, when Ikuo Mori steps down to become an adviser.

The niche maker of Legacy and other boxer-engine cars now
expects to sell 850,000 vehicles in 2015/16, with
stronger-than-expected sales in the United States offsetting
part of the shortfall in China. The company now projects Chinese
sales at 100,000 vehicles for that year, from an earlier 180,000
target.

Fuji Heavy said it would add capacity at factories in the
United States and Japan by a combined 45,000 vehicles per year
by mid-2014, and would consider further expansion in North
America beyond the mid-term plan.

With earnings and vehicle sales in the plan’s first year
outpacing targets, Fuji Heavy maintained its operating profit
target for the final year at 120 billion yen ($1.50 billion) and
profit margin at 6 percent. That is despite assumptions for a
stronger Japanese currency, at 80 yen to the dollar and 105 yen
to the euro. It previously assumed a more favourable dollar rate
of 90 yen and euro of 120 yen.

On Tuesday, the dollar was trading about 80 yen and
the euro around 104.3 yen.

Fuji Heavy also reported on Tuesday a 48 percent
year-on-year decline in operating profit to 44.0 billion yen for
the year ended March as supply disruptions stemming from last
year’s earthquake in Japan interrupted brisk sales in the United
States, its biggest market.

The result was roughly in line with an average estimate for
43.3 billion yen from 19 analysts polled by Thomson Reuters
I/B/E/S.

For the year ending March 2013, the company forecast
operating profit to rise 52 percent to 67 billion yen and net
profit to grow 25 percent to 48 billion yen.

On top of being the last Japanese car maker to get its
supply chain in order after a massive earthquake and tsunami in
March last year, Honda was alone in having one of its factories
inundated by Thailand’s floods in October, only resuming work
there late last month.

Japan’s No.3 automaker is expected to report on Friday a
more than doubling in operating profit for the January-March
fourth quarter, lagging an earlier recovery from both disasters
by rivals Toyota Motor Corp and Nissan Motor Co
.

But despite a year that executives characterised as the
toughest the 64-year-old company had faced, Honda is likely to
have remained in the black thanks to its dominant and profitable
motorcycle business and a globally spread-out manufacturing
footprint that helped it cope better with the strong yen.

In the business year that ended last month, Honda exported
just 253,000 cars from Japan, or less than 30 percent of its
domestic output. Toyota shipped 1.67 million vehicles, or 54
percent of the cars it built in Japan and Nissan exported about
741,400, or 62 percent.

Helping its turnaround, Honda is expected to ride
faster-than-expected growth in demand in the United States, its
biggest and most profitable market, where sales of the
remodelled CR-V crossover have jumped by more than a quarter so
far this year.

Honda will also make minor changes later this year to the
one-year-old Civic after the latest version of the perennially
popular model got panned by critics, raising deeper concerns
over whether the automaker was slipping in a battlefield made
tougher by products from Hyundai Motor Co and
resurgent U.S. rivals Ford Motor Co and General Motors Co
.

SWITCHING GEARS

Honda CEO Takanobu Ito has conceded that the company he took
over in mid-2009 may have let down its guard during the previous
decade of rapid expansion, while pulling back on vehicle
development too much after the global financial crisis.

Honda is under intense scrutiny to redeem itself this fall
with the next version of the Accord, which will be the first
major model to carry a new generation of engines and
transmissions that it hopes will make its future cars the most
fuel-efficient in their categories.

Ito has put in place structural changes to respond more
nimbly to competition, including by doubling as the head of car
operations for now. He also said this week that Honda would step
up its game in China, where its market share has slipped in the
past four years, announcing plans to boost output capacity and
beef up its local R&D function.

“We need to move further away from a U.S.-centred growth,”
he said at the Beijing auto show.

Ito has said he expects record car sales this business year
of at least 4 million vehicles.

Honda will report its fourth-quarter results and announce
2012/13 forecasts at 3 p.m. (0600 GMT). Toyota will report on
May 9 and Nissan on May 11.

Honda’s shares have risen 3.5 percent in the past three
months, lagging gains of 14 percent by both Toyota and Nissan.

Despite being among the last global automakers to enter the
Chinese market, Nissan outsold Toyota Motor Corp to
become the top Japanese light-vehicle brand there last year for
the first time, according to research firm LMC Automotive.

Aiding Nissan’s climb have been its cooperative partnership
with state-owned Dongfeng Motor Group in the heavily
regulated market.

It is also benefitting from an early foray into the booming
inland regions and a full product line-up ranging from premium
Infiniti-brand cars to light commercial vehicles and compacts
such as the popular Tiida model.

After a bumper 2011, Nissan’s local joint venture, Dongfeng
Motor Co, was the fastest-growing automaker in China in the
first quarter of 2012, growing 16 percent in a market that fell
0.3 percent from the year before.

In another step to accelerate its growth, Nissan this week
unveiled at the Beijing auto show the first production model
under its joint venture’s own, entry-level Venucia brand,
following China’s directive for all foreign car makers to form a
separate brand with their local partners to help the country’s
fledgling industry gain technological know-how.

“We want to be a global car maker, presenting every single
kind of product you can find in the Nissan brand – from the
luxury, with Infiniti, and the entry level with affordable cars
under Venucia,” Nissan Chief Executive Carlos Ghosn told Reuters
TV at the show. “We’re going to be everywhere.”

Dongfeng Nissan, the joint venture’s passenger car arm,
said it aims to add a new Venucia model every year, targeting
annual sales of 300,000 vehicles by 2015, with five products and
250 exclusive dealers.

In another move that promises to nudge Nissan further ahead
of Toyota and Honda Motor Co, Japan’s No.2 automaker
said last week it would begin producing Infiniti vehicles in
China from 2014, putting it on a more level playing field with
dominant German brands that build locally and avoid import
tariffs of 25 percent. Toyota and Honda executives have said
they have no immediate plans to produce their Lexus and Acura
premium vehicles in China.

“Nissan’s management has been unsparing and speedy in its
investments in emerging markets, particularly China,” said Kenji
Yoshida, a partner at consultancy PwC. “That’s definitely
helping them.”

MISSED TREND

All the while, Toyota and Honda have seen their market share
slip in the past four years as competition intensifies in the
mid-sized sedan segment where their core Camry and Accord models
had driven sales. Honda’s sales in China fell for the first time
in 2011, although part of that was due to a supply shortage
resulting from Japan’s earthquake and tsunami in March.

Toyota and Honda also missed the trend towards affordable
compact cars as consumers sought better fuel economy. Gasoline
prices in China have soared about 60 percent over the last three
years, to more than 8 yuan ($1.27) per litre.

Both automakers are looking to fight back.

“We were a bit thin in the compact segment,” Honda CEO
Takanobu Ito conceded. “Our first priority is to add more
compact models and increase our sales volumes,” he told
reporters in Beijing. Honda on Monday announced plans for a new
factory that would boost its output capacity in China by roughly
a third to 1.01 million cars a year by 2014.

Toyota, for its part, unveiled a design-oriented compact
concept model, called the “Toyota Qin”, aimed at attracting
young buyers. It has said it aims to roughly double its Chinese
sales to 1.6-1.8 million vehicles by 2015.

Nissan, meanwhile, is aiming to boost its annual output
capacity in China by two-thirds to 2 million vehicles by the end
of 2015, and its market share to 10 percent from 7.4 percent.

Like Honda, Toyota acknowledged that its recent growth in
China has been wanting, especially considering its top-three
standing in global sales.

“In the United States and Japan, we are very successful, but
we are only number five (among foreign car makers) in China,”
said Dong Changzheng, a top executive at Toyota’s Chinese
subsidiary.

“At the same time, we’re not targeting an expansion in sales
volumes as much as a leadership position in vehicle technology,”
he told reporters on Tuesday.

HYBRID TECHNOLOGY

Under a new local marketing campaign that started last
month, Toyota has been promoting the advantages of hybrid
technology, in which it has a big lead globally but which has
failed to catch on in China due to its hefty price premium over
conventional gasoline cars. At the auto show, Toyota also
debuted a China-only hybrid concept car, called “Yundong
Shuangqing”, that will be sold from 2015 with a hybrid system
developed primarily at its new Chinese R&D centre.

“Gasoline prices are rising so the real cost of hybrid cars
for the customer should come down,” Dong said, adding that
localising hybrid parts should also lower production costs. “We
want to help spread hybrids over the next three years.”

Toyota said it would also launch a plug-in hybrid car in
China this year, moving the plan forward by one year.

Nissan’s Ghosn argued, however, that conventional hybrids
were at a disadvantage after the Chinese government last week
set a target of putting 5 million plug-in hybrids and
pure-electric vehicles on the road between now and 2020.

The government says it will provide generous subsidies for
those cars as long as they use batteries procured locally. Under
the policy, foreign battery makers will only be able to
manufacture in a minority-held joint venture, raising concerns
over technology transfer.

Nissan, which has made zero-emission leadership a major
pillar of its global strategy, has committed to building
electric cars in China by 2015, under the Venucia brand. Ghosn
said Nissan and its French partner, Renault SA, were
prepared to follow any guideline put forward by Beijing.

“I think Nissan’s run will continue,” said Credit Suisse
auto analyst Kunihiko Shiohara, noting that success in China
hinged not just on product-competitiveness but factors such as
good relations with the government. “In that respect, Nissan
seems much more committed and is in a better position.”