Passenger car production in Japan in June
was 1.1% down on last year at 696,503 from 703,978. That took the sector to 0.2% down YTD
at 4,032,551 from 4,041,028. Such a decline is modest enough, but it signals the end of
the impact that the new mini vehicles have had on the production lines. There is still
some growth to come from that sector, but the main surge is over and the temporary relief
that the period of March to May had suggested has now been and gone. The annualised build
rate has settled at 8.05 million and will probably sink to 8.0 million by year end. With
the need to spread risks by building more cars in export markets, it seems clear that the
heady days of the early 1990s, when 10 million cars in a year was a real possibility (the
record is 9,947,972 in 1990) have now gone forever.

There will have to be a shake out in Japan
before too much longer. The first moves are already being made, but they are certainly not
enough to take the pressure off the industry. The installed capacity for passenger car
build currently is 9.5 million. Up until recently the prospect of closing a line or laying
workers off was a forbidden subject, but now the nettle has to be grasped. The first to
make a move is Nissan who have reluctantly agreed to cut 300,000 out of their capacity.
They will have to improve a lot in the months ahead to justify only dropping that amount.
Nissan is dropping its capacity to 1.5 million, but Honda is catching them up in leaps and
bounds, and Honda can only build 1.2 million flat out.

Mazda will probably get help from Ford and
may well start building cars for their American partner. Mitsubishi is also likely to
reduce capacity levels, even if they find a new partner to help them out because they
probably have around 500,000 more capacity than they need right now. Mitsubishi look
likely to build around 750,000 cars in 1999 and about 300,000 commercial vehicles. As
recently as 1993 Mitsubishi built nearly 950,000 cars and over 400,000 CVs. Honda is not
quite going the other way. Honda is not adding new capacity, but is renewing its
production lines so that they can respond to changes in demand with no delay, and can
therefore keep their lines going flat out most of the time.