Overseas production by Japanese car manufacturers is expected to top 10 million units as early as 2005 and surpass their output in Japan, according to Monday's editions of the Nihon Keizai Shimbun newspaper, Reuters reported.

The report said that as carmakers increase their investments in overseas facilities, exports from Japan have fallen to nearly 60% of their peak level in 1985 and, compounded by the long-term decline in domestic car sales, Japanese car companies may need to address the issue of excess production capacity at home.

Reuters said overseas output by Japanese carmakers this year is expected to hit 8.5 million units, the second straight year in which it has recorded a double-digit gain. Toyota, Honda and Nissan, which account for more than 60% of the total, plan to increase their production capacities in North America, Europe and China by at least a million units and, as a result, the milestone of 10 million units for overseas production could be met in 2005, the report added.

Reuters said Japanese production - for the domestic market and for export - is poised to reach 10 million units in 2003 for the second consecutive year but, of that, however, vehicles for export are likely to decline to around four million units and, with car sales in Japan remaining flat at around 5.8 million units, domestic production could soon fall to less than 10 million units.

The report noted that, in the early 1990s, output capacity at domestic facilities totalled around 14 million units before Nissan and Mitsubishi closed down some production lines by the end of the decade to streamline their operations. When Toyota and Honda also revamped their production facilities, the Japanese motor industry succeeded in eliminating about four million units worth of excess capacity, Reuters added.

The report said that with domestic production levels expected to tumble to around nine million units, the carmakers will be required to make additional adjustments to their output capacity and such declines will, in turn, impact the operations of Japanese automotive parts manufacturers that are highly dependent on domestic car production.