The embattled CEO of Nissan Motor (NSANY) , Hiroto Saikawa, departs at a dismal time for the Asian auto industry. Total auto sales are sagging in China, even of new-energy vehicles, while they're off by almost one-third in India.
Figures put out on Wednesday show China's auto sales fell 6.9% in August, the 14th straight month of decline. When car sales in China dipped 2.8% last year, it marked the first full-year decline since the 1990s. In India, sales in July fell a confirmed 30% year over year and look to have done worse in August, down as much as 35%.
That's worse than expected, according to analysts Masataka Kunugimoto and Anindya Das at Nomura. Both markets look to remain weak well into 2020, according to the auto analysts, unless they get help in the form of tax cuts or sales tax incentives. Indeed, the United States is about the only bright spot on the map when carmakers pull it out and figure out where to drive sales.
The company Saikawa leaves is contending not only with the scandal surrounding former chairman Carlos Ghosn but also is selling 49% fewer vehicles in the "Big Five" markets in Europe, where its partnership with Renault is foundering. Turmoil in the management ranks is at least partly to blame.
Investors might find a bright spot with the shares of Honda Motor (HMC) , which had significantly higher sales for August in the United States, China and Japan -- the carmaker's holy trinity. Toyota Motor (TM) retains higher margins than normal in the industry and a very strong brand. Subaru Corp. (FUJHY) shares share many of those similarities, too.
But investors should pass for now on the rest of the Asian auto industry. Those looking for a pairs trade could go long Honda, Toyota and Subaru while shorting the likes of Mazda Motor (MZDAY) , Nissan Motor, Suzuki Motor (SZKMY) and Mitsubishi Motors (MMTOF) .
Where autos go, heavy industry goes, too. There's no doubt the automobile industry is symbolic.
I don't know about you, but when I think of manufacturing, it's more often than not an auto assembly line that springs to mind. Chalk it up to the long and lasting effect of Henry Ford and the Model T.
Nothing quite says "big ticket item" like buying a car, either. Asian consumers are not feeling any wealth effect at all, their enthusiasm for white goods and new wheels dulled by slowing trade, a slowing Chinese economy, a pending consumption tax hike in Japan, and a stream of other uninspiring data points on the economic front. Throw in a dose of political chaos in Hong Kong, and the checkbooks rest in the desk and the credit cards stay in the pocket.
Here in Asia, there's a pervasive pessimism that has been instilled by the unexpectedly drawn-out trade war, which was expected to be done this spring, only for things to fall apart in May. Here we are at the start of fall and serious talks haven't even resumed. The mood is gloomy indeed.
Certain Asian markets have their own quirks, none of which bode well for car sales.
Household debt is high in South Korea, where exports of semiconductor chips are down and there's a glut of supply on the market.
Chinese households have seen the decimation of the shadow banking sector, informal forms of lending from non-banks that basically have been forced out of business, removing one key source of credit.
India has new regulations on exhaust emissions that will cut into margins for vehicles made there.
Japan will hike the consumption tax from 8% to 10% as of Oct. 1, and there has been little to none of the pre-buying that has occurred before tax hikes in the past.
Japanese carmakers must also contend with a strengthening yen, which makes their export vehicles more expensive. The Japanese currency typically benefits during risk-off moments, when Japanese institutions repatriate overseas investments. That has driven the yen 4% higher since April against even a U.S. dollar that is strengthening.
Korean manufacturers have the opposite effect because the won is weakening. Kia Motors (KIMTF) and Hyundai Motor get an edge up on their Japanese rivals there, making life even harder for Mazda, Nissan, Suzuki and Mitsubishi.
If they are going to play in the Asian auto sector at all, investors looking for long positions should restrict themselves for now to three names: Honda, Toyota and Subaru.
