` ` Edition 01/2019 Honda to cease UK manufacturing; impact on parts suppliers? Honda Motor Co., Ltd. announced on 21 February that its British plant, its only European plant producing 4-wheeled vehicles, will cease manufacturing in 2021. In addition to the uncertain outlook for European sales, the UK’s departure from the EU at the end of March also gave the company a shove in this direction. It is judged likely that a serious retrenchment and shrinkage of the supply chain business will follow the end of production. As confusion continues about Brexit, businesses are unwilling to commit to new investment. On the same day as Honda’s announcement, the company also announced the end of manufacturing at its it plant in Turkey, which supplies the Middle East. Taking into consideration reduced production in Thailand and Japan, Honda’s global output is expected to fall by 6% from current levels by the end of 2021, to around 5.1 million vehicles. The EU-Japan European Partnership Agreement (EPA) will steadily dismantle tariffs on car exports to the EU, mainly to the advantage of Japan’s domestic plants who will resume exports . Furthermore, in view of Honda’s decision, parts suppliers in Honda’s UK supply chain are inevitably considering closing or shifting their production base. Major pressings manufacturer Unipress has a plant at Birmingham in central England, where it produces body and assembly parts for Nissan’s plant in the north-east of the country. It also has a multi- million pound annual sales with Honda, and employs more than 100 people. The loss of this customer, the company is now considering closing. Car body parts maker G-Tekt has 2 factories near Honda’s plant, and supplies almost all of its output to Honda. priding itself on the speed of its information gathering and response. Car seat maker TS Tech which also has a plant in Hungary, is urgently considering the future of its manufacturing in the UK. Kasai Kogyo, a major supplier of interior parts, is also involved with Honda’s west of England plant. Honda accounted for JYE 1 billion of its its 4 billion JYE UK sales in the FY to March 2018. With the loss of this business, the company has said it is considering concrete steps to reduce its capacity. The decision of Honda is not a result of BREXIT but a decision based on the company's performance in the European market, but since the tariff barriers have been lowered by EPA etc., export from Japan will be reconsidered. In the future, it will be forced to reconsider the location of the whole automobile industry. JAPAN Contact: Heiwa Hasegawa, Representative Telephone: +81 3 5276 6632 Fax: +81 3 5276 2455 E-mail: [email protected] VDMA-Newsletter “Japan”, Edition 01/2019 Contact: Oliver Wack, Telephone: +49 69 6603-1444 Japan Economic and Industrial Scenario, 01/2019 VDMA JAPAN Liaison Office 2 Current Economic Scenario Productivity revolution and urgent objectives are themes for the year In a new year address, the Chairman of the Japan Machinery Federation, Hideaki Omiya (who is also Chairman of Mitsubishi Heavy Industries), stressed that the shortage of labour makes innovation all the more urgent for Japan. Even though Japan is increasing employment of foreign workers, smoothly integrating them into machine production is a serious issue, he said. He pointed to another major challenge in adapting to the changes in international trade brought about by the Trans Pacific Partnership (TPP) 11 and the European Partnership Agreement (EPA) which comes into force this year. He called on the industry to make effective use of these significant trade agreements to expand overseas business. Guest speaker Kouji Inoue, who heads the Manufacturing Industries Bureau at METI, expressed his hope that against an uncertain international outlook, Japan would be a standard bearer for free trade, leading the attack on protectionism, cooperating with the private sector and sharing information. Mr. Hideaki Omiya, the Chairman of JMF Mr. Tamotsu Saito, the Chairman of JSIM Photo: VDMA Japan Photo: VDMA Japan Digitisation in disaster prevention and mitigation At a working lunch of the Japan Society of Industrial Machinery Manufacturers also on January 9, its president, Tamotsu Saito, who is Chairman of IHI, spoke of catching the wave of digitisation to cooperate with related industries and other countries in further innovation to bring added value products and services that meet worldwide needs. He cited new technologies and systems providing solutions to problems of ageing social infrastructure, and strengthening the country’s national disaster preparedness and mitigation. He also called on member companies in environmental and energy sectors to apply technological innovation in tackling global environmental concerns such as climate change and waste reduction. He also urged the government to introduce measures to improve the business environment in view of the increase in consumption tax, and to integrate foreign workers. Signs of recession in domestic economy According to a survey by Teikoku Data Bank, the direct investment index slipped 1.3 Points in January 2019 from the previous month, and now stands at 48.1. It is the second successive monthly decline. In Japan’s domestic economy, against the background of US-China trade friction, lower shipments of industrial machinery and semiconductors to China caused a major deterioration in manufacturing in January, and the adverse effect is spreading to related wholesale and distribution businesses. There is a high degree of concern about a slowdown in the global economy, reducing trade volume and leading to contract and price renegotiations. Other matters of concern are the trend towards milder winters limiting demand for winter goods, sluggish activity and poor quality materials in local public construction works, and cost increases due to the increasingly acute labour shortage. Within the survey, the ‘manufacturing’ segment showed a large decline (2.1 points down from the previous month). The machine tools and related sectors saw declining exports to China as well as a sharp fall in domestic activity. Overseas demand for semiconductor manufacturing equipment is shrinking. Furthermore, falling orders from plant and equipment makers for industrial plastics, and the global slowdown in the market for smartphones is putting strong pressure on makers of electronic parts, chemicals and electronic devices. The strong Yen in currency markets over the year end and new year period further clouds the gloomy outlook for exporting businesses. Compounding all of these negative VDMA-Newsletter “Japan”, Edition 01/2019 Contact: Oliver Wack, Telephone: +49 69 6603-1444 Japan Economic and Industrial Scenario, 01/2019 VDMA JAPAN Liaison Office 3 factors, manufacturing industry is continuing to suffer from the corrective rebound after consumer spending was spurred in anticipation of the last consumption tax increase in 2014. The outlook for all 12 sectors is worsening. Economic DI Projected future DI 52,0 51,1 51,0 50,0 49,0 48,1 48,0 47,6 47,0 46,1 46,0 45,0 44,0 43,0 Jul Jul Oct Oct Apr Apr Jun Jan Jun Jan Jan Mar Mar Feb Feb Nov Dec Nov Dec Aug Sep Aug Sep May May 2018 2019 2020 (Souce: Teikoku Data Bank) Economic DI Economic Diffusion Index, Machine Manufacture 65,0 62,4 62,0 61,2 60,9 60,7 60,6 59,9 60,0 60,3 59,1 58,1 57,5 55,9 55,0 52,5 50,0 General Machinery Electrical Machinery 45,0 Transportation Machinery, Equipment Precision Machinery, Medical Instruments and Equipment 40,0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2018 2019 (Souce: Teikoku Data Bank) For now, capital investment is shifting its gaze to reducing labour. The slow recovery in consumer spending will probably continue. While consumer spending is expected to take a temporary hit from the consumption tax increase, large scale policy measures are expected to cushion the impact. It is also expected that businesses will continue to carry the higher costs for labour and distribution. Exporters will be hit as the effects of the US-China trade friction spread downstream to China and Europe. The direction of US-Japan trade talks, and the repercussions of the UK leaving the EU without an agreement, are core risk factors in global trade. They also have a potentially adverse influence on Japan’s domestic economy, and the situation must be closely monitored. Nissan after Ghosn; stronger organisation and governance; French board member On February 15, Nissan Motor Co., Ltd. made successive moves to position itself for the ‘post Ghosn’ structure with a new governing structure. Its special committee looking into the former Chairman’s improper dealings met for the third time. President and CEO Hiroshi Saikawa and Renault Chairman Jean-Dominique Senard exchanged opinions on the way to continue the alliance. The two were joined by Mitsubishi Motors CEO Osamu Masako on February 15. The three discussed the direction of the VDMA-Newsletter “Japan”, Edition 01/2019 Contact: Oliver Wack, Telephone: +49 69 6603-1444 Japan Economic and Industrial Scenario, 01/2019 VDMA JAPAN Liaison Office 4 alliance as it gradually recovers after the turbulence caused by the arrest of former chairman Ghosn. Although the Renault chairman and the Nissan chairman have a difference of opinion, the three executives have firmly established a new management structure for the alliance in the three months since Ghosn’s arrest. Mitsubishi Motors Corporation CEO Osamu Masko reported that CEO Senard joined an executive meeting with the presidents of Mitsubishi Corporation, Mitsubishi Heavy Industries and Mitsubishi UFJ Bank on February 15th. The group executives and Senard are believed to have affirmed their support for the Franco-Japanese three-company alliance.