Japanese and Korean Automobile

In this Tuesday, president trump announced imposing tariffs on imports of Japanese, European and Korean Automobiles.

With this, Global auto sector had been slid until Friday.

 

1. Japanese companies

But for Japanese companies, it could be temporary factor.

During last year, more than two-third in total number of cars which Japanese companies sold to US, was produced in US, and they will increase their US plant continuously.

Even though high-class sedans, which give more profits to the companies, is produced in Japan, they will preserve appropriate business model.

They have enough cash to expand their equipment in US.

Actually, they already have been continuing increasing productions in US.

There aren't no obstacles for the expansion.

2. Korean companies

On the other hand, Korean makers, HYUNDAI and KIA, couldn't be liberal as much as Japanese makers about the expansion of production in US, even if they got enough cash assets.

HYUNDAI and KIA have produced more than 45% of exports to US in Korea, and 5% of those in Mexico.

It is because of the strongest labor union which Japanese makers don't have.

They couldn't move their Korean production to US that easily.

They care about the union too much, and union just do not care about the company at all.

It had been little problem for the investors, because concession of  the companies didn't harm profits of companies too much.

But from last year, decreasing competitiveness of products of the companies and attack of US government are giving huge burden to the companies.

I believe that the union would be hided disaster to the company soon.

Restructuring of management structure is another problem.

For the restructure, the group needs huge cash, which is another burden to expand the equipment in US.

Elliot and other foreign investors are attacking the group with the issue which owner family never drop.

3. Macro economic factors

Actually, I don't think Auto sector couldn't be good sector for investors.

Whether actual damage be realized or not, attacks of US government will be fostering downside risk continuously.

And trends of automobile is changing from diesel to hybrid including Electrics.

Now for many companies, overall margin of hybrid cars is a half of that of diesel in now, and it would need enough time to take enough margin from hybrid car.

Other macro economic factors, like extended recession of Europe, shrinking consumption of UK, which is 5th-7th car markets in scale, or rising interest rate of car-loan from rising market interest rate, suggest additional problems for the sector.

Even if Korean sectors are saying about decreasing Chinese sales with THAAD problem, their general trend of decreasing started far earlier before THAAD problem happened.

Operating incomes of the companies except Toyota have shown the trend.

4. Conclusion

I suggest REDUCE for Japanese and Korean Automobile companies except Toyota.

Toyota is doing better than other companies although unfavorable macro factors.

And the company is in premium as Japanese representative public company like Apple in US, BP Plc in UK or Samsung Electronics in Korea.

I think buying Toyota could be good choice based on forecast for Japanese market, and limited effect of the tariff.