Summary

The Year in Perspective

During 1998, the Japanese economy was knee-deep in recessionary
turmoil from the worst economic downturn in its post-war period.
Consumer confidence was shaken badly by a number of factors including
the impact of the so-called Asian flu and severe debt problems in
the Japanese financial and banking sector. While analysts suggest
that the reforms required to bring about a recovery in economic
growth are difficult and daunting, signs that the financial system
is being restructured is evident in terms of foreign ownership and
direct investment in Japan’s banking, insurance and financial
services sectors. And the process of industrial restructuring is
also underway in the automotive sector, seen recently in the deeper
international alliances between Ford & Mazda and General Motors
& Suzuki, as well as the new alliance between Nissan & Renault.

The economic slump has also taken its toll on the domestic automotive
industry in Japan. Sales of all new vehicles fell 12.6% overall
in unit volume to just under 5.8 million from 6.7 million in 1997.
Passenger cars were down 8.9% to 4.0 million units, trucks were
off 20.1% to under 1.8 million units, and buses slid 10.3% to 14,141
units. Sales of mini vehicles were the only bright spot, showing
remarkable strength in the last quarter of 1998 to close up 4.1%
overall at almost 1.56 million units.

Vehicle production in Japan fell to its lowest level since
1979 with total output of just over 10 million units. Passenger
car production dropped 5.1% to just over 8 million units, while
truck output plunged 20.0% to 1.9 million units. Bus production
was off 8.5% to almost 57,000 units.

Exports of finished vehicles from Japan to markets around the globe
retreated slightly in 1998 after sharp gains in 1997. Shipments
fell 0.5% to 4.5 million units in total. Passenger cars were up
2.9% to under 3.7 million, while trucks declined 13.4% to almost
796,000 units. By destination, export shipments increased marginally
to major markets in North America, Europe, Latin/South America and
Oceania, but dropped rather precipitously to Asia.

Import vehicle sales in Japan were hit hard by the slump in demand
from the ailing economy for the second year in a row. Sales registrations
of imported vehicles including models built overseas by Japanese
automakers posted a drop of 24.4%, from 364,882 in 1997 to 275,869
in 1998. Imported passenger car sales fell 22.2% to 265,848 units,
while trucks and buses lost 57.2% over the previous year to 10,021
units. Foreign automakers sales in Japan slipped 19.8% to 252,065
units, while the sales tally of imports built overseas by Japanese
automakers sank 53.0% to 23,804 units from 50,601 in 1997.

The Outlook for 1999

Overall, the outlook for the auto industry, like the Japanese economy
as a whole, is still rather gloomy; although there are a few glimmers
that the bottom of the recession has been reached and a gradual
recovery may begin in the latter half of 1999. Some positive signs
include a continuing commitment by the Japanese Government to deregulation
together with countermeasures to stimulate economic activity, a
20% gain in the Nikkei in the first quarter of 1999, and a number
of new foreign direct investments into Japan, notably in the investment
banking and financial services sector, including Merrill Lynch,
Goldman Sachs, and Manulife, a Canadian insurance company.

In the auto sector, industrial restructuring will continue to impact
both production and sales as companies struggle to find the right
balance between global competition and cooperation and at the same
time, to maintain their focus on meeting the ever demanding needs
of the consumer. Mini vehicle sales in Japan have continued to show
robust results over the last six months of the fiscal year, and
automakers have been aggressive in introducing new eco-friendly
models, such as direct injection engines and hybrid (gas/electric)
vehicles. And the 1999 Tokyo Motor Show in October is an international
showcase of new automotive technology and design that generates
widespread interest among Japanese consumers.

The forecast for motor vehicle demand in the Japanese market in
1999 optimistically projects some overall growth to just over 6
million units. In the face of many challenges in the years ahead,
Japanese automakers intend to focus on three specific areas in 1999:

1. Revitalization of domestic demand
2. Environmental protection and vehicle safety
3. Promotion of international mutual understanding and co-operation.

Note: Percentage figures represent the change
from the preceeding year

Source: Japan Automobile Manufacturers Association

Source: Japan Automobile Manufacturers Association

Note: Percentage figures represent the changes
from the preceding year

Source: Japan Automobile Importers Association * Data included in
European / U.S.A. figures