Article Credit: HIROTAKE KITAGAWA, Nikkei staff writer
TOKYO -- Isuzu Motors is under pressure in the crucial market of Thailand, where tougher borrowing conditions are squeezing buyers of its pickup trucks.
Thailand's new-vehicle sales fell 21% on the year in April, the 11th straight month of decline. Light trucks -- the workhorse of the Thai auto market -- have been the hardest hit by the downturn.
Pickups account for about 40% of vehicle sales in Thailand. They are popular in rural areas and among small business owners. The Isuzu D-Max holds a roughly 40% market share.
But with Thailand's 10-year bond yield hovering around 2.7%, compared with less than 1% in March 2020, would-be buyers are having a hard time securing loans.
That deals a heavy blow to Isuzu, which relies on Thailand for 30% or more of its sales of pickups and related vehicles.
The Japanese automaker expects to sell around 90,000 such vehicles in Thailand for the year ending March 2025, down roughly 30% on the year and around half of peak levels. Besides higher interest rates, Isuzu also faces growing competition from Chinese rivals like Great Wall Motor and Geely.
Isuzu's group operating profit is forecast to fall 11% this fiscal year to 260 billion yen ($1.66 billion). The pickup truck slump is seen weighing down profit by 39.5 billion yen, overshadowing sales increases, price hikes and cost cuts for commercial vehicles in Japan.
Still, Isuzu stands in a stronger position now than it did after the 2008 global financial crisis or during the early 2000s, when it struggled with a combination of falling sales, a heavy debt load and a strong yen.
The automaker's equity ratio has improved from the single digits to around 45%. Its market capitalization is more than 1.5 trillion yen, overtaking Hino Motors, Mazda Motor and Mitsubishi Motors.
Isuzu logged a 12.7% return on equity in the year ended this March, its third year in double digits, QUICK FactSet data shows. The figure is not far behind Toyota Motor's 15.8%, and is higher than both that of Honda Motor and Nissan Motor. Emerging-market growth and a weak yen have provided tailwinds.
For now, Isuzu is expected to focus on managing risks to its Thai earnings. The company had five months of dealer stock for pickup trucks as of the end of March, three months more than is typical. It will slow some production lines to a single shift while it reduces excess stock.
Demand in Thailand "will bottom out in the latter half of this fiscal year, and will recover over the medium term," President Shinsuke Minami said.
Isuzu also looks to bolster future earnings in Thailand. One way is by expanding aftersales services for commercial vehicles, something it has done in Japan. These vehicles tend to be driven for 10 to 15 years and see heavy use, so they typically need more maintenance and inspections. Such services already make up nearly 40% of Isuzu's operating profit, UBS Securities Japan estimates.
"New-vehicle sales tend to be affected by market conditions, but profits from aftersales services are more stable," said UBS analyst Kohei Takahashi.
Isuzu also will seek inroads into self-driving technology and electric vehicles.
It announced a $30 million investment in U.S.-based autonomous truck startup Gatik in May, with plans for a business involving Level 4 autonomous trucks and buses in Japan and North America. Level 4 vehicles are capable of fully autonomous driving under specified conditions.
Isuzu aims to increase revenue by 80% to 6 trillion yen and double its operating profit margin to at least 10% by the year ending March 2031 compared with last fiscal year.
Isuzu's stock price is up 13% from the end of 2023, trailing the Nikkei Stock Average's 17% gain. The company's shares trade at 9.5 times forward earnings, roughly on par with the automotive sector average.
"There is no growth by staying on the same path that we're on," Chairman Masanori Katayama said at an event in April. "We must take risks and stay hungry for business opportunities."