Japanese Automakers Will See a 20% Sales Drop As State Subsidies End image

Japanese auto makers will see a massive drop in sales as state subsidies are about to run out.

The government subsidies helped Japan car sales increase 53% over the past seven months, but unfortunately they will see a decrease of 20% next quarter when the payouts expire. Toyota hopes that its cheaper version of the Prius hybrid will keep the sales up, while Honda will offer support to dealers.

Until now the government has offered subsidies of 300 billion yen ($3.8 billion), from which 88% have already been consumed, helping the economy recover from the recent fall. But now with the subsidies almost over, the economists forecast an economic crisis.

“The government will have to come up with ways to offset the negative impact of the consumption tax increase,” said Yoshiaki Kawano, an analyst at IHS Automotive in Tokyo. “Should the subsidies end by next month, sales in the three months starting Oct. 1 will drop as much as 20 percent.”

The automakers have reasons to worry, as something like this happened again in September 2010 when the government rebate ended and the auto sales saw a decrease of 29% in the next quarter. In March 1988 domestic sales fell 14% after the government’s sales tax was raised with 2 percentage points to 5% in 1997.