What do American used cars, government incentives, and China have in common? They each get credit for a rebound in Japanese auto makers' fortunes.
But only one of those -- China's hunger for cars -- is something the companies can count on to continue.
Expected to post a second-quarter loss Thursday, Toyota Motor instead reported a $242 million profit. With substantial cost cuts ongoing, it joined rivals Nissan Motor and Honda Motor in upgrading earnings forecasts for the year ending in March.
The rebounding value of used cars in the U.S. played a big role in this. Lower reserves for cars on lease and loan-losses contributed $810 million in operating profit at Toyota, and $817 million at Nissan. Both items were financial drains last year.
No doubt, the U.S. cash-for-clunkers program helped, as did similar incentives in Japan. Toyota topped the sales list under the U.S. program.
Neither of these is sustainable -- the clunker program, of course, has already ended. Sales growth in China, on the other hand, will continue.
Nissan's been a real beneficiary lately thanks to its small cars and a distribution network that reaches further inland than its rivals. Its sales in China are up 19.3% in the six months through September, but dropped in every other market. By the March year-end, China will have displaced Japan as Nissan's No. 2 market by volume.
Admittedly, a key driver of sales growth has been a tax cut that Beijing may or may not extend into next year. Some consumers, fearing its end, may have brought forward car purchases, which means sales will undoubtedly slow from their current heady pace.
But an improving economy, demand from second-and third-tier cities and increasing use of financing will keep growth going. Sales of Japanese cars in China, J.D. Power & Associates projects, will grow at 6% to 9% per year in the coming few years -- faster than the overall market.
The companies don't yet break out China profits, which pass through joint ventures. But the "other" category into which Nissan lumps Chinese earnings generated $314 million in operating profit in the first half of the year -- almost a third of the total.
There are risks in heavily depending on a single market for sales growth. With China, though, the greater folly would be not being there at all.