By Mayumi Negishi and Neha Singh
TOKYO/MUMBAI (Reuters) – Japanese auto sales fell by a third in May, the lowest total for that month since 1968, as car makers suffered from the impact of the earthquake and tsunami that roiled the country in March.
South Korean rivals, on the other hand, continued to gain traction with Hyundai Motor (005380.KS) and affiliate Kia Motors (000270.KS) posting double-digit growth in sales driven by solid demand for new models while their Japanese competitors have been forced to slash production globally.
Despite the ninth consecutive drop in monthly new vehicle sales, Japanese car makers are recovering faster than expected with market leader Toyota Motor (7203.T) expecting its output to return to 90 percent of its pre-quake levels by this month.
Still, overall production in 2012 could be almost a million vehicles less than Toyota had planned to build at the start of the year. Lost output by the end of May was 900,000 cars.
Nissan Motor Co (7201.T) and Honda Motor Co (7267.T) have also said they are working to bring production back to pre-quake levels as soon as possible, most likely during the financial third quarter from October-December.
"The earthquake put a chill on consumption in Japan," Michiro Saito, general manager of the Japan Automobile Dealers Association said on Wednesday. "Production will return to normal from June and that may provide a boost to sales."
Sales of vehicles, excluding 660cc minicars in Japan, fell 37.8 percent from the year before to 142,154 units last month. Toyota, the world's biggest automaker, led the drop with a 56.6 percent fall.
Combined with 660cc vehicles, tallied separately, new vehicles sales in the world's third-biggest auto market declined 33.4 percent to 237,364 vehicles, data showed on Wednesday.
HYUNDAI, KIA TO GAIN MARKET SHARE
South Korea's Hyundai and sibling Kia, which rank fifth in global car sales, saw robust sales growth in May. Hyundai's sales climbed 13.6 percent, while Kia's sales soared 22 percent as a jump in its overseas sales offset a dip in sales at home.
Investors are waiting for U.S. sales numbers to be released on Wednesday to gauge whether the South Korean duo will gain market share from Japanese car makers.
"A risk for South Korean car makers is an intensifying competition as Japanese rivals are rolling out new models and raising incentives," said Lee Sang-hyun, an analyst at NH Investment & Securities.
Strong sales by South Korean car makers came despite a week-long strike at a parts supplier. Police broke up the strike, averting major production losses at the domestic plants of Hyundai and Kia.
The combined market share of Hyundai and Kia are expected to hit a new record high for May in the U.S. market after reaching 9.4 percent for April, thanks to brisk sales of Hyundai's Sonata sedan, Elantra compact and Kia's Optima sedan, analysts say.
Their combined May sales may surpass Toyota Motor for the first time in the United States, media reports said, citing a forecast by TrueCar.Com.
Shares in Hyundai and Kia, which were strong recently because of sales data expectations, lost ground on Wednesday on profit-taking. Hyundai Motor shares fell 3.56 percent and Kia shares fell 3.7 percent in a flat market.
Shares of the two companies have surged by nearly 50 percent each this year.
INDIA DEMAND TO SLOW
India's largest automaker, Maruti Suzuki (MRTI.NS), posted its slowest growth rate in more than two years, with a 1.9 percent rise in total sales to 104,073 units.
Indian automakers overall sold 162,825 units in April, up 13 percent from a year ago, the slowest pace in nearly two years.
"I think they are feeling the pinch of rising costs," said Kishor Ostwal, chairman of brokerage CNI Research. "Higher fuel prices and rate hikes are beginning to show their effects and some demand will be shifted from four-wheelers to two-wheelers, particularly in lower-end car models."
India's third largest two-wheeler maker, TVS Motor Co (TVSM.NS), posted an 18 percent jump in May sales to 185,930 units, a record for the company.
Tata Motors (TAMO.NS), India's largest truck and bus maker posted a 10 percent rise in May sales, driven by an 84 percent rise in sales of the Tata Nano, touted as the world's cheapest car.
Vehicle sales in India, one of the fastest-growing auto markets in the world, grew a record 30 percent in 2010 as the burgeoning middle class in Asia's third-largest economy spurred demand. That growth is expected to halve to 12 to 15 percent this year.
Indian car makers have expressed concerns over rising commodity prices and have raised vehicle prices by an average 1.5 to 2 percent this year to offset cost pressures.
Demand is also expected to slow because fuel prices rose by a record 8.6 percent in May and interest rates are likely to be raised in June.
(Additional reporting by Aniruddha Basu in Mumbai, Hyunjoo Jin in Seoul, Tim Kelly and Kentaro Sugiyama in Tokyo; Editing by Matt Driskill)