Anti-Russian sanctions hit the Japanese used car market

The Japanese government’s economic sanctions against Russia, tightened almost three months ago, have dealt a heavy blow to small and medium-sized Japanese companies that export goods to our country. The bans also affected the sale of used cars.

Some companies in Hokkaido Prefecture are reporting falling market sales and are concerned about the region’s economy, news agency Reuters reported. Japan’s sanctions have plunged trade in cars, which added nearly $2 billion a year to the country’s budget, according to trade data and market participants. Previously, the embargo was imposed only on communications equipment.

Japan initially banned luxury car exports to Russia in April 2022. A ban on the export of heavy trucks was added in June. Under the new sanctions, dealers are still allowed to export smaller cars such as the Toyota Yaris or Honda Fit to Russia.

A specialist in European economics at the NLI Research Institute, Takeshi Takayama noted, “When the main products of small and medium-sized companies are embargoed, this can lead to great damage. The government needs to provide information aimed at supporting firms, such as data on the development of new export channels to other countries.”

Experts note that the government should provide support to firms, for example, introduce measures aimed at expanding sales channels. But a representative of the Japanese company Frutt Gosei Co does not hope that trade relations will resume: “the prospects are currently vague.” Officials say that “the central government will not provide support despite the dire situation. All that can be done now is to look for alternative trading partners.”

Those sales could top $1.9 billion for all of 2023, trade data shows. But by wiping out its biggest partner, the sanctions have depressed used car prices in Japan and left-hand brokers have struggled to ship cars to other regions, especially right-hand drive markets in New Zealand, Southeast Asia and Africa.

The SV Alliance company, headquartered in Toyama, engaged in the export of cars, on average until August 2023 sent about 6,500 used cars to Russia from the Japanese city of Fushiki every month.

“Business is down about 70% and we’ve had to lay off a couple of people because there’s not enough work,” the company says.

Let us recall that on July 28, the Japanese Cabinet tightened economic sanctions against Russia and banned the export of all cars except small cars, cutting off profits for the trade in used Toyota, Honda and Nissan cars for a network of brokers and the port of Fushiki. It is about 800 km from Russia’s Vladivostok, a two-day voyage by cargo ship.

“In Russia, used cars bring in more money than in Japan, and we exported about 30 cars a month,” says a 57-year-old Pakistani citizen who runs a used car store in Imizu, Toyama Prefecture. “But since August, we “we exported only five or so cars and sold the rest on the domestic market, reducing their prices.”

According to the Osaka Customs office in Fushiki, sea exports to Russia of used cars from Toyama Prefecture fell to 5,921 in August 2023, representing a more than 50% decline compared to the previous month.

Takanori Kikuchi, director of auto trade policy at Japan’s Ministry of Economy, Trade and Industry, said the government was “monitoring what impact” the new sanctions would have.

Japan has been a leading exporter of used cars for decades. A system of mandatory inspections increases the cost of maintaining used cars for customers in Japan. In contrast, the cost of financing the purchase of new cars is low. The result is a leading export industry, shipping hundreds of thousands of cars from Malaysia to Mongolia and from Pakistan to Tanzania, but which were first purchased in Japan.

Some welcomed the tightening of sanctions and their effect domestically. Battery recycling company 4R Energy has received a pleasant surprise: Lower prices give the joint venture between Nissan and trading house Sumitomo greater ability to secure supplies, Chief Executive Yutaka Hori said.