Tariffs will extend Toyota’s lead over Japan Inc

Tariffs will accelerate Toyota Motor's advantage. The world's largest carmaker is barely raising its prices in the US, despite President Trump's 25 percent levy on auto imports. If Tokyo fails to win a reprieve, manufacturers with slimmer margins will struggle to emulate the $222 billion company and could lose market share fast.

Toyota said this month that it will raise prices for some vehicles sold in the country by an average of $270 as part of a regular review. This represents just 0.7 percent of the mean unit price for a Toyota car sold in North America, according to Visible Alpha.

Other Japanese carmakers appear to have opted for similar tactics in the first month of tariffs: the value of auto imports from Japan to the US fell 24.7 percent in May from a year earlier, though volumes dropped just 3.9 percent, according to official trade data released on June 18. These numbers suggest importers lowered the price of vehicles before duties, in effect absorbing the cost of levies rather than letting sticker prices rise.

For most companies, that strategy will not be sustainable. Toyota's operating margin was 10 percent in the financial year that ended in March, while the average for a basket of its domestic peers was 5 percent. That gives Toyota exceptional flexibility to keep prices stable; even if it absorbed costs associated with the levies, operating profit would only decline some 7 percent, Morningstar analyst Vincent Sun calculates.

By contrast, Honda Motor would face a 25 percent drop in earnings if it tried the same approach, while struggling Nissan Motor's operating loss would grow by nearly a third, Sun reckons. In the end, weaker companies will have little choice but to ask customers to foot the bill. Even if a US-Japan bilateral trade agreement were to halve the levies, Japanese importers stateside would probably still have to pass through about 80 percent of the impact to consumers, consultancy AlixPartners estimates.

That bodes ill for their market share. Those who can't avoid hiking may lose out to Toyota or, worse for Japan, to non-Japanese brands like Tesla. That would hurt: the US is the largest single market for Honda and Nissan, and imports to the country accounted for more than a tenth of their global sales volume in 2024.

Toyota might be able to cope with the tariff pain if it endures, but Japan Inc, overall, will lose.

Japanese carmaker Toyota Motor said on June 21 it will raise prices for some vehicles sold in the US by an average of $270 starting in July.

Japan's auto exports to the US fell 24.7 percent by value in May, compared with a year earlier, according to government data released on June 18. The volume of those exports fell 3.9 percent over the same period. The US introduced a 25 percent tariff on all auto imports on May 3.

Japan also faces a 24 percent 'reciprocal' tariff rate on other goods starting on July 9 unless it can negotiate a deal with Washington. The reciprocal tariffs will not stack on top of existing 25 percent auto tariffs.