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Japanese Car Sales Continue to Stall - 2004-06-04

In Japan, car sales continue to stall, a venerable brand name faces trouble, and rising fuel prices are affecting drivers and air passengers. These are among the stories in this week's look at Japanese business news.

While Japan's economy appears to be gaining speed, the slowdown in new vehicle sales continues.

The Japan Automobile Dealers' Association says domestic sales of new cars, trucks and buses dropped in May for the fourth straight month. The May numbers show more than a 10.5 percent drop compared to the same month of 2003.

Mitsubishi Motors was particularly hard hit, with car sales plunging 56 percent. The sharp drop is blamed on a lack of new models and bad publicity from an attempted cover-up of defects, which is now under criminal investigation.

One of Japan's most recognizable brand names, Kanebo, is getting a massive makeover. The 117-year-old toiletries and textile maker, on the verge of bankruptcy, is receiving a $1.3 billion bailout package from investors in a deal brokered by the government.

Kanebo President Akiyoshi Nakajima says the firm will slash 1,800 jobs, more than a third of its workforce.

"It is a painful decision but the company has no choice," Mr. Nakajima says.

Under the rescue deal, the company's main lender, Sumitomo Mitsui Bank, will forgive nearly $1 billion in loans. Kanebo's crown jewel, its profitable cosmetics business, has been spun off into a separate entity controlled by the government-backed Industrial Revitalization Corporation.

Gasoline prices in Japan this week went up 10 percent, the largest increase since the first Gulf War in the early 1990s. A liter of regular unleaded gasoline at the pumps in Tokyo now sells for just over $1.

Nippon Oil managing director Naokazu Tsuda says the price hike was unavoidable.

Mr. Tsuda says, "it is difficult for wholesalers to absorb such a drastic hike in the cost of gas, so they have to pass it on to the retail level."

Meanwhile, Japan's major airlines say the rising cost of jet fuel is forcing them to hike airfares. Japan Airlines and All Nippon Airways say passengers can expect to pay five percent more for plane tickets this summer.

Japan needs to shift direction to stay competitive in the global market, according to the government's annual white paper on trade.

The Economy, Trade and Industry Ministry notes the sources of economic competitiveness have shifted from tangible to intellectual assets. The government paper complains Japan's competitiveness is waning because it has strength in limited areas, such as high value-added production. It says Japan must encourage individuality so new technologies can evolve.

Cabinet approval of the report is expected later this month.