That screeching noise is Japan’s big three carmakers slamming on the brakes. Toyota, the biggest, slashed global production by 17 per cent last month. Nissan and Honda made about 5 per cent fewer vehicles in August. Given the climate, it is no wonder carmakers are cutting back. Tight credit markets, dented consumer confidence and high gas prices all conspire to reduce demand.

The US, which contributes the bulk of Japanese carmakers’ profit, is obviously the worst hit. But the more recent surge in emerging markets is also looking fragile. China, forecast to overtake the US as the biggest car market by 2015, registered a rare drop in sales last month. Investors are bailing out: Toyota’s share price has lost 22 per cent year-to-date, in line with the broader market, while Nissan is down 38 per cent.

Some sense of perspective is needed. Japan’s manufacturers are in nowhere near as bad a position as their US peers, with none of the associated legacy costs, and are certainly in no need of state largesse. On that basis, the fact that Nissan is trading below book value looks harsh. Price/earnings multiples, at about 10 times next year’s earnings, are flirting with decade lows.

Whether they deserve that rating depends on the road ahead. Production cutbacks and early indications of ugly September sales suggest weak top-line growth. The Japanese have joined their peers in offering incentives. Higher provisions taken against the falling value of leased cars coming back to dealers are an additional burden. Taken together, there is a strong possibility that full-year earnings will be whittled back, particularly if the yen’s rally continues. Even at current levels, it would take a brave investor to jump aboard the Japanese carmakers.

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