Japan’s automotive industry continues to outperform despite ongoing weakness in domestic demand and the generally weak global demand environment. Domestic vehicle production rose by 2.6% in the first seven months of 2002, and volumes for the full year are likely to come close to the 10m unit mark. Tony Pugliese reports.

Despite the significant and ongoing roll out of production capacity overseas, lower domestic demand and plant closures at home, production volumes have remained stable since the mid-1990s. Their relentless development of new and generally well-targeted models has allowed Japan’s vehicle manufacturers to gain global market share and keep domestic production lines rolling.

For this year, domestic vehicle production is likely to come close to 10m units, some 3% higher than last year, and a further 7m units are expected to be produced abroad. This would give the Japanese industry a global market share of approximately 29%. Toyota-Daihatsu alone is expected to account for around 11% of global output, which will consolidate the group’s position as the world’s third-largest vehicle manufacturer. Earlier this year, the group announced it is targeting a 15% global market share – to be achieved by 2010. Honda’s market share expansion has continued relentlessly since the mid-1990s, and other Japanese vehicle manufacturers are beginning to get their act together.

Supporting Japan’s domestic production volumes is very strong export demand, particularly from North America. The weak yen, successful new models and high quality standards are expected to help Japanese brands to take around 27% of the North American vehicle market this year, putting the squeeze on indigenous companies which are having to offer very appealing financial packages and discounts to keep up. Overall exports of vehicles and knocked down kits from Japan are set to exceed 4.4m units this year, assuming some second-half slowdown, with close to 2m of these destined for North America. A further 3m units is expected to be produced locally.

The Japanese also dominate most of Asia’s vehicle markets, have a very strong presence in the Middle- East and Africa and are making in-roads into Central and South America. Europe remains one of the least successful regional markets for the Japanese, where their combined market share was little over 10% last year. But this situation is likely to change over the next two years, as new products and strategies are implemented. Import penetration in Japan remains very limited, despite pressure from its trading partners to open up the market.

Japanese automotive sector performance, 1990-2002

000s units
  1990 1995 1996 1997 1998 1999 2000 2001 2002
Production 13,486.8 10,197.4 10,345.8 10,975.7 10,049.8 9,895.5 10,144.8 9,777.2 5,056.2
Domestic sales 7,777.5 6,865.0 7,077.7 6,725.0 5,879.4 5,861.2 5,963.0 5,906.5 2,982.1
Exports 5,831.6 3,790.8 3,711.5 4,553.2 4,528.9 4,408.9 4,454.9 4,166.2 2,243.6

Sources: Industry sources.

The Toyota-Daihatsu combine remains by far Japan’s largest vehicle producer. Honda has also made significant progress and has now overtaken Nissan as the country’s Number Two car company despite its exit from the truck market – currently the main source of weakness in the Japanese vehicle market. Both companies have been the most successful in identifying customer demand trends and developing successful products. Together, Toyota-Daihatsu and Honda are likely to account for around 56% of vehicle output in Japan this year. This, despite being the most aggressive in expanding overseas capacity.

Nevertheless, companies such as Nissan and Mazda are showing signs of recovering market share and output volumes, although it has been a long time in coming. Mazda’s new Demio is outperforming expectations, and the new Mazda 6 is likely to boost the company’s performance further in the near future. Furthermore, Mazda’s overseas sales are likely to be boosted by production collaboration with parent company Ford. Nissan’s new product strategy with Renault is beginning to show fruit, starting with the new jointly developed Micra in Europe to be followed by a revised Almera in 2003.

While increased overseas capacity by the Japanese has served to appease the foreign trade concerns of its trading partners such as the US, it has also been very effective in increasing Japanese market share abroad. Although production capacity is being cut in Japan, remaining plants are undoubtedly being used more efficiently. With Japan’s domestic vehicle market stagnating at around 6m units per year, Japanese vehicle manufacturers have paid a lot more attention to overseas markets than in the past to make their products appeal. This has worked well in North America, and is expected to show through in Europe over the next two years.

Japanese vehicle production by manufacturer, 2000-2002

  Jan-Dec Jan-Dec Jan-July Jan-July
  2000 2001 2000 2002
Toyota 3,429,209 3,354,424 2,004,437 2,024,464
Honda 1,223,924 1,284,707 750,976 806,414
Nissan 1,324,427 1,270,288 749,992 795,547
Suzuki 907,905 907,528 547,743 599,491
Mitsubishi 997,270 834,749 493,265 489,892
Mazda 778,140 729,279 448,982 455,599
Daihatsu 679,383 638,887 382,068 358,845
Subaru 469,080 462,883 279,584 261,405
Isuzu 257,539 215,929 130,859 143,402
Hino 47,978 53,435 31,565 32,654
Nissan Diesel 25,581 24,153 14,149 16,434
GM Japan 0 0 0 123
Others 360 929 303 341
Total 10,140,796 9,777,191 5,833,923 5,984,611

Overall, up to 1.5m units of annual vehicle production capacity will have been taken out of Japan between 2000 and 2005. Logically, the largest capacity reductions in Japan are being carried out by the industry’s most distressed companies. The list is long, and includes Nissan Motor, Mitsubishi Motors, Isuzu Motors, Mazda Motor, Hino Motors and Nissan Diesel. All will be closing assembly plants in the next few years, with Mitsubishi, Nissan and Mazda making the largest cutbacks. Honda and, to a certain extent, Toyota appear to be the only companies immune the need for plant closures – mainly because of their market outperformance globally.

Honda has been extremely successful in developing recreational vehicles (RV) with significant global market appeal, while maintaining buoyant passenger car volumes. It has traditionally fulfilled global RV demand mostly from its Japanese operations, but this is changing as the company looks to improve capacity utilisation abroad. At home, Honda has some of the most utilised plants in the industry. The company’s US performance has also continued to strengthen, especially with the launch of the new Accord and CR-V models. The new CR-V is underpinning its gradual improvement in its European performance, and this should continue within the arrival of the new Accord. The company’s share of the global vehicle market is expected to be in the region of 5% this year.

Toyota’s only line closure announcements relate to the shift of its compact pick-up truck global production from Japan to Thailand. The company outsources production to other companies within its group, however, which gives it additional flexibility. Toyota is currently the most aggressive in generating new capacity overseas. Between 2000 and 2005, it is expected to have added 700,000 units a year in new capacity in North America, Europe and China. Toyota’s short-term new product programme is very impressive, and is expected to give it a major market share lift in Europe next year. The new European Corolla launched earlier this year will be joined by a fully-remodelled Avensis next year. In 2001, it began making the Yaris in France, and capacity will be increased to 260,000 units by next year. Also, a new 300,000-unit small car plant in the Czech Republic will come on stream in 2005. The Turkish plant also began exporting Corolla estate cars in August 2002. The company is hoping to increase its European market share to 5% by 2005, mostly through production localisation but also supported by imports from Japan.

Overall, Japanese capacity overseas is expanding substantially at present, particularly in North America, Europe and China where an additional 1.5m units will have been added between 2000 and 2005. Toyota and Honda are the main companies driving this expansion. Mazda production overseas is also set to increase sharply, though this will mainly be achieved by using existing under-utilised capacity at its partner Ford. Other manufacturers, including Mitsubishi and Nissan, will be completely overhauling their product strategies to maximise market opportunities. These will become evident over the next few years, though at present their problem is surplus capacity.

The Japanese industry’s global market reach is impressive, as illustrated in the table below which includes details of the major individual markets. The Japanese attention to some of the smaller and more remote markets certainly helps maintain export volumes.

Japanese vehicle exports* by destination**, 2000-2002

  Jan-Dec Jan-Dec Jan-June Jan-June
  2000 2001 2001 2002
North America 1,836,941 1,795,816 826,472 979,503
USA 1,669,047 1606,998 740,628 867,266
Canada 167,894 188,818 85,844 112,237
Europe 1,136,083 895,415 457,017 480,853
EU 973,076 780,750 397,798 426,576
Germany 198,500 158,250 80,490 95,309
UK 140,665 149,438 71,395 81,672
Italy 137,253 125,318 73,910 64,552
France 70,565 65,007 30,343 39,416
Asia 410,590 351,227 200,330 201,504
China 47,090 41,990 330,803 46,055
Malaysia 60,778 61,177 335,667 28,357
Singapore 56,388 49,781 286,334 24,996
Hong Kong 32,951 35,453 20,526 12,698
Thailand 64,642 35,294 20,517 17,312
Indonesia 43,638 36,665 18,220 21,659
Pakistan 30,501 26,713 14,441 17,114
Philippines 33,379 25,626 13,243 11,099
Oceania 357,739 341,808 170,347 182,624
Australia 319,429 300,448 150,221 161,006
New Zealand 32,208 34,177 16,470 18,019
Middle East 295,176 381,965 146,805 185,915
Saudi Arabia 105,622 146,008 56,151 69,907
UAE 46,699 63,922 25,222 33,391
South America 174,534 184,246 100,007 78,836
Central America 124,267 109,390 50,368 63,515
Africa 110,218 98,524 98,524 66,230
Total Exports 4,454,885 4,166,169 2,002,197 2,243,615

*Includes kit exports. ** Illustrates major export markets. Source: Jama.