The Japanese vehicle industry in review

The Japanese automotive industry has recently undergone dramatic change and more structural change is set to take place over the next several years. This has largely been prompted by the prolonged weakness in the domestic vehicle market, which has generated very serious over-capacity problems for most of the manufacturers.

At the peak of the Japanese economic bubble in the late 1980s and early 1990s, the industry sold 5.1 million passenger cars (in 1990) and over three million commercial vehicles (in 1988) in Japan. The moderate market recovery that took place in the mid-1990s proved to be a false dawn. Vehicle manufacturers soon found themselves facing rapidly deteriorating revenues, and earnings quickly turned into huge losses.

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Capacity utilisation for some companies reached seriously low levels, and some companies came very close to bankruptcy. Making matters worse was the financial crisis that swept across South-East Asia in 1997. Overall, the worst hit have been the truck and bus manufacturers, which have seen their domestic market decline by half since peaking twelve years ago and key overseas markets in Asia decimated in a matter of months.


Table 1: Japanese vehicle industry performance, 1990-2000 (‘000)

Waiting for the domestic market to recover was no longer a viable strategy, and neither was compensating for the domestic shortfall with exports. Manufacturers found increasingly that Europeans had very different automotive preferences to the Japanese and US consumers. In the US, disputes over the country’s automotive sector trade deficit with Japan turned into serious friction. Finally, some of Japan’s oldest corporate traditions, such as jobs for life and the Keiretsu supply chain, had to be abandoned. Today, the boardrooms of many Japanese vehicle companies are dominated by non-Japanese directors. An industry that had traditionally made structural changes with extreme caution had to move fast, and embrace radical change. 

Only a few Japanese vehicle manufacturers, such as Toyota Motor and Honda Motor, have emerged stronger from the latest domestic market recession. Others have been forced to take radical measures to stave off bankruptcy and to reign in losses. Many of the once proud Japanese multinational vehicle manufacturers found themselves forced into strategic alliances with foreign partners and in many cases relinquished management control. While there has been significant collaboration between Japanese and foreign vehicle manufacturers as far back as the industry has existed, the alliances forged in the last two years have been much more one-sided, though on the whole collaborative in nature.

Global market share

The Japanese vehicle industry is very well represented worldwide on the whole, with close to 16 million vehicles sold in 2000 out of an estimated 55.8 million units. This is equivalent to around 28% of the world market for vehicles. Their strongest presence is inevitably in Japan, where their combined market share is over 95%. Importers have had a hard time moving into this market for various reasons. European and US vehicles are not produced in this country, and are seen as niche vehicles that are not designed with the Japanese customer in mind.

The distribution reach and the economies of scale among the dealers of domestic companies clearly puts the Japanese at an advantage, as does nationalistic sentiment to some extent. Their dominance of the market is unlikely to be reduced significantly in the near future. Foreign brands are beginning to be produced in the country, starting with GM badging a small Suzuki car in 2002, but overall it will continue to be the Japanese who will supply the vast bulk of the market.

Given the merger and acquisition activity that has taken place in the last few years, and the long-standing partnerships that exist between Japanese and foreign automakers, it is becoming increasingly difficult to use this collective description. But it is useful nevertheless to gauge how these companies are performing in a global context, and for this purpose sales data and estimates relate to brand sales. Some of the data, including the “Other” markets and the “Total” global market, are estimated.


Table 2: Japanese share of global vehicle sales by region, 2000*

Japanese brands have also performed extremely well in North America, collectively reaching an all-time high in terms of market share and volumes of over 25%. A total of 1.84 million vehicles were exported to North America from Japan in 1992, and around three million units were produced in the region. The strength of the US dollar has helped the Japanese companies tremendously in North America, both in terms of exports of built-up vehicles and OE parts, and in terms of the translation of earnings into yen. In terms of demand, intensive new product programmes have also helped volume growth, as has a general switch towards more fuel-efficient vehicles as fuel prices escalate.

In Europe, the opposite has happened. Despite the termination of the voluntary agreement originally put in place to cap Japanese market share in the region until 1999, the Japanese share of the regional vehicle market has plummeted. The weak euro against both the yen and sterling is the principle reason for this, the UK being the main location for Japanese vehicle production in Europe. Virtually all Japanese vehicle manufacturers have incurred financial losses in Europe, in some cases very substantial losses, and most are revisiting their strategies for the region.

The Japanese have also failed to inspire the European market with most of their products, through some of the key weaknesses are now beginning to be addressed. One weakness is the lack of presence in the diesel car market. Another is the lack of regional product development. In many cases this is being addressed through the development of alliances with long-standing players in the European market. Even Toyota, which does not have a strategic western partner, is to work with Peugeot on the development and production of a new entry-level car for the region.

The Asia-Pacific market is the key stronghold for Japanese companies. Including Australia and New Zealand, they control a third of sales. This is impressive given that their presence in South Korea, one of the largest markets in the region, is negligible. In China, the Japanese have a strong, though mostly indirect, presence in the substantial mini-vehicle market and loose alliances in other segments. In India, Suzuki’s Maruti Udyog joint venture accounts for around half of the domestic market and South-East Asia has traditionally been a major stronghold for the Japanese.

This article has been extracted from an exclusive report just published by just-auto, ‘ The Japanese vehicle industry: a strategic review’. The report assesses how an industry which has traditionally made structural changes with extreme caution has suddenly had to move fast, embracing radical change.

For more details click here

 

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