Japan’s carmakers are finding life difficult in Europe, according to business information group IHS Global Insight which said their share of the market had fallen to 12% from 13-14% in the past two months.

It said the Japanese were being undercut by Korean makers while Ford and Volkswagen were winning European consumers with good design and technology. Japanese manufacturers had also failed fully to take advantage of the various car scrappage schemes which have been introduced by European governments in order to stimulate demand.

While the Japanese struggle with the global downturn, analysts believe some of the problems are more fundamental in western Europe. HIS Global Insight’s Christoph Stuermer said: ”The Japanese are caught between a rock and a hard place. The Koreans are out for a kill, trying to take the low price position in the market, while the Europeans have strengthened their design and technical capabilities, thereby squeezing the Japanese. This has particularly affected Toyota which has been extremely conservative with its technology, except for the Prius.

”The mid-price market is also moving away from the Japanese who have tended to produce boring, yet reliable, cars. This is particularly the case in Germany. You now have the VW Polo and Ford Fiesta which are full of technology, space and style and hard for the Japanese to compete with.”

Analysts said Japanese carmakers had been slow off the mark in responding to the scrappage scheme. Some European companies had been very aggressive and cut profit margins while the Japanese had not gone as far and were not going for maximum market share. Instead, they were looking to recover costs, which they have already tried to reduce, and make a return.

But analysts admitted that many of the Japanese models were never very likely to be bought under the scrappage scheme anyway, as the new buyers were tending to go for small models where companies like Fiat prevail. Nissan is also quite strong in this market as well.

Honda’s medium-sized cars, the Civic and Jazz, and Mazda‘s 2, a small car, had been particularly profitable models, experts said, with Toyota’s Auris (Corolla) one of the least successful.

Analysts agreed that Japan had been leading the way in hybrid terms with the Prius but they pointed out that sales were now falling for that vehicle as many would-be consumers felt it was too expensive and European-based carmakers are developing vehicles which emit ever-lower levels of CO2.

Despite the recent falls in demand, experts believe that it is unlikely any of the Japanese firms which make cars in Europe will close plants. Stuermer said, ”When a manufacturer leaves a country there is normally a tendency for it to lose market share there. I think they will try and hang on to the factories they have got there. They may reduce capacity, but everyone is also getting ready for the rebound.”