Japan: Land of the Shrinking Car Market
August 07, 2007

By Peter Nunn

Just recently I was up in Hokkaido, Japan’s scenic northern isle, driving the new Nissan Skyline Coupe -- Japan’s version of the highly rated new Infiniti G37 Coupe. Through the twists and turns of Nissan’s Hokkaido proving grounds, in bright summer sunshine, the V6 Skyline coupe was a total blast, and looked that way, too.

Then, at dinner, came the wake-up call. "Please write great things about car," urged one of the Nissan marketing execs, "and about cars in general, if the Japanese car market is going to survive into the future." Or words to that effect.

Que? This wasn’t the usual rosy, end-of-drive send-off for the press but something very different. Clearly some kind of warning and a pretty serious one at that.

Alarm bells, in fact, are now ringing throughout the Japanese car industry, because car sales at home continue to decline and the long-term future of the domestic industry is suddenly looking not a little uncertain. Yes, really.

Even Japan’s brightest and best, which means to say Toyota, Honda and Nissan, are locked into this ongoing war of attrition that is the total opposite of what’s happening in North America, Europe, China, of course, and, in fact, pretty much everywhere else on the globe where Japan’s sales graph is tending to point up, not down.
   
In America, of course, Japan’s J3 continue to forge relentlessly ahead, Toyota especially. July was a soft month in the U.S., it’s true, but still the overall pattern is set with the Toyotas and Hondas looking for ever-stronger sales growth and profits as a compensation for their struggling Japanese home performance. 

Check out the numbers. Car sales in Japan fell in July for the 25th month in a row, down to 298,076 units and down 9.7 percent from a year earlier. Sales, in fact, were below the 300,000 mark for July for the first time since 1971.

(Source: Japan Automobile Manufacturers Association)

Yes, there was that terrible earthquake in Niigata that halted production across the board and had a knock-on effect on sales. But that’s not the problem, here.

Quite simply, the Japanese are not buying cars (or getting excited about cars) as they used to. It has nothing to do with the anti-car/SUV agenda now being waged in some parts of Europe, but lots to do with the changing cultural makeup in modern day Japan.

Young Japanese are just not excited about cars. Japan’s older, graying generation is downsizing and trying to save money. A social divide between the haves and have-nots (or the “winners” and “losers,” as some delicately put it) yawns ever wider.

Go-Go Era Gone

Of course, over the years, the Japanese home market has known some spectacular highs. Back in 1990, the market peaked at a record 7.77 million units. It was the height of Japan’s go-go bubble economy. Life was great and everyone was making money.

(Source: JAMA)

Then came the bursting of the bubble and Japan’s so-called Lost Decade. The economy and stock market have since picked up some of what was lost but the same can’t be said for car sales, which slumped to 6.4 million units in 1993, rallied to 7.01 million in 1996 but have been stuck in gear, flat or in slight decline at or around 5.8 million units ever since 1998.

The Japanese media has recently been running several analyses as what’s really going on and why sales stubbornly refuse to pick up. Some very interesting and at the same time disturbing intelligence came out.

Car Lust Lost on the Young

Top of the list is the fact that young Japanese just don’t seem interested in cars any more. This is one huge worry because the young are, of course, the future.

Whereas those in generations past would dream of one day buying a Ferrari or Porsche, or yes, a Skyline Coupe of the type I’d just been pushing through fast curves up in Hokkaido, that kind of thing barely registers with many of today’s wakamono (young people), apparently. It’s just too much of an impossible dream.

Cell phones, Internet, music, fashion and socializing are what float their boats not cars. Many young Japanese hire a car for a weekend if they want to go somewhere. Buying, insuring and generally paying for a car is far too difficult and expensive.

Some housing blocks in Tokyo now car-share, again avoiding all the expense and hassle of buying and running a car. Tokyo now has so many cool and vibrant places that can be accessed by train, subway or bus, which is yet another reason why many of Japan’s junior boomers feel they don’t want or need their own wheels.

Boomers Save for Retirement

Meantime, Japan’s true boomers who entered the workplace in 1947 are now starting to retire, so money is obviously a concern and keeping an existing car instead of buying a new one looks an increasingly attractive option. So again, no one’s buying.

Scary, isn’t it? Japan’s trend-obsessed, fast moving market has been through downturns before but this one is looking increasingly entrenched and could have chilling repercussions five, 10 years down the line if things continue as they are.

New Car Effect Shorter

The Skyline again is a classic case of the changing times. In the not-so far off old days, the Skyline would easily sell over target in the first year, then slow down in Year Two. Then came a face-lift and various special editions until the next-generation model was unveiled in Year Four.

Nowadays, the “new car effect” as it’s known in Japan in terms of car sales can sometimes last only a few months. A car is launched, then after as little as three to six months later it’s all but languishing on the dealer lots. That kind of thing never used to happen before. Happily, the latest V36 Skyline is the exception to this and sales have been holding up well.

There is no way, however, Nissan could afford to engineer a new Skyline based solely on Japanese sales. Without the Infiniti connection, the 50-year Skyline history would unquestionably come to a close.

Eyeing Growth Overseas

There was a story recently, “do Japanese carmakers really need their home market anymore?” The continuing global spread and aggressive expansion of Toyota, for one, into North America and the huge profits being reaped there has caused some to wonder.

Reporting 11 consecutive years of record-breaking sales, Toyota Motor Sales USA also claimed another banner year in 2006, with sales of 2,542,524 units, up 12.9 percent on 2005.

Contrast that to Japan where Toyota’s sales have been stuck in and around the 1.7 million mark since 1996 and last year were down 3.2 percent to 1,703,185 units.

Honda, too, is more excited about overseas markets now instead of the “difficult,” slow-moving Japanese home market where sky-high fuel prices of more than $5 a gallon are increasingly spooking consumers.

On Monday Honda warned it may miss its domestic sales target this year. Koichi Kondo, head of domestic operations, said Honda, which already postponed the launch of its luxury Acura brand by two years to 2010, might not be able to make up for the slump in domestic sales in the first quarter, “even including a recovery in the second half.” Kondo added he saw no end in sight to Japan’s slump.

The Japan Solution

What to do? First, a massive rationalization program is now ongoing to slash dealer numbers across Japan to adapt to this shrinking market.

Two, carmakers continue to spring new models in hopes some will stick. But the only cars that continue to have real sales traction are the perennial Corolla, compacts (Toyota Yaris, Nissan Note, Honda Jazz/Fit), various minivans and Japan’s unique, low-cost 660 cc minicars as personified by the Suzuki Wagon R and Daihatsu Move.

The cheap and cheerful 660cc minis had a record 2006, breaking the 2 million sales mark for the first time, but even they are now are fighting a sales head wind, with demand slackening off.   

(Source: Japan  Automobile Dealers Association)

Who knows, maybe the coming wave of hybrids, diesels and eventually fuel-cell vehicles will turn the tide in Japan and get the market humming again.

Certainly, the market really needs some magic bullet and…soon. 

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