Prime Time for Japan's Automakers

The Tokyo Motor Show is a chance for Toyota, Honda, and others to strut their stuff. But there's no escaping slumping demand in Japan

by Ian Rowley

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Led by mighty Toyota (TM), Japan's automakers are on a roll. Their combined market share in the U.S., the world's biggest auto market, was 37.5% in August, up from 36.5% a year earlier. Toyota is set to overtake General Motors (GM) as the world's largest automaker this year.

Just as impressive, all of Japan's automakers are profitable and increasing their top lines. During the last financial year, Japan's nine major automakers racked up combined operating profits of $36.6 billion on sales of $486 billion, increases of 12% and 8%, respectively.

So when the 40th annual Tokyo Motor Show opens later this month, the combined might of Japan's automakers will be stronger than at any time since the first show, then called the All Japan Motor Show, was held outdoors in Tokyo's Hibiya Park in 1954.

Toyota Will Miss Target at Home

Yet, while the Tokyo show (which opens to the public on Oct. 27) is a prime-time opportunity to show off the results of the gargantuan investment budgets paid for by surging profits, Japanese automakers have one big problem that surging sales in the U.S. can't mask. Slumping demand in Japan means there will be few chances for Japanese auto chiefs to swagger at their home auto show. In September, domestic auto sales fell 9.5%, the 27th consecutive monthly decline. That means 2007 is on course to be even worse than last year's annual sales of 5.73 million—itself a 20-year low.

Even Toyota is hurting. Despite controlling more than 40% of the Japanese market, the company managed to post flat sales in 2006. But on Oct. 9, Chief Executive Officer Katsuaki Watanabe conceded that the company will fail to meet its target to sell 1.72 million units in 2007. "We want to go to around the middle of the 1.6-million-unit level," Watanabe told a news conference to launch the Corolla Rumion, a new compact, in Tokyo.

Just as worrying, there appear to be few quick fixes. One big problem is that Japan's aging population means there are fewer younger people—who tend to be prime auto buyers. And those who are active car buyers are holding on to their purchases longer because many Japanese youngsters perceive autos as commodities rather than the must-have status symbols their parents craved (BusinessWeek.com, 7/23/07).

Old Tricks Don't Seem to Work

Even regular new model launches—once a surefire way to stoke up sales, at least temporarily—don't seem to work any more. Toyota, for example, has launched 10 new models this year but will still miss its sales target. "Depressed demand for new vehicles in Japan is so serious that the recovery is well beyond any single company's efforts," says Yasuhiro Matsumoto, an analyst at Shinsei Securities in Tokyo. "Just launching new models isn't enough. Automakers have to think about how to make profits despite shrinking demand in Japan."

Given the size of the task, few analysts expect coverage of the Tokyo Motor Show, and several new car launches, to reignite the Japanese public's onetime love affair with autos. Nevertheless, the show, which has carved out a reputation as a place for Japan's automakers to show off concept cars rather than launch new production models, remains one of the world's five biggest auto shows.

This year's highlight will likely be the launch of Nissan's (NSANY) long-awaited GT-R flagship performance car. Shown as a concept two years ago, Nissan CEO Carlos Ghosn will unveil the new model, which starts at $66,000 in Japan, on Oct. 24. Sales in the U.S. are scheduled to begin next spring.