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Japan: Here, Kid, Take The Wheel


By Ian Rowley Yusuke Katagata is typical of growing numbers of potential car buyers in Japan these days: The 29-year-old video game producer doesn't own a car and has no plans to get one anytime soon. Instead, Katagata rides his bicycle to work in Tokyo's Shinjuku district. "Cars cost a lot to run, and I don't have any reason for using one during the week," he says. "Most of my friends don't have a car either."

Katagata and his pals pose a double-barreled challenge for Japan's auto giants. Traditionally, carmakers have targeted the young with their sales pitches in hopes of roping in a customer for life. But in Japan these days there are fewer and fewer young people, and they're less and less interested in spending their yen on a fancy set of wheels. In June car sales in Japan slumped 9.4% year-on-year to 462,000, marking 24 consecutive months of decline. For the full year, Japan's automakers expect sales to slip to 5.63 million, down from 5.74 million in 2006 and a peak of 7.78 million in 1990. "The public are buying fewer cars and it's not going to get better," says Carlos Ghosn, chief executive of Nissan Motor Co. (NSANY

), which has seen its sales in Japan fall for the last 21 months.

The real worry is the graying of Japan. People over 65 now account for more than 20% of the population, vs. 15% in 1997. Meanwhile, the share of those aged 20-29 will likely fall below 12% this year, compared with 15% a decade ago. That means some 4 million people of prime auto-buying age have been replaced by pensioners, who are less likely to buy cars—and, as they get older, less able to drive them. "Fewer young folks is a big problem for automakers," says UBS (UBS

) analyst Tatsuo Yoshida. "And efforts to make nicer cars or sexier cars won't help a lot."OLD RELIABLESThat's because unlike their parents, today's twentysomethings tend to consider cars a costly mode of getting from A to B rather than a mark of success. Japan's efficient public transport makes owning an auto an option rather than a necessity. And with improvements in quality and less emphasis on having the latest model, those who buy cars hold on to them longer. The average age of a car in Japan has risen to 6.77 years from 5.05 years over the past decade, the Japan Automobile Manufacturers Assn. says.

It might be mission impossible, but automakers nonetheless are scrambling to woo young buyers. Toyota Motor Corp. (TM

) says it's trying to create cars that give customers more wakuwaku, or excitement (see BusinessWeek.com, 6/7/07, "Toyota, Take the Wheel"). Toyota's latest Prius ads feature cartoon characters originally drawn by Osamu Tezuka, the father of anime. Nissan, meanwhile, has gone into the music business, and in January formed its own record label with Warner Music Group Corp. (WMG

) Winding Road, a song featured in a Nissan ad, has been downloaded 2 million times and is on a compilation CD that has sold 400,000 copies. And in June, Nissan launched a model, the Dualis, with a spot showing the vehicle transforming into an animated robot to leap over traffic.

Young women have become a prime target for the carmakers. In January, Nissan began selling a kawaii—or "cute"—version of its Pino minicar, featuring hubcaps shaped like snowflakes and an owner's manual drawn in a manga style. And Hello Kitty is now a "Happy Drive Ambassador" for Mitsubishi Motor Corp. The character makes cameo appearances in ads, and last summer Mitsubishi sold a $17,000 limited-edition "Princess Kitty" version of the i minicar that featured Hello Kitty-shaped headrests. "Car companies can't afford to abandon the younger buyer," says Andrew Phillips, an analyst at NikkoCitigroup Ltd. (C

) in Tokyo. Despite the apparent lack of interest among young drivers, they "will live longer and have the potential to buy more cars in the future." With Hiroko Tashiro in Tokyo


Later, Baby
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