Global Economics

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

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.

Following Up on Frankfurt

Despite weakness in the home market, a huge array of concept cars at the Tokyo show will demonstrate the research and development prowess of Japan's auto industry. As is often the case with concepts, some models seem to be much closer to production than others. Indeed, while Toyota's FT-MV minivan, Nissan's Intima, Honda's (HMC) CR-Z, and Mitsubishi's (7211.T) Concept-ZT look like they could be on the road before too long, other offerings—such as Mazda's (7261.T) space-age Taiki and Nissan's cute Pivo 2—are, for now, more about stretching the imagination (BusinessWeek.com, 10/9/07).

Some new concepts will hint at the changing direction of auto design by Japanese car companies. Suzuki (7269.T), for example, has won plaudits for producing small cars, low-cost sport-utility vehicles and a strategy of investing heavily in emerging markets (BusinessWeek.com, 9/28/07).

But having shown off the Kizashi sedan concept at the Frankfurt Auto Show in September, Suzuki will unveil the Kizashi 2, an exciting crossover sport-wagon concept car at the Tokyo show. The Kizashi 2 is powered by a 3.6-liter V-6—the biggest engine ever used by Suzuki—and far removed from the mini-vehicles the company is renowned for in Japan. Analysts say the Kizashi designs will form the basis of new, larger vehicles to be built at a new export plant in Japan beginning in 2009.

Robot Helps Avert Road Rage

Hybrids and other environmentally friendly technologies, another strength of Japan's automakers, will also take center stage. Among them, Toyota will show off a new lightweight carbon fiber-framed hybrid concept called the 1/X, which uses half the fuel of a Prius, and the Hi-CT, a plug-in hybrid concept car aimed at a youthful drivers. Honda will show the cute fuel-cell powered Puyo, while the CR-Z concept is a lightweight gas-electric sports car. And Nissan will show off Pivo 2, a futuristic electric car that features a talking "Robotic Agent" that offers advice. For example, if the robot spies a weary face, it recommends the nearest coffee shop and tells the driver he looks tired. The same face-recognition software can also be used to avert road rage. If the driver gets angry, the robot offers soothing words.

Nissan's NV200 also warrants a mention. It's a rugged commercial vehicle with a very specific user in a mind: ocean photographers. From the rear doors, a pod for equipment storage emerges from the cargo area. That leaves space inside for a work area equipped with computers for editing photographs and images. Nissan says that while the version on display at the show is outfitted specifically for ocean photographers, it's just one example of how the NV200 could be used.


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