Smaller cars carve out bigger share in Japan

Makers lean on minivehicles to boost sales amid major economic downturn

TOKYO — Reporters attending the Tokyo Motor Show in October swarmed Nissan Motor Co.’s 350Z, the production version of the longtime campaign to revive the Z car. Most ignored the mm concept, the replacement for the 10-year-old Nissan March in Japan and Micra in Europe.

They missed the more important vehicle.

While the 350Z is important to Nissan’s image, particularly in North America, the mm will carry more responsibility for improving Nissan’s worldwide sales and profits, analysts and Nissan executives agree.

Nissan is counting on the 1.0- to 1.3-liter subcompact to yield a “significant improvement” in its Japanese market share next year, said Patrick Pelata, the automaker’s executive vice president and product czar.

The reason Nissan is pinning such high hopes on what, in America, would be a low-priority car: As Japan’s moribund economy continues to shrink, so too have the preferences and budgets of its car buyers.

With unemployment here at a record level, only automakers with inexpensive new compact models had sales increases.

Sales of 660cc minivehicles in October, for example, jumped 6.4 percent in a market off 3.1 percent, yielding a 32.8 percent share of the light-vehicle market that month. On the strength of a single new minivehicle, the eK-Wagon, Mitsubishi Motors Corp. was able to reverse a 14-month slide in its total sales in the month with a 16.6 percent increase.

The minicar did not go on sale until Oct. 11.

Small-car sales up

Through October, sales of small cars — defined by the Japan Automobile Dealers Association as cars with engines smaller than 2.0 liters — are up 3.7 percent in an overall market off 0.2 percent.

The trend continued strong in November, according to preliminary industry figures released last week. Sales of minivehicles rose 4.8 percent to 163,535 in an overall market off 9.3 percent, lifting combined small-car market share to 72.2 percent from 69.4 percent in October.

Honda Motor Co. sales rose 20 percent to 49,989 units, buoyed by new models such as the Fit subcompact, while small-car specialist Suzuki Motor Corp., 20 percent owned by General Motors, saw sales rise 46 percent to 4,488 units. Mitsubishi’s mini sales surged 57 percent to more than 28,000.

Pelata says the trend to smaller cars in Japan was apparent to Renault SA in 1999, when the French automaker took a controlling 36.8 percent stake in Nissan.

“When we arrived, all the development efforts were on the upper part of the market,” he said. “But the market was downsizing” to cars costing less than 2 million, or about $16,665 at current exchange rates.

Many cars cost considerably less than that. The new Daihatsu Max, for example, the first minicar to include tilt steering, starts at only $7,492.

The shift in buying patterns has pitted Japanese carmakers against one another in an increasingly fierce dogfight for small-car buyers shopping largely on the basis of price.

“There’s no question about it. Consumers check the price, not the value, of a small car,” said Shigeharu Kimishima, an analyst at Kokusai Securities Co. “Price comes first, and then the next issue is — price.”

Beyond Mitsubishi’s eK-Wagon, new offerings include Honda’s subcompact Fit, which has become Japan’s No. 3 best-seller since going on sale June 22; the Daihatsu Max, which went on sale in November; and the Suzuki MRwagon, which joins the best-selling Wagon R in Suzuki’s lineup this month. Nissan will get a version of the MRwagon in the spring.

GM gets in game

Even General Motors is getting into the game. Suzuki, owned 20 percent by GM, is building the 1.5-liter Chevrolet Cruze sport-utility for the Japanese market. GM plans to sell 5,000 Cruzes a year. Suzuki will sell another 15,000 Cruzes a year through its much larger dealer network, but that version will have a 1.3-liter engine.

William Nestuk, Tokyo-based auto analyst for WestLB Panmure Securities, believes the battle in the small-car trenches portends a widening gulf between Japanese products in Japan and Europe on the one hand, and in America on the other. That gulf could force Japanese carmakers to design more vehicles specifically for the U.S. market as they find that their lineup in Japan increasingly is inappropriate for American buyers, he says.

“The rise of small cars in Japan increases the importance of America even more,” Nestuk says. “That’s where they sell their larger cars and make their profits.”

Japan will build more in U.S.

The implication: The Japanese will have to design more for the U.S. market, which means more production in the United States and an expansion of Japanese plants there.

But unlike the small cars sold in the United States to keep the Big 3 in compliance with corporate average fuel economy rules, the small-car segment in Japan is not occupied by loss-leaders.

Nissan’s future minicar will be priced higher than the larger March, but substantial tax discounts for minicars will slash the transaction price below the March. Therefore, Nissan is confident it will be a profitable model.

Indeed, given that the development costs were “very low,” because Nissan did only minor changes to the interior of the Suzuki-designed car, the “profit should be significant,” Pelata said.

There is little concern that the Japanese market will swing away from small cars anytime soon. Next month, the Japanese government is expected to forecast that the economy in the fiscal year starting April 1 will contract in its worst showing since 1945.

WestLB’s Nestuk warned that those waiting for an upturn to boost big-car sales face such a long wait that anything could happen. Said Nestuk: “Seven or eight years from now, when the economy comes back, you’ll have good hybrids out there, and maybe fuel cells.”

You can reach James B. Treece at jtreece@crain.com

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