TOKYO - Month after month, Japan's recession-weary consumers have bought fewer and fewer cars. But retail shoppers are not the only problem. Corporate vehicles buyers also are keeping their wallets shut.
'Fleet sales are gradually declining because of the recession,' said Toyota Motor Corp. President Fujio Cho.
Honda Motor Co. President Hiroyuki Yoshino agreed.
'Customers are still worried. Unemployment is still rising and restructurings are continuing. Plus, companies aren't buying,' Yoshino said..
The numbers are harsh. Excluding minivehicles, those with engines smaller than 660cc, September vehicle sales in Japan dropped 8.8 percent. It was the 30th straight month of decline.
Moreover, the double whammy of poor sales at both the retail and fleet levels means that a recovery will be difficult. Automakers hope that the Tokyo Motor Show, which opens to the public on Saturday, Oct. 23, will boost shoppers' interest. But car shows rarely motivate fleet buyers to place new orders.
Carmakers, therefore, are re-thinking what will sell and who will buy in a car-buying recession. Analysts say it will end no earlier than next summer and could last another year.
Their conclusion: The smallest cars, those with engines of 1.0 or 1.3 liters and below, will continue to sell well to value-conscious buyers. But executive sedans will be slow movers. Overall, carmakers will have to keep investments small and shrewd if they want to stay in the black.
WORKERS ARE GUN-SHY
The reasons for consumers' lack of confidence are well known. Japan's unemployment rate eased to 4.7 percent in August from a record 4.9 percent in July, but that was still high. If measured by U.S. methods, it would probably be twice that. Many workers are gun-shy about buying a big-ticket item like a car, lest they get laid off.
Workers also are worried about their pension plans and so are more inclined to save than to spend. Across Japan, the pension plans of about 25 large companies are at least 40 percent underfunded, and 14 small-company pension plans failed last year, according to David Roche, chief economist at the economic consulting firm Independent Strategy, in an opinion piece in the Asian Wall Street Journal.
The grimmest indicator of consumer sentiment, however, is the suicide count. In 1998, more than 30,000 persons committed suicide, up 35 percent from 1997. Problems at work were the main reason. By age bracket, the greatest rises were among those in their fifties and sixties. Nowadays in Tokyo, when a late arrival for a meeting says he was delayed by a stoppage on the Chuo train line, the response is likely to be a jaded, 'What, another suicide?'
How bad is consumer confidence? A poll conducted in 10 countries by American Express Co. in July found that Japanese consumers were the least optimistic about their financial outlook for the coming year, while American consumers were the most optimistic.
CONFIDENCE IS LOW
Only 4 percent of Japanese consumers expected their household finances to improve during the next 12 months, while 27 percent thought their finances will get worse. In the United States, the respective figures were 48 percent and 5 percent. Business sentiment is just as bad.
The latest Tankan, a quarterly Bank of Japan survey of business sentiment improved - if you can call it that. The September diffusion index jumped 15 points, the largest surge in 12 years, to minus 22 from minus 37 in June.
The index is calculated by subtracting the percentage of companies that believe business conditions are bad from those that see conditions improving. So the latest negative reading means pessimistic firms still sharply outnumber optimistic firms. Companies across Japan are restructuring as they attempt to improve balance sheets that have been ravaged by a decade-long economic slump.
Japan still is suffering from the aftereffects of its investment binge of the 1980s, when companies, including carmakers, built as if exports would never taper off and the home market would grow forever.
'A correction of Japan's over-investment and overemployment is the cause of the current recession,' said Tadashi Nakamae, head of Nakamae International Economic Research.
His figures show that Japan's capital investment is dropping about 20 percent a year. If that continues, by mid-2000 'we'll see the end of the overinvestment adjustment,' he said.
But until then, fleet purchases of trucks and cars will continue to fall, as large and small companies reduce their vehicle inventories.
FLEETS SALES DRY UP
Figures on the exact size of the fleet, or corporate-user, market in Japan are hard to come by.
The Japan Automobile Dealers Association reported that about 3 percent of the vehicles sold in August were registered with company-issue green license plates. But that does not include rent-a-car fleets, the lease fleets that provide chauffeured limousines to Corporate Japan and most delivery vans.
A better gauge is carmakers' desire to serve the corporate market. All major carmakers build special models for the business market. For example, the rear passenger windows of the Honda Partner, based on the Orthia station wagon, are more squared-off to meet the regulations for a corporate delivery vehicle. Similar fleet-exclusive models are the Mazda Familia Van, the Nissan AD Van and the Toyota Corolla Van.
The impact of the fleets' closed purse strings is evident in the current sales dichotomy.
Sales of low-priced minivehicles have surged every month since October 1998. The Toyota Vitz, with a slightly larger engine but priced to compete against mini-cars, has roared off this year to the fastest sales start of any vehicle in Toyota history. At the top end, such high-priced autos as Honda's S2000 sports car and Nissan Motor Co.'s Cedric/Gloria twins are selling well.
But sales have stopped in the core of the market, the mid-sized sedans that are favored as company cars, said Stephen Usher, senior analyst at the Tokyo branch of Jardine Fleming Securities (Asia) Ltd.
That split will continue, argued Greg Ornatowski, Japan auto analyst at Standard & Poor's DRI Global Automotive Group. He predicted that small-car sales, the so-called A and B segments comprising models with engines smaller than 1.0 liter, will peak this year and next at 43 percent of total Japan car sales. That would be up from only 23 percent in 1990. Their share will start to ease in 2001, slipping to 40 percent by 2004, he said.
In the current market, Honda's tagline of '`Small is smart' is not the right slogan,' said William Nestuk, Tokyo-based auto analyst for WestLB Securities Pacific Ltd. 'Cheap is smart.'
For foreign carmakers, Japan's sluggish retail and fleet markets carry indirect implications.
If weak sales were due solely to consumers' unwillingness to buy, Japanese carmakers might try to lure them with cut-rate deals and other incentives. To some extent, that is happening.
Fleet buyers, however, are driven by corporate budget cuts more than by sweet deals. Japanese carmakers, therefore, haven't tried as hard to lure those buyers by slashing prices. That has limited the ferocity of the incentives war in Japan and has kept importers from getting caught in the crossfire.
TOUGH FOR IMPORTS
Still, it won't be an easy market for importers. Martin Biswurm, marketing general manager for Volkswagen Group Japan K.K., said that European makers build cars in that size, but not necessarily to Japanese tastes. European carmakers often cut prices at the lower end by decontenting their models. But Japanese buyers are used to a high level of content at all price points.
While Volkswagen has nurtured its VW and Audi brands in Japan, it has never tried to bring in its Seat or Skoda cars.
In response to the soft market for chauffeur-driven cars, Toyota's newest Crown series has added a less-staid Crown Athlete version aimed at owner-drivers, instead of the Crown's traditional owner-rider customers.
It wasn't alone in shifting direction. 'Nissan gave up on the limo market,' asserted Toyota spokes-man Shin Kanada, citing the tapered roofline of the Cedric/Gloria that limits headroom in the rear seat.
Still, pursuing new niches and moving away from fleet buyers won't be enough to save the industry from weak sales. So automakers are trimming their investment as well.
Toyota kept the Vitz profitable by reducing parts costs, but the main saving came from re-using factory equipment from prior models, thus slashing machinery costs.
Indeed, in the first six months of this year, automakers slashed their orders for industrial robots 21.6 percent from the year-earlier period. That was much more than an overall 14.7 percent drop in all orders received, according to the Japan Robot Association.
Of course, that probably didn't encourage many robot-making firms to raise their car and truck fleet orders.