Domestic Challenges for Japan's Automotive Industry

The blog name “Tsurezuregusa” is the title of a Japanese book written in the form of jottings and notes of the thoughts of a retired courtier in the 14th century. Donald Keene translated this as “Essays in Idleness”.

From my long absence you may deduce either an excess or a lack of idleness.

This month I’d like to share a few mental jottings and notes on some of challenges to the Japanese automotive industry which are less-visible from outside Japan. Whilst many of us are aware of the global-scale challenges such as maintaining technical competitiveness, managing global expansion and creating strategies for diverse markets, there are some interesting challenges on the home-front as well.

Currently, a much-talked-about point is the decline in new vehicle registrations. Although not yet a serious concern, there is potential trouble ahead. The general attitude of car buyers is not positive.

A big factor is the reliable and relatively inexpensive rail transport infrastructure. People in cities have less need for a car. It is also expensive for them to keep one due to the high cost of renting a parking space. This situation will be exacerbated by the aging of the population. A likely scenario is fewer young people buying cars and older people ceasing to use them.

In addition, there is the widely held view that cars are not an enjoyable form of transport. Anyone who has driven in Japan will understand this view. I am sure that Japan’s roads have more traffic signals per kilometre than any other country, slowing journeys even in the countryside. Many are narrow and offer few areas for pedestrians to walk. Electric cables are not buried and the poles carrying them protrude into the driving area. Water drains are open and a hazard for motorists. On top of all these factors, Japanese cyclists and pedestrians are always assumed to be in the right in the event of a collision and seem to draw a conviction of immortality from this. Motorists have to be constantly on the lookout for people ignoring the rules of common sense and popping up in absurd places.

Another factor affecting sales is the heavy burden of taxation and inspection. A recent attempt to repeal the “temporary” petrol (gasoline) tax – in its 30th year – was repelled by entrenched, vested interests. The cost of the regular “shaken” vehicle inspections is a significant burden on owners and the high tolls for using expressways are also stubbornly resistant to reduction. Help in reducing these disincentives to car sales seems unlikely to come from political circles.

Why should a decline in domestic sales matter though, as long as exports and overseas production are strong? Well, one problem is the source of profits and the location of manufacturing and development. Japanese vehicle makers make over 50% of their profits in N. America. A significant part of sales to the USA (over 40%) comes from cars produced in Japan. Nearly 6 million vehicles per year are produced in Japan for the domestic market – this is close to the entire production volume of Germany. Another 6 million are produced in Japan for export. A reduction in the lower-profit domestic sales might well translate into reduced economy of scale on export models. Development costs, investment and overhead will be spread over smaller volumes with a consequent reduction in competitiveness.

Another problem could be the decline in the influence of the world’s most-demanding consumers on quality standards and new model introduction rates. Will Japanese manufacturers be able to maintain their standards in laxer markets?

The Japanese vehicle industry has globalised rapidly, but the effect of the home base should not be underestimated.

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