California Can’t Seem to Get Fill of Japanese Cars : Despite End of Quotas, Shortages and High Prices May Continue

After driving down the San Diego Freeway at rush hour, you might be hard pressed to say where they could put any more Hondas or Toyotas in Southern California.

Already, one out of every five Japanese cars sold in America is on the road in California, and the Japanese sell more cars in the state today than the West German importers sell in the entire country. The Los Angeles area alone accounts for 14% of all of Toyota’s car sales in the United States.

But don’t worry. They’ll figure out a place to put some more. They have to. Despite the flood of imports into California over the years, new Japanese cars remain scarce in dealer showrooms in the state, and they continue to command price premiums in California that are generally higher than what consumers are paying in the rest of the country.

“The market for imports in California has definitely not been saturated,” Robert McCurry, senior vice president for Toyota’s U.S. sales arm, notes with understatement.

So the Japanese are getting ready once again to oblige their hungry army of California customers. With formal import quotas effectively lifted since April 1, Japan has announced it will increase exports of passenger cars to the United States by nearly 25% over the next year, from 1.85 million to 2.3 million units.

Greater Market Share

It’s still not clear exactly how many of those extra cars will be sold in California. But most industry executives believe that California will get enough to push the import market share in the state, where domestic cars have experienced a modest revival since quotas were imposed four years ago, back up over the 50% mark for the first time since 1982. “I think in the next year or two, the import share in the state could rise to 55%,” from last year’s 46% level, McCurry says. The import share of the California market already is roughly double the national average.

And he notes that his dealers still can’t get enough cars. “Our dealers in California are turning over 85% to 90% of their monthly inventory, so at the end of every month they only have two or three days’ supply of cars left,” he says. McCurry is confident they won’t have any trouble selling everything they get their hands on from Japan, and his dealers agree.

“It’s all a matter of availability,” says Richard Drain, owner of a Toyota dealership in Pasadena. “If we have the cars, we can increase Toyota’s share in California.”

That, of course, worries domestic industry executives, who have targeted California for special marketing programs over the last few years in an effort to recapture many of the customers they lost to the Japanese in the 1970s.

“Removing the import restraints is going to make it that much more difficult for us to make gains in California,” concedes John Dabels, a marketing official with General Motors’ Buick Division who is conducting a special study of the California market for Buick.

Won’t Ease Situation

But few industry executives or car dealers in California expect the extra imports to completely eliminate shortages of popular Japanese cars or to bring about significant price reductions on showroom floors over the next six to 12 months. Inventories of unsold cars among import dealers in California are so low that supplies will remain tight even with the additional shipments, officials warn.

“I don’t think prices will come down at all,” says Scott Young, whose family owns Chevrolet and Mazda dealerships in North Hollywood. “You may not see as many price increases as you have recently, but you are not going to see prices actually coming down.”

“I think (with) your Hondas, your Toyotas, and your Nissans, people are just going to keep buying them, and I don’t think there will be any effect on prices from the increased shipments,” adds Bill Kouri, sales manager of Frahm Honda in Downey.

At the same time, the bulk of the extra cars apparently will be allocated by the Japanese government to the smaller Japanese firms that don’t yet have much of a presence in the United States, as well as to General Motors and Chrysler, which sell Japanese-built cars through their domestic dealerships. According to Japanese press reports, Toyota and Nissan will each be given increases of just 12.5%, while Honda will get another 15.1%. But Mazda, Subaru and the rest of the small Japanese firms-- including those that supply GM and Chrysler--have been granted huge increases.

Further Shortages

So Toyota, Nissan and Honda-- which account for most of the Japanese car dealerships in California--may continue to face shortages in the state.

“I frankly don’t think the availability in California will be enough in the next six months to eliminate dealer premiums on hot cars,” says Chuck King, Nissan’s senior vice president for sales. “The immediate result of the increased imports will be a little better availability, but I don’t see prices declining in the near future, and I definitely don’t see a price war developing in California.”

With supply problems continuing for the big Japanese franchises, GM’s Chevrolet Division, which will get all of GM’s new import allocation, may be a tougher competitor in the state. In 1984, Chevrolet took over second place in total car sales in California behind Ford Motor Co.’s Ford Division while Toyota slipped to third, and Chevy’s extra imports could put it over the top. “I think Chevrolet could pose a bigger threat to our position of leadership than Toyota,” says Don Shultz, Ford’s Western regional sales manager.

Another reason some industry observers don’t think prices will come down in the state is that they believe the Japanese might spread the bulk of their extra cars throughout the rest of the country, where their market penetration is much lower than in California.

Import officials--including those from the smaller Japanese firms that will receive relatively large allocations this year--also say they have no plans to add many more new dealers in the state, preferring instead to ensure adequate supplies for their existing dealers before they expand. That could further limit price competition.

Would Have Revolt

“We would have a revolt from our current dealers if we expanded our franchise network without first having an adequate supply of cars for the dealers we already have,” says Mike Nash, vice president for U.S. marketing services for Mitsubishi.

But wary domestic industry officials aren’t convinced that the Japanese won’t mount a big campaign in the state, especially if the South Korean auto makers planning to enter the United States in the coming year challenge their dominance in the small-car market in California. The domestic officials say they are now monitoring the activities of the Japanese companies in California to determine whether they will be forced to expand their advertising and marketing programs to keep up with an aggressive, post-quota push by the Japanese in California.

“I can’t say what is going to happen in California because I don’t know whether the Japanese are going to ship more cars to California or emphasize the rest of the country,” says Pat Smorra, general sales manager in Chrysler’s California marketing office. “They’ve already got nearly 30% of their shipments concentrated in the state. Do they want to add to that or spread it out? Provided the Japanese don’t dump all their cars in California, we should continue to make gains here.”

But he adds cautiously that he has heard through the advertising industry grapevine that several Japanese companies--including Nissan, Toyota and Isuzu--have increased their marketing budgets for California in recent weeks, and he says Chrysler might follow suit.

Nash of Mitsubishi adds that California will still get a lot of attention from the Japanese, even if it doesn’t get all of the extra imports.

“What’s going to make California the battleground is that the Japanese are big here and aren’t going to give this market up, and the domestics are all fighting hard to do better in California,” Nash says. “And I don’t see any of that changing.”