Germans Taking the Inside Track in Car Sales to Japan
The Japanese car market, widely perceived to be “closed” to imported models, nonetheless absorbed a record number of foreign cars last year. But it was the Germans, not the Americans, who mostly drove their models through the doors.
Imports’ share of the Japanese auto market--excluding “midget” cars with engine displacements of less than 660 cubic centimeters--climbed to 5.1% in 1990, with large, luxury models leading the way. And analysts are talking about foreign cars, which held a share of only 1.2% in 1983, capturing a 10% chunk within five years.
All signs, however, point to Detroit’s Big Three--General Motors, Ford Motor and Chrysler--biting off but a small nibble of the expected expansion.
Although American auto sales here last year increased 49.9%, most of the spurt was provided by Japanese firms with factories in the United States. For the first time, the Japanese “transplants” outsold the Big Three in Japan. While Big Three sales gained 18.4%, the transplants soared 86.2%.
Germany, England, France and Sweden outstripped the Big Three. Kia Motors of South Korea, which never sold a car in Japan until 1988, did better than Chrysler. And one American car--the Ford Probe--won the dubious distinction of being the only foreign model to suffer a decline.
Until 1971, American cars topped the infinitesimal list of imports during the era of Japanese protectionism. But now--with 1990 sales of more than 10 times the Big Three--”we (Germans) are too far ahead of the Americans for them to catch up” in Japan, said Hans-Peter Sonnenborn, president of BMW Japan Corp.
German makers left Detroit in the dust because American makers, content with their large domestic market, don’t produce models that meet the needs of Japanese consumers, Sonnenborn said.
“For any German maker, and especially for BMW, which exports 60% to 65% of the cars it produces, we must tailor our cars to other markets,” he said.
Although American auto executives such as Chrysler Chairman Lee A. Iacocca continue to complain that Japan’s auto market remains closed, “we believe it is widely opened,” Sonnenborn said.
Indeed, government barriers, including tariffs, have disappeared. Consumer preferences have broadened, and a traditional stigma against ostentation has disappeared.
“It is now socially acceptable to drive a luxury car,” Sonnenborn said.
Higher interest rates, declining values of assets in stock and real estate and uncertainties about the Persian Gulf War have blunted the spectacular growth of 32.6% in import sales that prevailed until last August.
But foreign auto makers still expect growth this year because the cars that most export to Japan fall into the fastest-growing segment of the market--large, luxury models with engine displacements of 2,000 cubic centimeters or more.
BMW forecasts a 9.5% increase in its 1990 sales, while Volvo predicts a 39% gain and GM expects a 17% rise. Chrysler hopes to triple its sales.
Ford Japan, however, hasn’t set a goal because of growing economic uncertainties, according to Hiroo Tanabe, external affairs director.
“Sales in the (market) segment in which the Probe competes declined from 1989 as Japanese buyers shifted to luxury models, such as the Lincoln Continental,” he said.
The luxury segment, which is far smaller than in the American or German markets, “is just beginning to develop here. The Japanese consumer has started to like high-class, luxury products, and this trend will continue,” Sonnenborn said.
The cheapest BMW model in Japan sells for 3.4 million yen ($26,153) and even Japanese with an annual income of 5 million yen ($38,461) buy it, Sonnenborn said.
“Japanese live in an affluent environment. Even if an individual doesn’t have all that much money, sometimes his parents do. And then there is the value of the land he may own,” he said.
Doctors, dentists and gangsters used to be the main customers of foreign auto makers, but now owners of small enterprises have become the chief targets of foreign auto salesmen, the German executive said. BMW’s average Japanese customer earns about $77,000 a year, he added.
“In five years, the luxury car segment (now 11%) could grow to 15% to 20% of the total market,” said Osamu Tanegashima, BMW Japan’s operations director.
Analysts predict that imports alone could double their share of the non-midget market in five years. Reijiro Kuromizu, a director of Mitsubishi Motors in charge of international business, was even more bullish. He said importers could expand their share to 15% within five years.
Last year, such a percentage would have amounted to 646,000 cars. That would be a whopping figure compared to the nadir of 35,286 in 1983 but still a faint shadow against a background of Japan’s 1990 exports: 5,831,555 motor vehicles, including 4,482,274 passenger cars.
Competition among European makers as well as Japanese firms with new entries in the luxury market will get tougher, Sonnenborn predicted.
Yoji Hamawaki, BMW Japan’s chairman, described as “a cloud on the horizon” fears that Japanese competitors in the luxury market might launch pricing wars if the foreign chunk of their market climbs to 10%.
“If the market keeps growing, no one will be concerned about the import share. But if the total market is leveling off, 10% would be a big share. I’m not so sure that Japanese auto makers would be so generous as to allow that to happen,” Hamawaki said.
Already, Sonnenborn said, Toyota and Nissan are “sacrificing profit” to hold down their luxury model prices and “be successful in the United States. They need success in the American market to get a spillover effect in Europe.”
Staggering land prices, a shortage of labor, refusal of established dealers to handle foreign cars and a “mentality barrier” of young Japanese who want to work for large, well-established Japanese firms--not foreign companies--still leave a lot of obstacles for foreign auto makers to overcome, Sonnenborn said.
Moreover, a different marketing approach must be taken to sell in Japan, the German executive said.
“Japanese customers look for perfection. Americans look for a better discount,” Sonnenborn said. “You can’t find a dirty car on the road here. In America, cars are not only dirty. More and more rusty cars than ever are on the roads.”
German consumers resemble the Japanese, he added. They demand technical perfection in a car’s performance, he said.
Sonnenborn attributed BMW’s success--a 10-fold increase in unit sales in 10 years and a 1990 turnover of $1.4 billion--to its insistence on establishing an independent network of exclusive dealers.
BMW demands that dealers--whose ranks have expanded to 75 with 122 outlets stretching from Hokkaido in the north to Kagoshima in the south--set up full-service capabilities and used-car sales to ensure customer satisfaction.
Entrepreneurs who have never sold an auto but have been successful in other lines of business have signed up, Tanegashima said.
The lure is simple, Sonnenborn added. Like anybody else, he said, “Japanese like to make money.”
SELLING CARS TO JAPAN
Passenger car imports to Japan by company in 1990.
COMPANY Total % Increase Volkswagen Group (Germany) 53,461 9.1 Mercedes Benz (Germany) 38,844 10.4 BMW (Germany) 36,527 10.4 Rover Group (England) 14,431 35.4 Peugeot (France) 11,531 35.8 Volvo (Sweden) 10,915 53.3 General Motors (U.S.) 8,513 17.7 Honda (U.S.) 7,534 60.4 Fiat (Italy) 5,485 29.3 Porsche (Germany) 4,589 12.4
Passenger car imports to Japan by country of origin in 1990.
COUNTRY Total % Increase Germany 137,442 14.3 United States 28,602 49.9 Big 3 subtotal 13,338 18.4 Japan transplants 15,264 86.2 England 19,653 35.3 France 14,018 33.7 Sweden 13,704 40.5 Italy 5,933 30.0 South Korea 1,623 64.3 Australia 213 82.2 Other countries 518 8.6 TOTAL 221,706 22.9
Source: Japan Automobile Importers Assn.
