Daihatsu’s Little Struggle to Succeed : Automobiles: Export limits, minimal advertising and problems in the home market have slowed the Japanese mini-car’s progress in the U.S.
The ship came in last week, but it was months late and didn’t carry enough cargo to make much of an impact.
The cargo ship docked at the Port of Long Beach with about 250 new Daihatsu automobiles on board. It was the first shipment of 1991 passenger cars from Daihatsu Motor Co. of Osaka, Japan, to reach American shores.
That is only enough cars for the Japanese auto maker’s U.S. dealers to get about one new car apiece for their showrooms. And it comes five months after every other car company in the United States introduced its 1991 models.
In a fiercely competitive market where being first with the most is everything, tiny Daihatsu America Inc. in Los Alamitos is trying to keep its head above water while being last with the least.
Are we finally seeing a Japanese car company that isn’t doing everything right?
To be sure, there are problems. But company officials and industry analysts say they are not unexpected for a Japanese upstart entering the U.S. market.
Daihatsu’s Charade, its only U.S. passenger car, and Rocky, a sports utility vehicle, are considered to be well-built, high-quality vehicles. The Charade, with fuel consumption ratings of up to 42 miles per gallon and prices that will start at about $6,100 when it is available, should appeal to first-time and low-income buyers as well as families looking for commuter cars.
And recent surveys by J. D. Power & Associates, the Agoura Hills auto marketing consultants, show that Daihatsu buyers are more likely than just about any other car owners in the country to recommend the brand to others.
So Daihatsu American’s problems aren’t problems of ineptitude at the factory, industry observers say. Instead, the U.S. company has been held back by the timing of its debut in the midst of an economic slump, its small size and, most importantly, by economic and labor difficulties plaguing parent Daihatsu Motor Co. in Japan.
“All the small Japanese companies have the potential for problems” because of intense competition in Japan, said John Rettie, an analyst and editor of the California Report industry newsletter published by J. D. Power.
Japan is the only country left in the world that has nine manufacturers of mass-produced cars, he said, and all are vying for more market share at home and abroad. The competition tends to weaken the smaller companies, Rettie said.
Internationally, Daihatsu is helped by its broad market strategy--it sells cars in 130 nations and is particularly strong in Africa and in the Japanese mini-car market, where it outsells Mazda, Subaru and Isuzu. The company also is strengthened in the world market by its links to Toyota, which owns a 14% stake in Daihatsu Motor.
But Daihatsu, which ranks seventh of the nine Japanese car companies in terms of sales volume in Japan, is having its own problems at home right now and has not been focusing on its U.S. unit, Rettie said.
C. R. Brown, Daihatsu America’s executive vice president, chief operating officer and ranking non-Japanese official, acknowledges that his company, which made its U.S. debut in 1988, has had a lackluster three years. And while there is an expansion plan, it won’t come into play until at least 1993, so the next two years won’t be much better, Brown said.
At the top of the list of what Brown calls the “challenges” facing Daihatsu America is its lack of name recognition.
“People just don’t know who we are,” he said.
To help overcome its problems in establishing more than a tenuous toehold in the United States, Daihatsu America has launched a new ad campaign and is cutting prices on its 1991 cars. The new prices are expected to be announced within a month. The company also plans to begin expanding its limited lineup by 1993 and to strengthen its dealership network.
Daihatsu’s problems in the U.S. market have roots in Japan. Daihatsu has been held back by a small export allocation and hurt by delays in delivery of new models for the U.S market.
The company’s annual allocation of 17,000 cars was arbitrarily set by the Japanese Ministry of International Trade and Industry when Daihatsu announced in 1986 that it intended to break into the U.S. market. Other Japanese car companies’ allotments were based on actual sales figures, but because Daihatsu had no track record, it got a low total that wouldn’t take anything away from the Toyotas and Hondas, Brown said.
Problems that Daihatsu’s parent faces at home added to the shortage this year, he said.
A pair of new laws in Japan last year eliminated the tax incentive for purchasing mini-cars and wiped out an exemption that allowed mini-car owners to park their cars on the streets rather than in garages. The two measures destroyed the financial incentives that made mini-cars--which are measured by engine size--so popular in Japan.
The result: Daihatsu, which is primarily a mini-car maker, was forced to direct most of its efforts in the past year to redesigning its products for its home market.
In addition, a growing shortage of skilled labor in Japan has hobbled many manufacturing companies, Daihatsu included. And that caused the inordinate delay in shipping 1991 models to America.
Even in good times, Daihatsu’s annual import allocation doesn’t provide its U.S. dealer network with a huge inventory. It works out to an average of just 72 cars a year--six per month--for each dealer. The tiny allocation is a major reason almost all Daihatsu dealers carry the cars as a second or even a third line.
With the delay in introduction of the 1991 Charade, U.S. dealers have had to try to sell their remaining 1990 models to customers who resist buying last year’s cars except at fire-sale prices.
It has not been easy, said Tim Viau, a sales agent at Selman Chevrolet/Geo/Daihatsu in Orange. Selman has been selling its remaining 1990 Charades, “but we are not making any money on them,” Viau said.
Daihatsu’s limited product line is as critical as the delay in getting 1991 models into the country.
Until 1990, the company offered only one car, the Charade three-door hatchback. The four-passenger Charade now also comes as a four-door sedan. And the Rocky, a Jeep-like four-seat sports truck introduced last year, comes with a hard or soft top.
“Daihatsu shoppers have pretty much got to be sold before they even go to the dealership, because there is not much to shop for,” said George Peterson, president of AutoPacific Group Inc., a Santa Ana automotive consulting firm.
“It is a jewel-like little car that should be doing a lot better than it is,” he said. “But they need to expand the product line and to start advertising aggressively, which is tough because it is expensive.”
An expanded line also would help the company recruit exclusive dealers so the Daihatsu products stop taking a back seat to the dealers’ primary lines.
At Chevrolet/Geo/Daihatsu dealers like Selman, for example, the Charade competes with the top-of-the line Geo Metro and the Rocky competes with the Geo Tracker. And while General Motors offers first-time buyer incentives for Geos, there is no such assistance for Daihatsu buyers.
“We sell them to people who insist on an imported car, a car from Japan,” said Viau.
There still are a lot of car buyers who do insist on Japanese vehicles, and Daihatsu is banking on that as it attempts to bolster its image.
In its new ad campaign, carried in a few select magazines and on several national cable television channels--including CNN--Daihatsu calls itself the “new guy on the block” and admits that it is not a well-known name in America.
The campaign gets good marks from Jim Hillson, senior analyst at Phase One Research, a Los Angeles consulting firm that specializes in advertising analysis.
“Before this, Daihatsu ads were pretty nondescript,” he said.
“Now they are distinctive, sharply differentiating themselves from the big boys while stressing that they, too, are a Japanese car maker. That plays on the Japanese reputation for quality. And the ad also tells people it’s OK that they haven’t heard about Daihatsu before. I don’t know if it will sell cars, but it will increase the odds of people noticing the company.”
The odds would soar if Daihatsu could afford network television.
But the company’s 1991 advertising budget for the U.S. is only about $11 million, virtually unchanged from 1990, said Brown. That compares to $417 million Toyota spent last year. Mitsubishi Motor Sales of America, in Cypress, is spending about $150 million on U.S. advertising this year, and Fountain Valley-based Hyundai Motor America’s 1991 ad budget is $120 million.
But a broader advertising base won’t help Daihatsu America with its most pressing problems: It has almost no cars to sell now.
Brown initially complained about the small U.S. import allocation Daihatsu received. A mere 17,000 cars a year, he said back in 1988, just wasn’t enough. But in 1988, only 11,460 cars were sold.
In 1989, the company’s best year so far, it sold only 15,490 cars, all Charade hatchbacks. And in 1990, a poor year in the United States for most auto manufacturers and importers, Daihatsu’s passenger car sales plunged 31% to 10,630.
The company also sold 4,354 Rocky sports utility vehicles, which are not covered by the import quota because they are not classified as passenger cars.
Brown says the company’s 1990 sales were hurt by the recessionary economy and general slump in the U.S. auto market.
But what hurt far worse was the absence of new product from Japan when the model year changed in September. Dealers haven’t received any new Charades since October, he said.
In January, Daihatsu sold just 448 Charades in the U.S., down 68% from 1,402 Charades a year earlier. The shortage and resulting poor sales volume is a principal reason Daihatsu’s dealer satisfaction rating dropped below industry norms in the 1990 survey just completed by J. D. Power.
The annual survey measures dealers’ contentment with support and service from the factory. In 1989, when Daihatsu had cars, dealers rated it above average for the industry, Rettie said.
Still, Daihatsu officials in Japan aren’t despairing of their American venture. The company is determined to make a go of it in the U.S.
“Daihatsu Motor is willing to spend money on us for a sustained period,” Brown said. “After all, it has taken every Japanese import company at least five years to get established and get their heads above water in this market.”
Brown said his dealer development people have filed away almost 3,000 applications from car dealers across the country who want Daihatsu franchises.
But in the past year, the dealer network hasn’t grown at all.
Currently, the company’s dealers are clustered on the Pacific Coast, in the Sun Belt and in the Mid-Atlantic states. The heaviest concentration is in California, where 50 dealers--a fifth of the total--are located.
Ultimately, Daihatsu wants 750 dealerships throughout the country, he said.
That sounds like a fanciful goal for a company that so far hasn’t been able to sell its annual 17,000-car allotment, but Brown said he is confident that Daihatsu’s future plans will see the company through.
“It is going to be hard for them, but it is not too late to make it,” said Arvid Joupi, an auto industry analyst with Keane Securities in New York. “The way to do it in today’s market is to start by persuading your clientele that you give a damn about them and will give good service and treat them nice when they come into the showroom.”
