Daihatsu Is Off to a Rough Start in U.S. Market : Auto sales: The Los Alamitos-based distribution arm is hampered by difficulties in Japan and an identity problem here. But officials have faith that their strategy will pay off.

The ship came in last week, but it was months late and didn’t carry enough cargo to make much of an impact.

The 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 making its entry into the U.S. market. While it will be a rough road, the company says it will forge ahead.

Diahatsu’s Charade, its only U.S. passenger car, and the Rocky, a sports truck, are considered to be well-built, high-quality vehicles. The Charade, with fuel-consumption ratings of up to 42 miles a gallon and prices that 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 important, 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. It is a competition that 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 is also strengthened in the world market by its links to Toyota, which owns a 14% stake in Daihatsu Motor.

But Daihatsu, which ranks seventh among 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 at least until 1993, so the next two years won’t be much better than the past three, 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 the problems it faces in establishing something 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 when they start arriving en masse. The new prices are expected to be announced late this month or early in March. The company also plans to begin expanding its limited lineup by 1993 and strengthening its dealership network.

Daihatsu’s immediate problems in the U.S. market have its roots in Japan. Daihatsu has been held back by a small annual import allocation and hurt by delays in delivery of new models from Japan 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 the company announced in 1986 that it intended to break into the U.S. market. Other Japanese car companies’ allotments were established 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.

Two 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 the home market.

“Daihatsu had to redirect its energies to the Japanese market, so they put product development for the U.S. and other markets on hold,” Brown said.

In addition, a growing skilled-labor shortage in Japan has hobbled many manufacturing companies, Daihatsu included. And that has resulted in the inordinate delay in shipping 1991 models to the United States.

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.

But with the delay in introduction of the 1991 Charade, U.S. dealers have been stuck with trying to sell the handful of 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. Car buyers often look down their noses at the pervious year’s model, even though there may have been no changes made. 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 comes as a four-door sedan too. And the Rocky, a Jeep-like four-seat sports truck introduced early last year, comes as a hardtop or a soft top.

But that’s it. No luxury car, no pickup truck, no van, no five-passenger sedan, no sporty coupe.

“Daihatsu shoppers have pretty much got to be sold before they even go the 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 would also help the company recruit exclusive dealers so the Diahatsu products stop taking back seat to the dealers’ preliminary 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 the Geo line, there is no such assistance for Daihatsu buyers.

“We sell them to people who insist on an imported car, a car from Japan,” Viau said.

There are still 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, which everyone seems to be watching these days because of its coverage of the Persian Gulf War--Daihatsu calls itself the “new guy on the block” and admits that it is not a widely known name in America.

The ads say that while Daihatsu’s “humongous” competitors are “busy making zillions of cars,” Daihatsu figures “that it’s not how many cars and 4x4s we make that counts--it’s how we make them.”

The campaign gets good marks from Jim Hillson, senior analyst of Phase One Research, a Los Angeles consulting firm that specializes in advertising analysis.

“Before this, Daihatsu ads were pretty nondescript . . . standard shots of cars on the road with vague words about some awards they’d won,” 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 United States is only about $11 million, virtually unchanged from 1990, Brown said. 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.

Brown said Daihatsu’s advertising strategy works on one level because its gives the company national exposure for 40% less than buying network time.

The national exposure helps Daihatsu build name recognition before it expands into the Midwest and Northeast.

“We get 500 calls a month from people in New York and Pennsylvania,” Brown said. “We don’t have any dealers there, but they saw the ad on cable.”

But people have to pay to bring cable television into their homes, and that is not the demographic group at which that the low-cost Daihatsu is aimed.

“We find that a lot of our potential customers don’t see the ads because they are in the lower-income brackets and don’t have cable,” Brown said.

But a broader advertising base won’t help Daihatsu America’s most pressing problem--it has almost no cars to sell right now. And the cars it has do not offer much of a selection.

Brown said that an expansion will come, perhaps as early as 1993. Daihatsu currently has two other models on sale in Japan--the Lisa, which is smaller than the Charade, and the Applause, which is slightly larger.

“Whatever makes it here probably won’t be exactly one of those models, but a derivative,” Brown said. He said he also expects that, eventually, a pickup truck and van as well as other passenger cars will be added to the U.S. line.

But first, Daihatsu has to sell the cars it now offers.

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 1989, the company’s best year so far, it sold only 15,490 cars, all Charade hatchbacks. Only 11,460 cars were sold in 1988.

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 units from 15,409 in 1989. The company also sold 4,354 Rocky sports trucks, 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 United States, down 68% from 1,402 Charades a year earlier. That shortage and the 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 the support and service they get from the factory. In 1989, when Daihatsu had cars, dealers rated it above average for the industry, Rettie said.

The first 1991 models now are expected to be shipped to dealers late this week, but it will be mid-March before dealers have enough stock to support local advertising campaigns, Brown said.

“We are caught in a dilemma,” he said. “If we spend enough to break through the clutter of 30 different brands of cars (sold in the United States) and get Daihatsu recognized, there is no way we can support the investment when we are limited to bringing in just 17,000 cars a year. And without the awareness, we can’t sell even 17,000 cars.”

Still, Daihatsu officials in Japan aren’t despairing of their American venture. The company, seventh-largest of the nine Japanese mass producers, is determined to make a go of it in the United States.

“It is costing money to launch us,” Brown said. “But we are well within the limits set down in the corporate business plan. Daihatsu Motor is willing to spend money on us for a sustained period. 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 claims that 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 company’s dealer network hasn’t grown at all.

Most of the dealers carry Daihatsu as a secondary product and a lot of adjusting goes on each year as they try to fine-tune their product lines, especially in a recession. So Daihatsu dealers change more frequently than Brown would like.

In Orange County, for example, the company currently has only two dealers--down from seven a year ago. But Brown said he is about to sign two or three more new dealers in the county.

Only one of the five dealers that no longer sell Daihatsu were dissatisfied with the brand, Brown says. The others--including one of Daihatsu’s rare exclusive locations--went out of business, victims of the recession.

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.

“But we have voids all through the network because of some recent attrition,” Brown said. “And we haven’t been aggressively selling dealerships until we get product.”

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 even 17,000 cars a year, but Brown said he is confident that Daihatsu’s plans for the future will see the company through.

“In some respects, being slow has been better for us,” he said. “We are geting all the kinks out of our support system and our cars before we flood the country with them. So we won’t have a huge number of problems out there to haunt us when we do expand.”

While that smacks of a bid to put a bright face on a gloomy picture, it is not a bad strategy, said Arvid Joupi, an auto industry analyst with Keane Securities in New York.

“It is going to be hard for them, but it is not too late to make it,” he said. “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.”

DAIHATSU STRUGGLES TO GAIN FOOTHOLD IN U.S. MARKET

Room For Expansion: Daihatsu has 235 dealerships in 26 states, concentrated along the Pacific Coast, the Sun Belt and Mid-Atlantic states. The company is hoping to expand its dealer network to 750 in all 50 states.

Annual Sales 1988: 11,460 3-door Charade hatchback ‘89: 15,409 3-door Charade hatchback ‘90: 14,984 - 7,048 3-door Charade hatchback, 3,582 4-door Charade sedan, 4,354 4x4 Rocky sport utility Note: 3-door hatchback sales were lower than in 1989 due to limited availability of the 3-door hatchback in 1990, including a six-month delay in public announcement for the 1991 model Charade.

Southland Dealers: Number of dealers in each county Los Angeles: 11 San Diego: 6 Orange: 2 San Bernardino: 4 Riverside: 3 Source: Daihatsu America