Market Newsletter : Japan’s European Roadblocks : In a bid to play catch-up, EC nations are keeping a tight lid on Japanese car volume.
U.S. and European car makers have a common enemy that goes by various names: Nissan, Toyota and Honda, to name the biggest. And Europe, mimicking the United States, is testing the theory that the best defense is to block the invader at the borders.
Customs duties--10% in Europe, 2.5% in the United States--don’t work. So efficient are Japan’s car makers that even 10% duties do not prevent them from underselling their European rivals.
In the United States, General Motors, Ford and Chrysler are considering whether to formally charge Japanese car makers (and European ones too) with “dumping” their cars at below cost in an unfair effort to build market share. Such charges, if supported by the Clinton Administration, could lead to higher duties on Japanese imports.
The 12-nation European Community, meanwhile, has persuaded the Japanese to limit their imports to a figure to be negotiated annually. Last year, the first covered by the agreement, Japanese cars (including those assembled in Europe) captured 11.8% of the European market. They could have done a lot better--their share of the U.S. market last year was 30.1% despite a limit on direct imports from Japan.
If the EC opened its borders wide, analysts here estimate, the Japanese auto makers might take 20% to 25% of this market. But that won’t happen until the year 2000, at the earliest, since the voluntary restraint agreement between the two is set to run through 1999.
Until then, the Japanese will be crying--all the way to the bank. By limiting their exports, they can concentrate on selling their high-priced, high-profit models in the gigantic European market. “I would call it a plot,” said Peter Schmidt, an analyst for the British consultants Auto Industry Data Ltd.
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In theory, the restraints through the 1990s should give European car makers time to catch up with their Japanese rivals. They have a long way to go: A Massachusetts Institute of Technology study showed that Japanese car plants, with superior automation and younger and better-trained workers, are twice as efficient as European plants.
European car makers needed an average of 35.3 worker hours to assemble an automobile in 1989, according to that study, compared with 16.8 worker hours for the Japanese.
“The Japanese simply make a better car, and for less money,” said John Longhurst, an auto analyst with the James Capel brokerage house in London. “The European car makers are going to have to move fast.”
While the limits on Japanese cars remain in place, they will mean bad news for European consumers. With their supply held artificially low, Japanese cars are generally more expensive in Europe than in the United States.
A survey last year by the European Consumers’ Organization found that the top-of-the-line Honda Civic hatchback cost between $14,000 and $18,300 before taxes in nine of the 12 EC countries it surveyed. Only Denmark was lower--$10,600, but the government charges a 25% value-added tax and a 180% new-car registration tax. The manufacturer’s suggested retail price for the same car in the United States was $12,200.
The high cost of Japanese cars also gives European car makers room to charge more for what they produce. A 1992 EC study found disparities in car prices, with the highest typically in Italy and Spain--two of the countries that had their own limits on Japanese cars.
The Japanese also limit their exports to the United States, but the annual ceiling does not pinch hard because the Japanese manufacture so many cars--nearly one out of five--in America. Last year, the Japanese actually exported 300,000 fewer cars to the United States than the 1.65-million ceiling.
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The 1993 target for Japanese car sales in the EC countries has not yet been established. Officials from the EC and Japan’s Ministry of Trade and Industry plan to closet themselves sometime this month to settle on a figure.
Predictably, EC officials will argue that the European car market will shrink in 1993 and that to cushion the blow for European car makers, the Japanese should cut back their market share from last year’s level. That’s what happened last year. Japan took 12.3% of the EC market in 1991, and EC negotiators, forecasting a soft car market ahead, prevailed on the Japanese to reduce their sales in 1992. As it turned out, Western Europeans bought just about as many cars in 1992--13.5 million--as they had the year before.
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The EC limits on Japanese cars apply only to imports, not to cars built in Japanese plants in Europe. To some European car makers--notably Jacques Calvet, president of France’s Peugeot, that is a fatal flaw. He says Europe should open up to Japan only when Japan opens up to European imports.
But in practice, increasing output from these Europe-based plants--so-called transplants--will almost surely mean declining imports from Japan. The Japanese know that if they bite off too big a piece of the European market, the EC can knock their teeth out by blocking their imports or closing those plants.
The Japanese started building car plants in Europe several years after they got going in the United States. The first Japanese plant in the United States--the Honda plant in Marysville, Ohio--began producing cars in 1982. By last year, there were seven such plants, and they produced nearly 1.2 million cars.
Japan’s first car plant in Europe, a Nissan facility in Britain, went into production in 1988. By 1991, according to Auto Industry Data, about 185,000 Japanese cars were made in Europe. Nissan and Honda led the way; Toyota began European production in December. Together, Schmidt expects them to turn out nearly 2 million cars in Europe in 1999.
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Until this year, five EC countries had their own quotas on Japanese cars. France and Italy held Japanese car sales to about 3% of their markets. Spain (where the Japanese market share last year was 7%), Britain (12%) and Portugal (16%) also explicitly limited imports from Japan. Analysts believe Japan agreed informally to limit its share of the German market to about 13%.
As of Jan. 1, those national limits were supposed to disappear. That was when much of the EC’s single-market program was to take effect, eliminating barriers to the movement of goods across internal EC national borders. In fact, however, British officials admit that they plan to continue limiting Japanese imports through next year. And the Japanese know that if they flood the French and Italian markets, the locals could react by closing their markets altogether. Takayuki Imajo, of the Japan Automobile Manufacturers Assn., said France and Italy need not worry. “Our manufacturers have agreed to behave themselves,” he said.
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Owning a Japanese car dealership can be frustrating in a country such as France, which sharply limits the number of cars dealers may sell.
“The imposition of quotas gives our cars the look of forbidden fruit,” said Michel Barbier, director of a Paris dealership that is allowed to sell 800 Hondas a year.
Philippe Thibaut, a Toyota dealer in Paris, gets an annual ration of 120 cars from Toyota Europe. He loses some customers who are unwilling to wait--up to three months--to get a car. But as the economy softens and the unemployment rate edges above 10%, the ration is less of a constraint. “I’m not sure we could sell so many more cars,” he said. “The demand is not really there.”
No V-r-room Room
Government limits on Japanese car sales have meant bad news for European consumers. Because of the restraints, prices of Japanese cars vary widely, depending on the market share and the supply. The figures for the market share are from the first half of 1992 and include both imports and Japansese cars that are made in Europe.
Price of Most popular Japanese Honda Civic Toyota model market share Ireland $14,000 Corolla 43.7% Denmark 10,600 Carina 38.5 Greece -- Corolla 36.4 Netherlands 14,200 Corolla 27.6 Belgium 15,400 Corolla 21.2 Luxembourg 15,400 -- 16.6 Germany 15,500 Corolla 13.3 Britain 16,300 Carina 11.6 Spain -- Celica 7.2 France 16,400 Carina 3.7 Italy 18,300 Celica 3.6
Sources: European Automobile Manufacturers Assn.; European Consumers’ Organization; Toyota Europe.
