We were recently researching on the Japanese car industry and were fascinated by it. We thought that it is necessary to share on how a developed country’s Automobile Industry has shaped over years and where it stands right now. The automotive industry in Japan is one of the most prominent and largest industries in the world.
Japan has been in the top three of the countries with most cars manufactured since the 1960s, surpassing Germany.
The automotive industry in Japan rapidly increased from the 1970s to the 1990s (when it was oriented both for domestic use and worldwide export) and in the 1980s and 1990s, overtook the U.S. as the production leader with up to 13 million cars per year manufactured and significant exports.
After massive ramp-up by China in the 2000s and fluctuating U.S. output, Japan is now currently the third largest automotive producer in the world with an annual production of 9.9 million automobiles in 2012. Japanese investments helped grow the auto industry in many countries throughout the last few decades.
While we may assume that the likes of International Best Sellers like the Corolla, Accord or the CR-Vs are doing well in the market – In reality it’s not! Kei Cars have a majority pie in the car sales and dominate ~50% of the market share. Let’s see the top 10 selling cars in Japan for FY16 (Apr’15-Mar’16) –
You’d see that 5 out of Top 10 cars are Kei cars! 3 of the Top 10 are compact hatchbacks, 1 is a Minivan & the Top Seller is a Hybrid Fastback (Prius). See any similarity with the Indian market? – We have the Alto as the Top Seller (which is also a Kei car in Japan), Wagon R contributes significantly in sales in the Indian market (Trivia: The Wagon R has been the best-selling kei car in Japan since 2003; and in 2008, Suzuki produced its three-millionth Wagon R.). Also some of the Compact Hatches are also found in the Indian Market (Ex: Honda Fit which is named Jazz in India).
So , almost 47% of the sales in the Top 10 selling cars in Japan were from Kei cars! What exactly is a Kei car? – It’s a Japanese category of small vehicles under 660cc. They are designed to comply with Japanese government tax and insurance regulations, and in most rural areas are exempted from the requirement to certify that adequate parking is available for the vehicle. Cities in Japan are hugely populated and the Government has aggressively promoted Kei cars to curb on traffic and pollution. The crowded and narrow roads in Japan are also responsible for rise in popularity of these kei cars in Japan’s domestic market. But the concept of these kei cars – meaning light cars in Japanese – is almost unknown outside Japan. The situation could change now; as Japan’s top automakers are now willing to export the kei car technology to growing markets like Indonesia and India (already some models are doing well in Indian market).
While the Kei cars had an interesting domination in the Japanese market; we were also intrigued by the way Japanese origin OEMs commanded over 90% share in Car Sales!!! Japanese Origin OEMs (Automotive Manufacturers) include Toyota, Honda, Daihatsu, Nissan, Suzuki, Mazda, Mitsubishi, Subaru, Isuzu, Kawasaki, Yamaha & Mitsuoka. The Top 20 OEMs for the calendar year 2016 (Jan’16-Dec’16) were –
13 out of 20 OEMs in Japan are Japanese Origin which contribute over 90% of the Industry’s volumes!
Toyota is the No.1 OEM in Japan and commands over 31% Market Share in Japan.
The volume Toyota does in a year in Japan is almost similar to what Maruti sells in a year in India.
Brands like GM, Hyundai, etc doesn’t even exist in Japan!
The story was pretty different before World War 2 – Ford and GM had factories in Japan, where they dominated the Japanese market. The Ford Motor Company of Japan was established in 1925 and a production plant was set up in Yokohama. General Motors established operations in Osaka in 1927. Chrysler also came to Japan and set up Kyoritsu Motors. Between 1925 and 1936, the United States Big Three automakers’ Japanese subsidiaries produced a total of 208,967 vehicles, compared to the domestic producers total of 12,127 vehicles. In 1936, the Japanese government passed the Automobile Manufacturing Industry Law, which was intended to promote the domestic auto industry and reduce foreign competition; ironically, this stopped the groundbreaking of an integrated Ford plant in Yokohama, modeled on Dagenham in England and intended to serve the Asian market, that would have established Japan as a major exporter. Instead by 1939, the foreign manufacturers had been forced out of Japan.
But post World War 2 and during the liberalization era too the American/German brands couldn’t make much difference. Was it due to Japanese protectionist policies? We say it wasn’t! While Japanese consumers love brands like Apple (iPhone remains the bestselling smartphone in Japan!); it is surprising why the brands like GM or VW fail to woo Japanese consumers. We figured out that more than the product, the differentiation was on the experience & relationship. Would like to highlight a case study describing the same –
“The last time Shujiro Urata wanted to buy a new car in Japan, his phone happened to ring. It was the local Toyota dealer on the phone, asking him if he was thinking about buying a new car. When he replied in the affirmative, the dealer and a coworker showed up at Urata’s doorstep an hour later with two demo cars, which Urata and his wife test-drove around the neighborhood. The Uratas decided to buy a car from the dealer. The dealer also handles their car insurance, coming to their home whenever the insurance contract needed to be renewed. The Uratas bring in their car to the dealer every few weeks for a free car wash, where they hang out and talk to the employees, who have become their friends, about dog breeds and family birthdays.
The rapport may sound unusual to Americans, who are about as happy to voluntarily go to a car dealer as they are to get teeth pulled, but the relationship between customer and car dealer is a common one in Japan. “It may sound like a lot, but Japanese customers are used to this kind of service,” Urata, who is also an economics professor at Waseda University in Tokyo, told me. “It is a kind of custom that American dealers aren’t used to.” This hospitality has helped Japanese automakers stay dominant in the Japanese market.”
We feel that while cars would evolve as commodities; the only way the OEMs could fight each other would be on delivering exceptional customer experiences & reliable service. The same holds very true for the Indian market as well and that’s what we recommend the OEMs too!