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Japanese carmakers increasingly eye foreign markets

Japan’s automotive industry is increasingly pushing into overseas markets such as China and India as sales turnovers at home are declining slowly and steadily stimulating growth abroad is seen as a way to compensate.

Toyota in particular seems intent on fortifying its overseas business this year and in the process unseating US competitor General Motors as the world’s largest car seller. Japanese manufacturers profit from their hybrid car technology by dominating the public debate on environmental protection, much to the chagrin of their German counterparts who are primarily betting on environmentally friendly diesel engine technology. But even Japanese firms have begun to invest in new diesel technologies.

The situation the Japanese currently face is that the domestic market has almost no further growth potential. Although sedan and limousine sales increased in August for the first time in more than two years, by 0.8%, the overall domestic automobile market continues to contract. The times when Japanese customers purchased new cars in short intervals are over.

“Consumers are not willing anymore to spend lots of money on new cars every couple of years,” said Takahide Kiuchi, head of the economics department at Nomura Research Institute. The trend also was going towards smaller cars, with the mini sedan known as Keijidosha currently accounting for more than one-third of all new registrations.

Imported cars were an exception, accounting for about 5% of all automobiles on Japan’s streets. German manufacturers dominate this market segment, with over 80% of their vehicles being sold.

While Toyota has pushed into the luxury car segment with its Lexus model, the company has so far been unable to wrestle any significant market share from German brands like Mercedes, BMW and Audi. “On the contrary, introducing the Lexus has only reinforced consumer consciousness about the luxury car segment and primarily German manufacturers have profited,” said Jochen Legewie, a representative of the German Automobile Industry Association in Japan. Legewie confirmed that the domestic market was largely saturated and that local manufacturers were therefore now focussing at foreign markets.

The fact that Toyota planned to globally sell 10.4 million vehicles per annum by 2009, thereby making it the world’s largest car manufacturer, also proved that the industry’s focus as a whole would shift away from Japan’s hitherto most important foreign market, the US, and towards rapidly growing markets such as China and India. “New markets other than Japan, the US and Europe are the key to our future success,” concurred Toyota CEO Katsuaki Watanabe.

US and European manufacturers entered the Chinese market several years earlier than Toyota. But when Toyota finally entered China itself it benefited from its established network of suppliers and could therefore rapidly expand its business in the country. Today Toyota is one of the fastest growing automobile brands in China. The company expects to sell 430,000 cars this year in China, an increase of 43% over 2006. Japanese trade papers reported that Toyota planned to sell more than 1 million vehicles per annum in the country by 2010 and increase its total market share to a staggering 10% from 4% last year.

But this rapid expansion is also likely to confront the firm with tough challenges. For example, more than 1 million cars had to be recalled worldwide last year due to quality faults. Against this background Toyota’s CEO Watanabe wants to ensure that his firm also will become a “front runner in terms of quality.”

While both Toyota and Honda so far have been successful without the need for international takeovers or strategic alliances, industry experts have voiced doubts that the two companies will be able to continue on this path against the background of gigantic research costs that are necessary to develop new, environmentally friendly technologies. Toyota acquired a 5.9% stake in compact car manufacturer Isuzu last November and both companies plan to primarily cooperate in further developing diesel-engine technology. It is particularly this technology which is currently experiencing a sort of renaissance under the prevailing discussion regarding carbon dioxide emissions. Modern diesel engines produce some 25% less carbon dioxide fumes than conventional petrol engines.

Although Japan continues to comfortably maintain its lead in hybrid engine technology, local manufacturers have also started to more aggressively invest in diesel technology. Honda, for example, already has announced plans to introduce diesel-powered cars not only in Japan but also in the US this year. Industry observers foresee the possibility of cooperation in the future between diesel technology leader Germany and hybrid technology leader Japan.

“The pooling together of diesel and hybrid technology bears a big potential for the future and alliances between German and Japanese car manufacturers are certainly a possibility,” said Legewie. (