Japan’s Auto Market Bubble Bursts

As Japanese automakers continue to flourish in foreign territories, they struggle in their domestic land. Japan’s auto market bubble is bursting and it is blamed on its decreasing population.

For many years, Japan had the world's biggest percentage of elderly citizens and one of the smallest birth rates. But in 2005, its population began to decline for the first time since records were compiled in 1899, reported the Detroit News. If the decline persists, experts in the industry predict Japan's population will get smaller by a third within 50 years, to fewer than 90 million inhabitants.

The demographics have forced Japanese automakers to concentrate on exportation where the market is promising. Experts added that in mature markets like the United States and Europe sales are expected to amplify over the long term.

Japan is still the world's second-largest passenger car market, and third-largest in total vehicle sales after the U.S. and China. Japan’s bubble burst but the economy is gradually improving to the exception of car sales. Statistics say auto sales were down in September for an 18th consecutive month.

"The combination of the population decline and the economy, which has been slower than expected in picking up, is dampening the market for longer than we expected," said Yuki Funo, a Toyota Motor Corp. board member and chairman of its U.S. sales operation. "It's not good."

The Japanese market is important for the Toyota Motor Corp., which has a dominant 42 percent share. But it is not as important as the U.S. market to Toyota's bottom line. Honda Motor Co., Japan's second biggest automaker, produces less than a fourth of its global auto sales in Japan.

"It's not as profitable as other markets, but it's valuable," said Honda spokesman David Iida. "Because it's a hyper-competitive market, you have to keep coming out with new products, so you have to keep refining your product development cycles and develop new technologies very quickly. It's the Japanese market that strengthens Honda for the U.S. market."

Japan's auto giants all have increased their U.S. market share this year, to a combined 37 percent, from 34.7 percent a year ago. Analysts estimate the U.S. market accounts for between 50 percent and 60 percent of their earnings. On the contrary, American automakers have given up on Japan, where imports are mostly German premium cars and account for only around five percent of total sales.

General Motors Corp. recently sold its equity stakes in three Japanese automakers and is concentrating on the booming Chinese market. Ford Motor Co. owns a controlling stake in Mazda Motor Corp., which develops car platforms for Ford. But Ford sells only 5,000 Ford-brand vehicles in Japan annually.

At the opening of the Tokyo Motor Show this week, the Dearborn-based automaker will showcase a few "all-American" models such as the Mustang and Explorer. It will also launch the muscular Escape Adventure concept.

"There's a core group of consumers who do want to be different, who want something that reflects the adventurous American lifestyle," said Randy Krieger, the president of Ford Japan.

But Japanese shoppers are moving toward smaller cars and mini-vehicles, such as the Subaru Stella, Daihatsu Tanto, and the Nissan Moco. These compact cars appeal to empty-nesters and young, entry-level shoppers.

The fascination with electronic gadgetry may reflect a desire to escape crowded, stressful conditions in Japanese cities, said Honda spokesman Iida. "You can go into your own world." It is like using Active Brakes Direct to put a halt to something undesirable.

"People like to distance themselves from that age - it's viewed as having been too extravagant," Lapuz said. "Now, combined with the green movement, people are less concerned with status and image?- that's why they go for mini-cars." That helps explain Japan's lead in hybrid technology as well as other environmental auto innovations.