Japanese Auto Buyers Dump Costly Options
THE Japanese call it kakaku-hakai, and literally translated, it means ''price destruction.''Skip to next paragraph
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But in another sense, it might be described as the sound that's made when a bubble bursts - the bubble economy, or false prosperity, that enveloped this island nation through much of the 1980s. That sense of abundance is gone now as Japan struggles to reverse its longest economic downturn since the end of World War II. And nowhere was the impact of this slump more apparent than at this year's Tokyo Motor Show, which ended this week.
''In the bubble years, people wanted the best,'' explained Chris Redl, Japanese auto analyst with Barings Securities in Tokyo. ''Now they want the cheapest.''
Five years ago, Japanese carmakers couldn't find enough options to load up their cars: power windows, heated power seats, dashboard-mounted television sets, and satellite navigation systems. But the consumers who toured the Tokyo Motor Show this year will be far more likely to skip the options and order vehicles stripped of all but the basics - if they order at all. Statistics show that motorists are hanging onto their cars an average 4.5 years now, up from 3.5 years during the days of the bubble.
''The market is stagnant [and] there is cutthroat competition,'' noted Honda Motor Company president Nobuhiko Kawamoto.
That competition is only likely to get worse. Of the 40 vehicles that debuted this year at the Makuhari Messe convention center, more than a third were imports.
''Ford and Chrysler have forced this trend,'' said Tadeo Takei, Nissan Motor Company's vice president for domestic operations. Ford passed on the benefits of a weak dollar by paring the price of its new Mustang last year. When Chrysler's Neon subcompact reaches Japan a few months from now, it is expected to boast a price of around 1.5 million yen (US $14,563). Similar Japanese products begin at 2 million yen.
Imports still make up a relatively small segment of the Japanese new car market, but sales are rising steadily, particularly in the wake of the recent US-Japan trade treaty. And in this stagnant market, it only makes the situation worse for Japan's nine domestic automakers. During the first half of 1995, they were forced to cut production 3.6 percent, and even though sales rose slightly in September, they cut production another 10.9 percent compared with levels a year ago. The home market is not the only problem. Over the past decade, the Japanese auto industry has been ''hollowed out,'' says Koiji Endo, an auto analyst at Morgan-Stanley's Tokyo office.
Faced with a strong yen and mounting political pressures, Japanese automakers have steadily cut back on exports as they've transferred more and more production overseas. In the US alone, they're expected to have the capacity to build at least 3 million cars and trucks by the end of the century. At that point, at least two manufacturers, Nissan and Honda, likely will be building more than half their vehicles abroad.
But Mr. Endo says this shift will leave Japan with far more car plants than it needs. ''There is no other way to deal with this overcapacity ... than to close around four assembly plants,'' he says.
The problem is not unique - at least not in the US, where General Motors alone was forced to close nearly 20 parts and component plants over the last decade. Still, plant closings are almost unheard of in Japan. Nissan shook the very fabric of society when it shuttered an assembly line last year - the first to close since World War II. The recession has been harsh on Nissan, which has seen billions of yen in losses over the last four years. Indeed, few Japanese automakers have been able to avoid the red ink.
But Japanese automakers are resilient. Take Nissan, which has been frantically trimming back expenses. Productivity gains have helped it cut labor costs by more than 30 percent since 1991, and it hopes to cut another 15 percent by 1997.
* First of three articles on Japan's automobile industry. On Nov. 13: Auto imports in Japan multiply.