President Trump has escalated his attacks on the Japanese auto market, calling it “closed.” However, a look at the domestic market in Japan reveals that the share of imported cars among all registered cars exceeded the highest level on record for the past four consecutive years. In contrast with sluggish sales of American cars, German automobiles are aggressively promoted by their manufacturers and have been steadily increasing in popularity. At the same time, the Europeans view light automobiles that comply with Japan’s unique standards as problematic. Such non-tariff barriers are the issues that Japan will need to discuss with its trade partners.
On Jan. 26, Audi Japan K.K., a Japanese subsidiary of the German company Audi, announced that the company will make a partial model change and begin selling its most popular mass market model, the “Audi A3.” The standard model will come equipped with a driver assistance function and the price will be reduced by 100,000 yen to less than 3 million yen. In 2016, Audi sold 28,502 units, doubling its sales over the past ten years.
Audi Japan President Toru Saito expressed his high expectations by saying, “This year we will introduce 19 models and aim to sell 30,000 units, a 10% increase from the previous year.” The company plans to overhaul some of its models and launch a new suburban utility vehicle (SUV).
“We will market more than five models this year,” says President Kintaro Ueno of Mercedes Benz Japan, the biggest seller of imported cars for the past two years. Germany’s BMW also exceeded 50,000 units in sales for the first time last year. Their models compete with Toyota Motor’s Lexus. All of the German auto importers have made forward-looking investments by opening major sales outlets outside the Tokyo Metropolitan area.
According to the Japan Automobile Importers Association (JAIA), the number of units sold by foreign auto manufacturers in Japan was 295,114 units in 2016, a 3.4% increase from the previous year. Foreign cars made up 9.1% of all registered cars, suggesting the share could reach 10% in the not-so-distant future.
On the other hand, American models have been struggling in Japanese market, as evidenced in the withdrawal of Ford Motor Co. in 2016, as well as sluggish sales by General Motors (GM) hovering around 1,300 units. The share of American automobiles in the imported car market was over 30% in 1995, but last year it was only 5%.
Meanwhile, even European automakers who enjoy brisk sales complain about a certain factor in the Japanese market: preferential tax treatment for light automobiles. Unlike the U.S. manufacturers, German automakers are good at producing compact cars and have the technology to meet environmental standards. They have repeatedly raised the issue of light automobiles in economic partnership agreement negotiations and other venues.
Japan imposes no tariffs on automobile imports. However, the JAIA has been calling for technological standards and environmental regulations to be reviewed because “the truth is that the hurdles are high because of regulations such as the one called JC08 that requires manufacturers to adhere to a mileage standard and is unique to Japan.”
President Trump points out that compared to Japanese automobiles that account for 30% of the cars driven in the U.S., the market share of the U.S. cars in Japan is far too low. But Japanese automakers have been shifting production facilities to the U.S. in response to U.S. requests. Meanwhile, American manufacturers have not participated in the Tokyo Motor Show since 2009.
President Saito says, “Japan has many auto manufacturers and the competition is fierce. It’s crucial to be able to come up with attractive models in order to compete effectively.” It goes without saying that U.S. manufacturers should improve their automobiles’ marketability in Japan. At the same time, the Japanese government and private industries need to explain thoroughly and make sure that the U.S. understands that Japan is not a closed market.