Japan’s ‘closed’ vehicle market: open for business?

It's often claimed that Japan is closed to foreign automakers, but the reality is more nuanced. A new report analyses prospects for the country’s new vehicle market. By Martin Kahl

It’s a line we’ve heard so many times about Japan’s car industry: it’s a market closed to foreign automakers thanks to unfair trade practices and non-tariff barriers.

And it’s easy to find quick soundbites to back this up. With sales of over 5 million units in 2018 (+0.7%), Japan is the world’s third largest light vehicle (LV, <3.5t) market. Yet Ford has exited Japan, and GM barely registered any sales there in 2018. Add in the fact that domestic brands account for 94% of LV sales, sprinkle on some misinformed presidential comments about unfair tests involving bowling balls and car hoods, and a picture of a closed market begins to emerge.

“It may be the world’s third largest LV market, but Ford has given up and quit, while GM may as well have done the same, its assorted brands combined selling just 1,400 units in 2018,” notes Jonathan Storey, author of a new Automotive World report on Japan’s new vehicle market. “It is often claimed that the market is closed to foreign brands, but the reality is more nuanced, with a number of complex issues to consider, as outlined in this report.”

It’s a line we’ve heard so many times about Japan’s car industry: it’s a market closed to foreign automakers thanks to unfair trade practices and non-tariff barriers. And it’s easy to find quick soundbites to back this up

Japan’s new vehicle market: prospects to 2023’ anticipates a slightly confused period for the LV and heavy commercial vehicle (HV, >3.5t) sectors in Japan; the LV market will need to adjust to the implications of a new sales tax regime, while the HV sector is preparing for a cyclical downturn at the end of a tenth consecutive year of growth.

It’s of little wonder, says Storey, that the American Automotive Policy Council and the Trump administration have claimed that Japan unfairly restricts access for foreign automakers. “If there is any merit to this claim, it pales into insignificance besides the other factors that have long caused Ford and GM to struggle in this market. These include the fact that a significant proportion of the market is occupied by kei cars, a segment in which foreign automakers do not compete. Furthermore, competition is tough, with nine domestic brands vying for share. Many of the models offered by the US automakers have been left-hand-drive models in a right-hand-drive market, and historically, the build quality of foreign automakers’ models has typically lagged that of Japanese models.”

Perhaps the key rebuttal to complaints about access to Japan, continues Storey, is provided by the example of FCA’s Jeep, sales of which have risen steadily in recent years, reaching 11,400 units in 2018 and growing a further 22% in the first nine months of 2019.

The recent Rugby World Cup provided a boost for the Japanese economy and the country’s global reputation. As the host nation of the 2020 Olympic Games, Japan will be hoping the country’s automotive industry will be ready to demonstrate its technical leadership

The Japanese automotive market is enjoying a healthy period, with LV sales on the up, but despite current strong performance—sales look set to end 2019 even higher—it has plateaued for nearly three decades. By contrast, the HV market has enjoyed nine years of consecutive growth to the end of 2018, and the current year is similarly positive, although the sector is preparing for an imminent cyclical downturn.

Automotive World’s report on Japan’s new vehicle market details a highly competitive market dominated by domestic brands that is currently struggling with the near-term impact of a shrinking manufacturing sector, declining exports and a slowing economy. Looking beyond the domestic market, Japan’s shipments in Asia have been hit by the US-China trade dispute and an ongoing feud with South Korea, but the government and industry will be hoping that these can be offset by trade elsewhere, including Europe through the Economic Partnership Agreement with the EU, which came into effect in February 2019, and a near-finalised trade deal with the US.

The recent Rugby World Cup provided a boost for the Japanese economy and the country’s global reputation. As the host nation of the 2020 Olympic Games, Japan will be hoping the country’s automotive industry will be ready to demonstrate its technical leadership, with fleets of electric robotaxis and self-driving shuttles transporting athletes, guests and media between the Tokyo venues, as well as how open it is to the rest of the world. But will that be enough to restart this plateaued market?

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