JAIA Chairman Press Meeting (January 2010)

Following is a summary of the comments made by JAIA Chairman at a press meeting held on January 20 (Wed), 2010.


 Hans Tempel

[Economic conditions]

The year 2009 has been hopefully the bottom of the development of the Japanese automobile market in the most recent period, and expectantly a long future.
As a consequence of the financial crisis, the economy of Japan has suffered more than most other developed countries in the world, and this has resulted in a decline of the automobile market to a level which we have last seen 30 years ago.
Finally, we’d like to believe that the economy has started to climb out of the downturn based on some emerging countries which are showing growth and many of the efforts which have been undertaken. But there are also signs that, especially for the domestic economy, the effect of deflation and others might slow down the potential of development.

[Conditions of vehicle market in Japan]

The automobile market has been particularly struck by this situation, not only on a global scale, but very much so in Japan. At the same time, the automobile industry as a whole has to take challenges to make their cars more environmentally friendly and more energy efficient. As much as this is the great opportunity to revitalize demand, it is a huge additional burden at the time when revenue has been shrinking drastically.
Looking at the passenger car market in Japan, total demand including Kei cars was down by 7.2 % last year over 2008, and it reached a level of less than four million registrations for the first time since the late 80s. If you take out Kei cars, which is a very special kind of car and a segment where no foreign manufacturer is competing, the level of regular cars in Japan was down dramatically to 2.6 million registrations, and this low level was last seen in the late 70s.
Of course, the situation of imported vehicles has not been any better; in fact it has been even worse. We have been facing a downward trend of 17 percent over 2008. It has dropped to a level of less than 160,000 cars in foreign manufactures. This level was last seen again in the early 90s, which at the time was already down from its first peak at the late 80s before the bubble burst.
This is a very concerning situation because not only has the volume been down, but we are facing a significant shift as far as the structure of the Japanese automobile market is concerned. We are looking at a shift from sedans to compact models, and in the long-term, very popular MVPs have been overtaken by compact cars.
According to our analysis, this development is not only the effect of the economic crisis. The economic crisis has unfortunately accelerated trends which we have been observing for the last 5 years: a decrease of the Japanese market due to demographic situations in the country and change of consumer habits, especially decreasing attraction of automobiles to young customers who are in a far more consumer-active age range.

[Views on government’s auto-related stimulus packages]

The overall sales last year, though they were low, were only achieved because of some very intensive stimulus packages and various elements which the Japanese government introduced in April last year. According to our statistics, 60 percent of all new vehicles registered last year have enjoyed one way or another the impact of those stimulus packages. The stimulus packages, as you know, have now been extended until the end of September 2010, and I am sure we will have continued positive effect; however, the effect on imported cars has been very limited.
We are very happy about how we appreciate that the Japanese government announced yesterday that they have, I guess after listening to our arguments, amended those regulations to the extent that foreign cars can more easily prove compliance with those requirements, as far as fuel efficiency requirements are concerned.
Let me go further into details. The fuel efficiency requirements are one issue, which has two sides. One side is to comply with those requirements, and the other is how we can certify that we comply. You know that in order to be certified with this, you need to apply homologation procedure, which is economically only advisable if the volume you are selling justifies the relatively high cost.
The so-called PHP homologation process does not certify fuel efficiency. In order to do so, you have to do the type certification. Not only that. Then you have to comply with the Japanese test cycle, which is unique in the world. The revised regulation allows us to prove that even our PHP cars are fuel efficient based on calculations of the emission, which is to be done anyway, plus proving fuel efficiency by using certificates issued by the country where the car is built.
I would like to consider this as a first step into acceptance of more harmonized standards in Japan. So I appreciate that this has happened and I am sure this will make our effort a little easier. But there are other issues remaining.
The other condition for the scrappage package is the scrappage of a 13-year-old car and buying a more fuel efficient car. For that, customers receive 250,000 yen in subsidy. Now, 250,000 yen seems to be a lot of money, but it is much weaker leverage for cars which cost five, six or seven million as many imported cars do. Further, many of our 13-year-old cars still have market value of above 250,000 yen.
So it makes economically no sense to throw away a car which is worth more than 250,000 yen, in order to get support which is 250,000 yen. We have always asked to determine subsidies in percentage on sticker price in order to have level playing fields as far as the strength of the leverage is concerned.
But again, I don’t want to sound disgraceful; I think we’ve made a step forward. This does not only help our customers. It helps also our partners of the distribution network of imported cars. All over Japan, there are about 1,000 Japanese companies involved in the distribution of imported cars, of course including the members of JAIA, who in total employ about 25,000 people, in addition to workforce at our vendors, like advertising agencies and so on.
The stimulus packages had one negative side effect on the importers, since the market was very much driven by those discussions about the support from the government. In order to stay viable with our business, to a large extent, we had to somehow compensate the length of the effectiveness of those measures on cars which we offer. This has resulted in a further drainage of the profit, which foreign manufacturers could enjoy in the Japanese market.

[Views on auto-related taxation]

Talking about taxes, we have always been asking for a globalization of the automobile market in Japan, and implementing true tax reforms for the taxation on purchases of cars, ownerships of cars, and operations of cars, which are large concern as fees related to those criteria are still significantly higher in Japan than there are in any other countries of the world.
The taxation in Japan for the lifecycle of the car is over 300 percent higher than it is in the United States. In this context, JAIA has been pushing for lower taxation which is looking more at exhaust emissions and which is technology-neutral.
So it is up to the manufacturers to offer technologies they feel more efficient to achieve those targets. It is even up to the consumer to decide the technology of their preference or the one that fits their needs the best.
Last but at least, taxation of course has a big impact on customers’ decision and on manufacturers ? how they design their cars, particularly the engine configuration. I think it is necessary to be aware of the fact that we should have accountable tax policies that consumers and manufacturers can take on long-term to provide the most appropriate cars.

[Activities for market stimulation]

What are we doing as manufacturers of the imported brands to revitalize the Japanese car market? First of all, we are making a big effort to adjust our cars, as much and quickly as possible, to comply with Japanese regulations so our customers can benefit from the programs in place. The measures the government changed yesterday concerns stimulus packages. There is also eco package in place. This package will be in place until Spring 2012 and has a very strong impact on the development and sales of certain technologies in Japan.
All members of JAIA are trying very hard to bring in cars which comply with those regulations as quickly as possible. This is all necessary to turn around this trend of younger people turning away from cars. We also need to continuously offer cars which provide emotional values.
The environmentally-friendly technologies are only slowly beginning to create emotions. That is why foreign manufacturers, and their world’s renowned and famous brands, are best qualified to support most of the attractions of cars. We are continuously offering our cars for the highest level of safety, comfort, reliability and performance. These cars offer the excitement of driving rather than providing a commodity for simple means of mobility.
In order to do this, it is much easier for us if the Japanese administration continues on their attempt, together with their foreign countries, for harmonizing standards and introducing those standards in order to allow a very wide range of products that we offer at reasonable costs for manufacturers and importers. This will be our continuous effort for lobbying to Japanese agencies including the regulations for truly zero-emission vehicles, like fuel-cell and electric vehicles.
In this endeavor, we are working closely with other associations representing different interest groups of our industry, including Japan Automobile Manufacturers Association (JAMA), Japan Automobile Dealers Association (JADA), as well as, of course, METI and MLIT as the two most significant agencies for our businesses.
In closing, we are confident that, all in all, the global and Japanese economies will continue to recover. This will have an impact on sales. However, as the crisis of our business in Japan was not only related to the economic crisis, but other issues which are much more difficult to change. It will take quite some time before we can truly expect to be back at the level where we used to be. As a first step, we shall target to bring sales of imported cars back to the bar of 200,000 units a year.