Japanese Auto Makers' "Must Win" Battle

This can�t be happening.� Or can it?� Is the Japanese auto industry losing global competitiveness?

To ask this question is almost to answer it, as they say.� But if you are a Japanese auto executive, or an investor, to answer in the affirmative is unacceptable, if not unthinkable.

What, then, is the reality? ��It is intimated in the title �A Comeback for Japanese Cars Requires Internal Reform� of an editorial in the January 20, 2012 Nihon Keizai Shimbun. ��Alarmingly, noted the Nikkei, at the just concluded North American International Auto Show the most popular and highest rated cars are neither American nor Japan models, but Korean and German.� This year�s �Car of the Year� is the Hyundai Elanta.� Runner up was the VW (PINK:VLKAY) Passat.� No Japanese cars even made to the final round.

The editorial points out that the U.S. market has for decades been the sweet spot of Japanese automakers� global operations, and the main driver of profitability.� In recent years competition has changed this picture.� Last year�s market share for Japanese companies was five percentage points below the level of 2007.� Discounts and incentives seem indispensable to maintain sales.� And it is to Korean and German cars that market share and momentum has been lost.

Last year, buffeted by three historic calamities–the March 11 earthquake/tsunami/nuclear accident disaster, the floods in Thailand, and the super-strong yen–Japanese makers� global sales continued a three year slide to below 30 percent.

Is further decline and market shrinkage inevitable?� This is the question, and the Nikkei is not underplaying the difficulty, or understating the extent of advantages already lost.� It points out that Hyundai is now always in the highest group in quality rankings in the North American and European markets.� While Hyundai was raising quality, Japanese makers have aimed at maintaining a quality standard and achieving 10-20 percent cost! reducti on.� �This has allowed Korean makers to catch up in quality, while increasing production efficiency and price competitiveness.

In the fight back Japanese auto makers will need to analyze in detail the markets lost to Korean and German makers, and, critically, to devise a strategy to regain leadership in product performance, cost, and quality. ��In this strategy, there can be no stinting in needed internal reforms.

Can we see the outlines of such strategies?� The Nikkei offers that it may be environmentally-friendly �EV� cars.�� Toyota is already leading in hybrid (HV) technology, and Nissan (PINK:NSANY) is ahead in electric vehicles.� How much market and profit impact these products can make is a big question.

Toyota (NYSE:TM) is staking a lot on HV.� �On December 26 it began sales of the AQUA compact HV in Japan.� Initial market reception has exceeded expectations, with 60,000 advance unit orders.

AQUA could be Toyota�s main compact offering for the next decade.� Its main sales point is its world-beating 35.4 kg/liter fuel efficiency (compared with 32.6 kg/liter for Toyota�s Prius).� �Toyota�s engineers miniaturized virtually all parts chopping 250 kgs of weight compared with the Prius.� Seventy percent of the parts in the engine were re-engineered to produce a 1.5 liter engine, against the 1.7 liter engine in the Prius.