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back to index backASIAtalk June,  2005

Japan: Recovery in the automotive industry

Since 2003 Japan has been witnessing the beginnings of an economic recovery. The recovery was also apparent in the automotive industry and was most clearly realized in an increase in exports that added to the bottom lime of Japan's automotive producers. Japan produced 10,152,677 motor vehicles in 2003, making it the world's second largest producing country, just behind the world's largest producer, the United States. Japan currently accounts for 17% of world production and about 50% of all Asian production. Considering that Japan is also a major investor in automobile production in ASEAN countries and China, Japanese companies are by far the dominant players in Asia.

Japan's total domestic auto-related output, including automobiles, auto bodies, parts and accessories, was estimated to be worth approximately 40 trillion yen in 2003 ($370 billion). This represents more than 13.4 percent of Japan's total annual manufacturing output. In addition, auto-related industries in Japan are believed to account for one out of every ten jobs in the country. According to the Japan Auto Parts Association and AM Network, the auto parts, accessories, and chemicals aftermarket in Japan was estimated to be worth 6,559 billion yen (USD 57.0 billion) in JFY 2003 ending March 2004.

After its decade-long recession, there have been many changes in Japanese industry resulting from reorganization and restructuring. Other than Toyota and Honda, Japanese automakers have been forced to restructure their operations, through selling non-performing assets, reducing capacity through plant closures, and/or seeking new management and financial assistance through the sale of significant equity stakes to stronger foreign automakers. Most well publicized of these structural changes was the increasing M&A activity in Japan's auto industry, the most visible being Renault's successful takeover of Nissan. Japan's auto industry has characterized by very close supplier relationships glued together by cross shareholdings, and while there are clear benefits to these arrangements, there are also inefficiencies. After taking over Nissan, Renault made historic changes in the way it interacted with suppliers in Japan and worldwide. Much of the Japanese auto industry imitated many of these changes, and accelerated a trend of opening to new suppliers, and decreasing cross share holdings.

While Japan's domestic market for automobiles has been flat in recent years, its export and overseas production have been increasing. Considering that most Japanese manufacturers cultivate long term relationships with their parts suppliers and the design-in process requires a long lead time from design to production, close contact with Japanese auto manufactures in Japan is crucial to pursuing sales opportunities.

Although difficult direct exports of non-genuine parts have been growing and there are significant market opportunities in the area of frequently replaced parts such as shock absorbers, spark plugs, fan belts, as well as aftermarket parts. While direct exports are possible, most successful cases of U.S. firms capitalizing on the Japanese market have been where US companies have direct sales or tie-ups with Japanese auto companies or Japanese auto part suppliers. Japanese customers have extraordinary standards for quality and after-sales service and while it takes time to gain their trust, once they become customers, they are very loyal. Many foreign suppliers find that sales increase as they move close to their Japanese customers.

The Japanese market for automotive parts has been driven by the relaxation of car inspection regulations beginning in 1995, when the Road Vehicles Act reduced the number of items requiring inspection from 60 to 26 for one-year-old vehicles and from 102 to 56 for two-year-old vehicles. Conversely, the number of parts that can be checked independently has been increased. This easing of restrictions has given consumers more choice and has led to lively competition, while providing opportunities for foreign makers to penetrate the Japanese market. This has been supported by the global sourcing of original equipment parts as Japanese and other multinational auto makers seek the best products from anywhere in the world.

Source: Jetro Spotlight Newsletter - GAI

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