International -- Asian Business: JAPAN
A GIANT DRIVES INTO THE MINICAR MARKET (int'l edition)
Honda sneaks up on other auto makers
They buzz around suburban Japan, their tiny frames and putt-putt engines the perfect size for running quick errands down narrow side streets. They are the minicars, the supersmall autos that account for 20% of Japan's passenger-car sales. For decades, a few manufacturers--principally Suzuki Motor Corp. and Daihatsu Motor Corp.--have dominated this $7.5 billion industry. "We have always made small cars, while larger companies like Toyota made big cars," explains 67-year-old Osamu Suzuki, the fourth in his family line to command Suzuki Motor.
Now, this cozy arrangement is ending. Renegade Honda Motor Co., which gave Toyota a scare last year with a flurry of model launches, is going after Suzuki and Daihatsu with a popular new minicar named the Life. Honda's minicar share has surged from 6% to 16% in the past three months--and the company aims to own 20% of Japan's minicar market by December. Suzuki's share tumbled in the same period from 42% to 33%, while Daihatsu's slipped from 27% to 26%, according to Jardine Fleming Securities. With Honda storming in, these smaller rivals may never entirely regain their market shares.
SURPRISE ATTACK. Honda shrewdly timed its foray into the minicar market. Suzuki, Daihatsu, and other rival auto makers have been holding back on new models until October, 1998, when updated safety laws requiring longer and wider minicars take effect. So Honda made a big splash with the Life, the first all-new minicar since April, 1996, when Daihatsu introduced the Midget II, a one-seat minitruck.
Like Suzuki's best-selling Wagon R and Daihatsu's Move, the Life comes with a high roof and more space than the usual minicar. But it also sports nice touches, such as a well-designed, rounded front and an antibacterial steering wheel for hygiene-obsessed Japanese consumers. And Honda is spending generously to support the car, which costs $10,088 after taxes and insurance fees. As a result, the Life is selling briskly, and Honda has new designs on the drawing board. "We have to maintain a supply of good minicar models to reach our goal," says Manabu Nishimae, a manager in Honda's minivehicle sales department.
Honda's onslaught probably will help push Suzuki's operating profits down 9% this year, to $478 million, according to ING Barings. To fight back, Suzuki dealers are knocking $265 off the $9,469 sticker price of the Wagon R miniwagon. That's considered a hefty discount in Japan, but Osamu Suzuki figures he has no choice. "We are waging war," says Suzuki.
The company will launch an all-out counterattack after the new safety regulations kick in next year. But it still will be a tough slog. Almost every minicar maker plans to launch a flurry of new models. Mitsubishi Motors Corp. will give a face-lift to its Toppo miniwagon and other models. Daihatsu Motor plans a new minicar with an environmentally friendly engine that runs on both an electric battery and gasoline.
Suzuki and other minicar makers hope to escape some of the pressure by revving up sales abroad. Suzuki Motor already sells more cars overseas than at home, mostly in India and other developing markets. The company also plans to triple sales in North America, where it makes Swift compact cars and Sidekick compact trucks under its own name and assembles compact Metro passenger cars and Geo Trackers for General Motors Corp. Suzuki plans to sell 2 million cars a year overseas by 2002, up from 1 million now. And Daihatsu Motor wants to follow up on its successes in making subcompact Charade cars in China and Kancil minicars in Malaysia.
Still, Daihatsu executives think competition may be just as stiff abroad. "Everyone wants to make small cars," says Kentaro Shimizu, director of Daihatsu's overseas marketing division. "The Europeans make minicars. And the competitors most frightening in terms of price are the Koreans." Wherever they roam, Japan's minicar makers will never find the cozy markets they once enjoyed.By Emily Thornton in TokyoReturn to top