Europe's Slow LaneJulia Flynn and Karen Lowry Miller
At a Nissan Motor Co. dealership in London's gritty East End, customers are scarce, and the salesmen are on edge. The surging yen has "knocked prices through the roof," explains Gary Davis, sales director of Queensbridge Motors Ltd. Worse, European auto makers are finally starting to approach Japanese standards of quality. "There was no competition before," frets Davis, whose family-owned dealership has sold Japanese cars for two dozen years. "Now, there isn't such a thing as a bad European car on the road."
Suddenly, the Japanese drive into Europe seems as speedy as an old Citron deux chevaux. Just two years ago, domestic European carmakers feared losing up to 30% of the European market to Japanese rivals by the year 2000--an Old World version of what happened in the U.S. But the strong yen, a series of missteps, and tougher competition from the Europeans are taking their toll (chart). As a result, the Japanese are struggling far more than expected. "The European business for the Japanese carmakers is very difficult now," concedes Tatsuo Takahashi, managing director of Toyota Motor Europe. "It's still a big question whether we can keep our competitiveness."
Takahashi is gloomy now, but the Japanese remain resilient competitors whose European troubles may be temporary. True, the Japanese are "no longer seen as invulnerable," says Louis R. Hughes, president of General Motors Europe, which markets the Opel and Vauxhall marques. Yet Hughes figures the Japanese could still recover enough to have a shot at a 30% share in the next century, after negotiated import quotas get lifted in 1999. Warns Hughes: "We're going to fight like hell to keep them from getting it."
BIG LOSSES. The fight will be more evenly matched than seemed possible just a few years ago. After roaring from almost no share in the mid-1980s to 12.4% last year, the Japanese saw their European share sag to 10.9% in the first half of 1994. Meanwhile, overall car sales have risen 6% or so. One reason for the Japanese setback: The yen's rise between 1% and 7.8% against key European currencies has forced the Japanese to raise prices higher than local competitors. "Yen appreciation has caused us to redefine our timing," says Fausto Gardoni, Nissan Europe's vice-president of sales. As a result, Nissan Europe has lowered its 1998 share target from 5% of the market to 4%.
Other problems have plagued the Japanese. Building dealer networks has proved expensive and troublesome. Nissan and Suzuki have run up big losses at problem-riddled plants in Spain and Hungary: Nissan has cut almost 15% of its Spanish workforce. With a big business to protect in the U.S. and a huge market to develop in Asia, Japan's cash-strapped auto makers also are hard-pressed to find the investment capital Europe needs.
Yet the fact remains that European drivers are growing ever fonder of Japanese cars. One indicator of that affection comes from the survey firm of J.D. Power & Associates, which this year examined car-owner satisfaction in Britain, its first look at a big European market. Consumers were most satisfied with Toyota, followed by Mazda and Honda among car brands available. So knowing that customers exist in Europe to buy their wares at the right price, the Japanese are carefully considering how to slog on to greater market share.
SEEKING PARTNERS. One approach would be more production in Europe, where costs are less whipsawed by a changing yen than cars made in Japan. After years of desultory talks, Mazda is now seriously considering a plan to use Ford production facilities in Europe. Honda Motor Co. just announced plans to increase production at its Swindon plant in Britain from 100,000 to 150,000 by 2000. That was a clear signal Honda was in Europe to stay, despite the surprise loss of its local partner Rover, which BMW just bought. Honda also
may seek out a new European partner to improve purchasing and production efficiencies.
Likewise, Toyota, which built 37,000 cars in its Burnaston plant in Britain, hopes to produce 90,000 cars this year. A debate is still raging inside Toyota whether to ramp up British production further, to 200,000 vehicles a year by 1997, as originally planned. Yet the auto giant is not backing away from its goal of selling 600,000 cars annually in Europe by 1999.
Many of the cars will be new to the market or have a European flavor added in to increase their marketing appeal. The Carina E, a Toyota hatchback launched last year, was altered for Europe by giving it a sportier shape and a different grill. Honda, whose Accord helped boost the company's overall European sales 5.6% in the first half, plans a replacement for the compact Concerto, which Rover has been manufacturing under contract. The new Hondas will be tailored to offer roomier interiors and more safety features. "We have to make more suitable models for European customers," says Kazue Ito, who was named head of Honda Motor Europe Co. in June.
Like his rivals at Toyota, Ito believes Honda can reach its goal of nearly doubling its European sales, to 300,000, by the end of the decade, boosting market share from 1.4% to 2%. To do that, he's tackling the costly and time-consuming task of recruiting and training an extra 600 dealers in Europe. His goal is 2,300 dealers by 2000.
Similarly, Nissan, which has suffered the most of any major Japanese carmaker in Europe, is rebuilding its dealer network, training sales staff to market better, and refurbishing dealerships. Nissan also is trying to limit further sticker shock. It has boosted the price of its Primera sedan 4.2% on average across Europe, according to Eurotax, a Swiss publisher of auto industry data. That's more than the 3.6% hike for the Opel Vectra, but the Primera still remains competitively priced with the Vectra, at around $10,350.
As the Japanese work on regaining their momentum, they know they are dealing with European competitors that are smarter and more aggressive than they have been in years. Consider Italy's loss-plagued Fiat, a company that has struggled with quality problems. Fiat began introducing total quality management in 1989 across the group, involving its workers in more decision-making. At the new Melfi plant, assembly teams of young, freshly trained workers have been turning out the Punto, the snazzy new compact that is expected to help Fiat break even this year. "We took Japanese ideals and Europeanized them," explains one Fiat official. The gratifying result: Productivity levels at Fiat's Melfi plant rival those of the Japanese.
Fiat is not the only one catching up. True, parts suppliers still lag behind the Japanese in efficiency. But "the productivity of carmakers in France, Germany, and Italy is now not all that much different than in Japan," says John T. Lindquist, a Boston Consulting Group partner who just did an industry study for the European Commission. Europe's Big Six are racing to shorten the time between launches, while the Japanese have had to stretch out their cycles to cut costs. Fiat's cycle time, historically eight to ten years, is now heading down toward five. "The Europeans are in an almost unprecedented period of renewing their products," says John Lawson, DRI/McGraw-Hill's chief auto analyst in London. New models, such as the Ford Mondeo, are turning into big sellers.
Yes, there's plenty of satisfaction in winning some dustups with the Japanese. Yet European producers aren't ready to relax. "As a business strategy, we assume that the problems of the Japanese are a short-term opportunity to get our problems under control," says Don Cook, Ford of Europe's vice-president of sales. That's wise when dealing with rivals adept at turning short-term setbacks into long-term strengths.