In Japan, Too Many Cars, Too Few Buyers

But Japan's auto makers keep launching new ones

Japan's auto dealers have tried just about everything to revive sales. One Toyota Motor Corp. dealership in Tokyo throws monthly festivals in its parking lot and offers discounts of as much as $2,500 on new models. But potential customers such as Kai Matsuda, a smartly dressed 28-year-old, aren't buying. Sure, after spending a recent Sunday touring Toyota's swank four-story Amlux car showroom in Tokyo, Matsuda came away impressed. The building housed everything from rugged recreational vehicles to sleek luxury sedans such as the $37,000 Aristo. Matsuda would love to buy a new car, "if I had the money." But with Japan's economy on the skids, he doesn't.

For Japanese carmakers preparing to roll out their new fleets at the Tokyo Motor Show in late October, consumers such as Matsuda illustrate why 1998 is going to be such a tough year. Despite a flurry of new launches, the April increase in Japan's consumption tax to 5% from 3% has caused car sales to decline for six months in a row. Dealers sold 9% fewer cars in September than in the same month last year, and several have now fallen into the red or gone bankrupt.

CHOICES, CHOICES. So carmakers are desperately hoping their 1998 models will boost sales. The Motor Show's new lines have the latest braking, engine, and transmission technology, more sporty designs, and more environmentally friendly engines--including a "hybrid" car that can get 66 miles per gallon on a combination of gasoline and electricity. "Every maker is preparing new launches to keep sales from falling through the floor," says Christopher Redl, automotive analyst at ING Barings Ltd.

But Japanese consumers are already overwhelmed with choices. "There are over 190 car models available in the market," says Atsushi Fujii, member of the board of directors in charge of domestic sales at Nissan Motor Co. "And the average consumer can only remember about 11 of them."

Yet at the Motor Show, Japanese carmakers will be coming out with even more. Toyota wants to target young people with fun, European-looking models and a convertible sports car. Toyota also plans to roll out the world's first mass-produced hybrid, with sales projected at 1,000 a month. The company admits it will sell the hybrid at a loss but reckons such cars could corner as much as one-third of the world's auto market by 2005. After working out the kinks in the hybrid in Japan, Toyota plans to take it for a spin in overseas markets. However, analysts worry the hybrid could cannibalize sales of other models. "Why would you want to buy a Corona when you might be able to buy a hybrid car for just about the same price?" asks Edward Brogan, automotive analyst at Salomon Brothers Inc.

Nissan, expected to unveil its own hybrid next year, will fight back with a 3-liter direct injection gasoline engine in its new Leopard luxury car. The engine is designed to lower carbon dioxide emissions by as much as 30%. And Honda Motor Co. has already launched a hybrid counterattack. It introduced its own 1-liter, three-cylinder hybrid engine in September that it claims is lighter than Toyota's but has the same kick. Honda also will introduce an engine that it claims spews out air cleaner than what it takes in. "We are taking a new direction, and our vector will be the environment," boasts Honda CEO Nobuhiko Kawamoto.

TINY ENGINES. To defend its weakening position in recreational vehicles, Honda will try to woo back customers with a new line of smaller and fuel-efficient recreational vehicles powered by engines as small as one liter. Mitsubishi Motors Corp. would like to reclaim its place of years past as Japan's RV pioneer, with two models featuring fuel-efficient direct injection engines. Nissan will show off its new Safari four-wheel-drive sport utility, and roll out what it calls a MAV or multi-amenity spacious vehicle. Named the R'nessa to resemble the word renaissance, it's a 2-liter station wagon with a luxury-car look.

Nissan also has good news for backseat drivers: Its $24,800 luxury Elgrand minivan permits passengers in back to watch where they are going on liquid-crystal-display maps. Says Enda Clarke, automotive analyst at Dresdner Kleinwort Benson (Asia): "The competition in recreational vehicles is going to intensify." That's not the only place. With too many models chasing too few buyers, only the snazziest of cars will sell.

Before it's here, it's on the Bloomberg Terminal.