The Asian Car Invasion Picks Up Speed
Livio Lumbroso would have cringed in embarrassment 10 years ago to be seen driving in Paris behind the wheel of a Japanese auto. But when it came time this year to replace his Volkswagen Golf, the 32-year-old Frenchman found himself attracted to Toyota Motor Corp.'s fetching new Yaris subcompact. It had a snappy shape, came packed with options, and at $12,480 was more affordable than comparable European rivals such as the Renault Clio, which runs $15,600. Lumbroso, a computer scientist, still loves European cars, but the silver Yaris was, well, irresistible. "It's the excellent quality-price ratio that appeals to me most in Japanese cars. And I really fancy the new design," says Lumbroso.
Asian autos, once scorned by fussy European consumers, are suddenly chic. Across the Continent, from the ancient alleys of Rome's historic center to the German autobahn's majestic ascent into the Bavarian Alps, Japanese and Korean autos weave and sprint alongside powerful national brands. During the 1990s, Japanese auto makers' No.1 priority was winning big in the U.S. market. In Europe, they maintained low-key operations, investing little and studying the competition. Market share hovered around 10% to 11% for a decade. Now, flush with their success in the U.S., where they've conquered a 29.1% share, they are ready to tackle Europe, the world's most competitive auto arena. What's more, the European Union removed restrictions on imports of Japanese cars in 2000.
Just as they did in the U.S., the Asian carmakers are investing in new, state-of-the-art plants. Toyota is spending $1.7 billion jointly with Peugeot (PEUGY ) on a factory in the Czech Republic that will start operating in 2005, bringing its total investment in Europe to $5.1 billion. The Japanese auto maker projects sales of 800,000 cars in Europe in 2003 -- reaching its 2005 target two years early -- and aims to sell 1.2 million cars in the region by 2010, outstripping Italy's Fiat (FIA ) and matching Ford Motor Co. Nissan (NSANY ) Motor Co. is investing $460 million over the next two years to double output in Spain, and Hyundai is scouting sites in Eastern Europe for a $1.1 billion plant. "The Asians see Europe as an important battleground," says Ben M. Bensaou, a professor of technology management and Asian business at INSEAD, the European Institute of Business Administration, in Fontainebleau, France. "They realize if they want to be in the big league globally, they have to be a strong player in Europe."
The investment is starting to pay off. Sales of Japanese brands in Western Europe rose 7.4% during the first eight months of 2003, while the overall market shrank by 2.2%. Steady gains over the past two years helped boost Japanese market share in Europe to 12.4%, up from 10.7% in 2001. Korean auto makers also won new ground as sales in Europe zoomed this year by 18.4%. Upstart Hyundai Motor Co. now boasts a 1.7% market share, neck-and-neck with VW's Skoda brand. By contrast, nearly every rival European, except Citroën, lost ground this year. Toyota, at 4.7%, has overtaken German stalwarts Audi and BMW.
It's not just a matter of price. Asian auto makers are mastering the art of European automobile allure. They are building up local design centers, tapping into the hottest talent pools from Barcelona to Munich to London. "We want to build a car with Japanese DNA in line with the tastes of European customers," says Mario Canavesi, senior vice-president for sales and marketing in Europe at Nissan.
The Japanese also are capitalizing on Europeans' love affair with the diesel engine. Honda Motor Co., the largest engine maker in the world, spent more than $50 million to produce its first diesel engine, which debuts at yearend in the Honda Accord. Starting next year, Honda's SUV model, CRV, will go diesel, too. Nissan's new models, including the hot-selling Micra, now sport Renault's highly regarded diesel engines.
Cash-rich Toyota is the strongest player in the pack. "We were latecomers to Europe," says Tadashi Arashima, president and chief executive of Toyota Motor Marketing Europe, who spent most of his career building up Toyota's huge presence in the North American market. Since his arrival in Toyota's Brussels headquarters in 1998, Arashima has overhauled Toyota's European car interiors, added manual transmissions, tailored engines and handling to more rigorous European driving habits, and boosted sales by 48%. "Toyota's doing a great job. They really got it," says Thomas Sedran, a partner at Munich consultancy Roland Berger. The value-for-money strategy is a strong ace in a down economy. "People know that apart from the servicing, they are not going to have any extra costs with these cars," says Hubert Vogel, owner of Autohaus Vogel in Esslingen, Germany, near the factories of Mercedes-Benz (DCX ).
FAST AND EFFICIENT
Yet some industry experts remain skeptical that the Asians can carve out a much bigger slice of the European market, arguing that their gains are simply the result of new-model introductions. As European rivals pump out hot new products, the gains could evaporate. And the Asians are most competitive in the small-car segments where margins are razor-thin. "We think sales will fall back. They won't be able to meet their aggressive target," says Colin Couchman, senior market analyst at Global Insight Automotive in London. The Japanese are almost nonexistent in Europe's hot luxury car market, where German brands like Mercedes-Benz, BMW, and Audi dominate. "The Europeans will defend their ground very very strongly," says Dominique Turpin, professor of marketing at IMD in Lausanne, Switzerland.
Still, it would be folly to underestimate the Asians. Japanese carmakers' strength is developing new models rapidly and making small batches efficiently. As their production base in Europe grows, they may start to wield their ability to churn out hot niche models faster than their rivals. Other executives say the real worry is the relentless pressure the Asians could exert over time on margins. "The question is, what does the average compact car sell for in Europe in seven years' time?" says Volkswagen CEO Bernd Pischetsrieder. Squeezing out a profit on mass market models, already a pitiless task, is about to get that much tougher.
By Gail Edmondson in Frankfurt, with Brian Bremner in Tokyo and bureau reports
— With assistance by Brian Bremner