Revving-up car imports
With their 660cc or smaller engines, kei cars may be tiny in size, but they represent a huge challenge for European auto importers in Japan.
When consumers decide to buy a kei car – the name comes from keijidosha, meaning light car – they can count on saving hundreds of thousands of yen, in terms of lower taxes, insurance and other costs, compared to buying a larger car. That’s thanks to a range of preferential regulatory treatment.
“Over a nine-year period, the advantage of owning a kei car can be in the order of ¥600,000,” says Anthony Millington, head of the EBC Automobiles Committee.
The issue is significant for importers because these vehicles, their specifications laid out by the Japanese government, now occupy nearly a third of Japan’s car market. “Around 30% of Japan’s passenger car market is in effect ring-fenced against foreign competition,” Millington explains.
Preferential tax and fiscal treatment for kei cars is one of several issues and recommendations in the Automobiles Committee’s section of the EBC’s 2009 white paper. The others include reforming taxes on motorists – among the highest in the world – harmonisation of technical standards and certification, and streamlining the process by which advanced car-safety devices are approved for use in Japan.
The last few years have not been kind to car imports. Sales in Japan peaked in 1996 at over 300,000 vehicles with a market share of around 6-7%. Yet as the lean economic times lingered, more and more Japanese motorists eschewed imports. Market share for foreign-made cars dwindled to a mere 3.4%.
Making a bad situation worse for importers is the government’s programme to stimulate the domestic market, introduced in April last year. Motorists buying cars deemed environmentally friendly receive a subsidy under the scheme.
Nearly all foreign-made models, however, have found themselves ineligible. A separate cash-for-clunkers programme has similarly left the majority of foreign-made cars out in the cold.
“That’s been the main distorting element over the year. In our view, it has pushed the market right out of shape,” says Millington, who is also director general of the Tokyo office of the European Automobile Manufacturers’ Association (ACEA).
Pontus Haggstrom, another committee member and the president and CEO of Fiat Group Automobiles Japan, notes that “last year was a disaster for both domestic cars and imports”. Although the first months of 2010 have recorded a rise in auto sales in Japan, he predicts that after the incentive programme ends in September, Japan’s overall market will drop 50%. “Roughly half the government’s support for the market will be out of the picture,” says Haggstrom.
Many of the recent woes suffered by European makers stem from Japan’s unique emissions test cycle, the committee believes. The tests tend to show that European cars are less environment-friendly than their Japanese counterparts.
“Objectively speaking, we don’t feel that European vehicles are in any way less environment-friendly. If it appears that way, it’s just because they’ve been measured in a different way,” Millington says.
As a solution to that problem as well as to the tax burden on car buyers, the committee recommends hiking the tax on fuel while abolishing the acquisition and weight taxes.
“It means you pay taxes in proportion to the number of miles you travel,” says Millington. “When the engine turns over, it doesn’t matter what the test cycle is, you pay for what the engine consumes.” Current taxes make cars more expensive to buy, and thus dampen demand.
As head of both the EBC committee and the ACEA, Millington sees his role as le chef d’orchestre, tapping the right talent at the right time in dealings between the European auto industry and the Japanese government.
The industry in Japan is represented by the ACEA, which also functions as a secretariat for the EBC Automobiles Committee. “I draw on the expertise of the member companies, all of which have technical experts who are ready to pool their experience with this [ACEA’s] office,” he says.
An additional element in this arrangement is the Japan Automobile Importers Association (JAIA), which the Ministry of Economy Trade and Industry views as the official mouthpiece of car importers in Japan. ACEA’s job is not to bypass JAIA but to work closely with it. The JAIA, in turn, is closely tied to the Automobiles Committee, as a clear majority of the association’s members are European.
The committee notes that Japan’s new government is committed to reviewing taxation for automobiles. Meanwhile, officials continue to make slow but steady progress toward ironing out technical standards and harmonisation.
One big fear, however, is that Tokyo will revert to its old habit of ramping up exports rather than stirring up demand at home with a streamlining of regulations to lift the economy out of its doldrums. Should that happen, European manufacturers could well bring fewer and fewer models to Japan’s shrinking market. And who would lose out in all this? The Japanese consumer.