The Journal The Authority on Global Business in Japan

Ford Motor Company pulled no punches when announcing its decision to leave the Japanese market in January 2016. Saying that the Trans-Pacific Partnership (TPP) would not improve competitiveness, Ford spokesman Neal McCarthy described Japan as “the most closed, developed auto economy in the world.”

But while imported models have only around a 6 percent share of new car sales in the world’s third-largest auto market, other US automakers are carving out a profitable niche in Japan. To do this, they are tailoring their products to local consumers and building on the strength of their brands. Jeep, owned by Fiat Chrysler Automobiles (FCA), and relative newcomer Tesla Motors are leading the way.

“You don’t have to be a mass player to reap the benefits in a large market like Japan,” said Pontus Haggstrom, president of FCA Japan and chair of the American Automotive Industries Committee of the American Chamber of Commerce in Japan (ACCJ).

“With Jeep, we focus on SUVs and we do it well, so much so that we have top performing models in each of the SUV segments in Japan.”

According to Haggstrom, Jeep sales have raced from just 1,000 in 2009 to more than 7,000 last year; and likely will hit 10,000 in 2016.

GOING AGAINST TRAFFIC
Yet sales have been less than impressive for the rest of Detroit’s Big Three.

Ford sold just 5,000 vehicles in Japan in 2015. General Motors (GM) sold even fewer, and sales of Chrysler vehicles were lower still. Compare this with the success their Japanese rivals enjoy in the United States, where they garner a third of all new-car registrations in the world’s second-largest car market.

Yet not all foreign brands have failed to appeal to the Japanese consumer. More than 80 percent of foreign-branded imports in 2015 were from European manufacturers such as Volkswagen, BMW, Mercedes-Benz, Audi, and Volvo.

While Japan does not impose tariffs on US car imports, American automakers have cited non-tariff barriers to competition. These include unique standards, zoning rules for distribution and repair facilities, discriminatory financial incentives, and costly certification procedures.

The TPP may help lower such walls. Specific measures under the US–Japan Motor Vehicle Trade provisions are aimed at creating “substantive, enforceable reforms” to further open the door to US motor vehicle exports.

According to Haggstrom, Japan-specific legislation and testing requirements—along with limited access to domestic distribution and the fleet market—are still limiting the opportunities available to foreign automakers.

But while the removal of these barriers may help US companies reach Japanese consumers more efficiently, there is still the issue of convincing them to buy American.

“Unfortunately, a lot of Japanese still believe that foreign cars in general are more expensive than they actually are, or that mileage is not as good as it really is,” Haggstrom explained.

“So when I tell them how much our cars cost or what their mileage is, I get a lot of surprised reactions. We just have to keep educating people, hammering away on our core brand values.”

ROOM TO GROW
Jeep has rapidly gained stature in Japan after passing Ford as the top-selling US brand in 2012, the same year that the Cherokee—one of Jeep’s most popular models—became the first US vehicle to make the list of the top 10 cars in Japan. It finished eighth.

Although Jeep is still a small fish in a big pond, its recent sales success proves there is room in the market for a US brand that understands the consumer and gets its positioning right, according to Haggstrom.

“You can’t come to the world’s most sophisticated consumer market and try to wing it,” he said. “If you look at successful American brands in Japan, such as Harley-Davidson or Coach handbags, they all share the same thing: they have very clear core values.”

It’s one thing to understand the Japanese consumer, but it’s another thing entirely to display a willingness to meet their needs. GM notoriously marketed vehicles with the steering wheel on the left, while American brands boycotted the Tokyo Motor Show altogether beginning in 2007. Jeep returned in 2015.

“We do a lot of work to adapt the cars to this market,” Haggstrom explained. “All our cars are right-hand drive, all our cars are available with a Japanese navigation system—and all the other technological bits and pieces the consumers require here—so we have put a lot of effort into adapting the product.”

Hans Greimel, Asia editor for Automotive News, agrees that Jeep’s success is attributable to its understanding of Japanese consumers. “I think the biggest lesson is, try to know your audience. What is it that the locals want? For a long time, the Americans were offering American cars in Japan that didn’t meet local needs.”

“Jeep and Tesla aren’t burning down the house with superstar sales,” he continued, “but they are successful in Japan by having niche products that are unique.”

S FOR SUCCESS?
While Jeep has helped build a positive brand image for US vehicles in Japan, the recent arrival of Tesla Motors has lifted the US industry’s technological edge another notch.

Although Tesla did not begin distribution of its Model S in Japan until late 2014, the vehicle has allowed the California carmaker to compete with the local electric vehicle offerings while being ranked among the luxury import brands.

Delivery of the Tesla Model 3 is set to commence in 2017. While it will retain most of the technology that is in the Model S, it will be less than half the price and 20 percent smaller—another added bonus in the Japanese market.

Tesla Asia/Pacific Director for Retail Development Kevin Yu told media in 2013 that “from an American point of view, Japanese consumers are extremely open-minded. They are extremely open to new technology.”

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TESLA FIGHTERS
Traditional automakers have needed no convincing of the electric vehicle market’s potential, with automakers in Europe, the US, and Japan all planning to roll out competing products within the next few years. Collectively they’ve become known as “Tesla Fighters.”

In Japan, Nissan Motor Co., Ltd.—whose Leaf model is currently the best-selling electric vehicle of all time—is “committed and well-prepared to defend our global EV [electric vehicle] leadership position,” according to spokesman Nicholas Maxfield.

Maxfield points to Nissan’s 2016 Leaf, which has an extended driving range of 280 kilometers (about 174 miles).

Meanwhile, Toyota Motor Corporation is turning its attention to EVs that utilize fuel cells. Unlike the Tesla and Leaf, these cars do not have batteries. Instead they run on hydrogen technology.

Whether the Model 3 will reach Japanese consumers before its Nissan and Toyota counterparts remains to be seen. But whoever can get to market first will surely benefit from a first-mover advantage.

Tesla co-founder and CEO Elon Musk appears very much aware of this potential. When speaking about the vehicle’s Panasonic battery being made in Japan, he told media in 2014 that, “the heart of Model S is Japanese. I think that’s a pretty cool thing.”

But while US automakers may be winning over more Japanese consumers, they are also battling a shrinking domestic market. Due in part to the nation’s aging population, total passenger vehicle sales fell by 9 percent last year to around 5 million—well down from the peak of 7.8 million in 1990.

While FCA’s Haggstrom points to market changes such as electric cars and autonomous driving, he suggests US automakers can still make gains even in a declining market.

“You go out onto the street, and six out of 10 people don’t even know what a Jeep is—so there’s still room to penetrate this consumer market. When you’re relatively small, there is still room to grow,” he said.

Anthony Fensom is a communication consultant/writer with experience in Australian/Asian financial and media industries, including six years in Tokyo.
"You don't have to be a mass player to reap the benefits in a large market like Japan."