Advanced Automotive Technologies Industry In Japan

Definition / Scope

The automotive industry involves a wide range of companies and organizations engaged in design, development, manufacturing, marketing and selling of motor vehicles. It is one of the world’s most important economic sector by revenue. The automotive industry does not include industries dedicated to the maintenance of automobiles following delivery to the end user such as automobile repair and motor fuel filling stations.

The Japanese automotive industry is one of the most prominent and largest industries in the world. Japan has been in the top 3 of the countries with most cars produced since 1960s and eventually surpassed Germany and the US. Japanese investments helped grow the automotive industry in many countries throughout the past few decades. In the first quarter of 2008, the Japan car manufacturing company Toyota surpassed American General Motors to become the world’s largest car manufacturer. However it dropped to 3^rd place in 2010.

Market Overview

The automotive industry of Japan is looking at hydrogen as a main energy source in future to power its transport systems, making an effort to reduce its dependency on fossil fuels and nuclear energy. The hydrogen to be used is a byproduct generated during iron manufacturing.

The automotive industry in Japan to implement hydrogen fuel cells will be assisted by the government in Japan. This technology is being developed by Toyota in Japan.

The future of this new automotive technology in Japan is expected to hit $400 million market for the hydrogen fuel cell vehicles. Honda and Hyundai are working on improving the business infrastructure for fuel cells, with fuel refilling centers around the world and in Japan. The government plans 100 refueling centers.

Japan is currently the world’s 3^rd, with an annual production of 9.9 million automobiles in 2012, and 1^st from 1980-1993 and 2006-2008, largest automobile manufacturer and exporter and has sixth of the world’s ten largest automobile manufacturers in ranking.

The automobile industry in Japan is not going anywhere soon. There are lots of opportunities in this industry for both old and new market entries, including those interested in franchising, benefiting from entire automotive aftermarket ranging from repairs and maintenance, accessories and auto body jobs.

Automotive Industry: An integrated industry

Automobiles are the focus of an extremely wide range of industrial and related activity, from materials supply and vehicle production to sales, servicing, freight shipping and other auto centered operations. In 2013, the automobile related employment in Japan was 5.48 million people.

An automobile is made of several components ranging between 20,000 to 30,000 components, which a single company cannot manufacture. Thus automakers outsource the production or purchase finished products from other companies including products manufactured abroad. Automobile industry is thus an integrated industry because it relies on several supporting industries for its diversity of materials and components. Trends in automobile industry which makes huge investments in equipment and research and development activities are considered a barometer of the economy.

In 2012 automotive shipments accounted for 17.4% of the total value of Japan’s manufacturing shipments, and 39.7% of the value of the machinery industries’ combined shipments. Automotive shipments, both domestic and export shipments, including motorcycles, auto parts, etc., in value terms totaled 50.3 trillion yen in 2012, up by 14.3% from the past year.

Top Market Opportunities

The automotive industry in Japan in heading towards manufacturing environment friendly vehicles, hydrogen and electric cars. The increase in fossil fuel prices encourages the consumers to buy such cars. Not only in Japan but in other countries across the globe, the demand for environment friendly vehicles is increasing and is being implemented.

The business has manufacturing facilities in Japan. And are often subject to natural disasters that disrupt the manufacturing processes and results in lower production volumes and losses. In the Japan Automobile Industry more revenue comes from foreign countries. Appreciating yen exchange rate against other currencies means lower profits for the company. Rising prices for raw metals will impact the costs for auto manufacturers and result in squeezed profits.

Aside from the general consumer market, experimental adoption of fuel cell vehicles is also taking place, aided by the government subsidy for green transportation businesses. The widespread presence of FC stations is essential to the spread of FC cars. Although government aims to establish 100 stations within the year, there were still only nine FC stations in operation as of March 17, 2015. Automobile and infrastructure companies are working together to tackle this issue.

Beginning in 2009, the purchase of eco-friendly vehicles were first introduced, the share of next generation vehicles (including hybrid, electric, fuel cell, natural gas, clean diesel, and other new energy vehicles) in total passenger car sales surged. In 2013, about 4.14 million next generation vehicles were in circulation in Japan, but this is still a very small number, accounting for only 5.4% of all the motor vehicles in use in Japan today. The more widespread use of these vehicles requires not only further advances in vehicle and related technologies, but also, among other government initiatives, the establishment of the necessary fuel/energy infrastructures and the continued provision of purchasing incentives.

To help increase the shift to low carbon road transport in the interest of reducing global warming, the Japanese government has, since 2009, applied auto related tax incentives to promote a wider use of eco-friendly vehicles. Further tax reductions have been in effect since April 1, 2014.

The green movement has hit the automotive industry as all car manufacturers are focusing their attention on producing more environmentally friendly and fuel efficient vehicles. As this infant market matures, there will be a demand for services from business that understands how to cater to these specific types of vehicles.

For potential business owner who have an interest in the automotive industry in Japan, plunging into the automotive franchise will provide a good opportunity for everyone.

Market Drivers

The Japanese automotive industry is one of the top most prominent and largest industries in the world. Japan has been in the top three of the countries with most cars manufactured since 1960s, surpassing Germany. The automotive industry in Japan rapidly increased from the 1970s to the 1990s (when it was oriented both for domestic use and world-wide export) and in the 1980s and 1990s, overtook the US as the production leader with up to 13 million cars per year manufactured and significant exports.

The automotive industry is one of the Japanese economy’s core industrial sector. As per the Japan Automobile Manufacturers Association, Inc., in a press release June 8, 2015, showed significant increase in Japanese Automakers’ economic contributions to the United States. The 2014 data highlights record high employment and growing investment by Japanese Automobile companies in America.

In 2012, Japanese brand car production facilities and their suppliers generated almost 700,000 manufacturing and other jobs in America, according to a report by Rutgers University economics professor Thomas J. Prusa, Ph.D. including dealer networks, Japanese brand companies accounted for an estimated 1.3 million American jobs.

Directly or indirectly, roughly 9% (5.47 million) of Japan’s working population is involved in auto industry related work, which means it is generating a huge employment for Japanese people. The globalization of auto manufacturing also contributes significantly to local and national economies around the world.

Consumer reports states that Japanese manufactured automobiles are among the most dependable and reliable available. Certain makes and models of Japanese cars appear in the consumer report lists of most reliable used cars year after year.

Japanese auto sales in April 2013 dropped by 5.5% after a sales tax hike was imposed, creating a low demand in Domestic Market.

The production of passenger vehicles by Japanese manufacturers in 2014 saw a slight increase of 1% compared to the previous year. Toyota produced more than 1/3^rd of all passenger vehicles and other manufacturers holding market shares of between 7% and 11% of the market. The production of lightweight cars showed a strong growth of 11%, with total production of this vehicle type surpassing that of compact cars.

Foreign vehicles are penetrating into the Japan automobile industry, where over the past 5 years sales of cars made by foreign manufacturers have been steadily increasing with up to 8.9% of foreign cars sold in 2014 in Japan.

Adoption of car sharing is rapidly increasing in contrast to the stagnant growth of passenger car sales. The number of members of car sharing services has been rising rapidly since 2010 and is now estimated to stand at over 600,000. This is equivalent to 0.47% of the population, making for arguable the second highest rate of market penetration for this type of service, after Switzerland’s 1.3%. Car sharing in Japan, however, is still a limited phenomenon. The total number of cars available for sharing is just 5% that of the rental cars and 5.6% of that of the taxis in the market. However, car sharing has a potential to tap a unique demand due to its interesting balance of granularity and autonomy compared to taxis.

In 2013, motor vehicle production in Japan decreased for the first time in two years, totaling 9.63 million units, down by 3.1% from the previous year. Passenger car production declined by 4.3% to a total of 8.19 million units. Within that category, standard car and small car production dropped 1.5% and 16.2% to a total of 4.62 million and 1.89 million units respectively. However, mini-car production rose by 4.2% to 1.68 million units. Truck and Bus production showed an increase over 2012, growing 3.3% to 1.31 million units and 8.6% to 133,000 units, respectively. Passenger car and commercial vehicle demand in Japan in 2013 totaled 5.38 million units, an increase of 0.1% from the previous year.

Market Size and Forecast

Passenger car market trends in Japan

As per the results of the survey conducted by JAMA in the fiscal year 2013 on the passenger car use in Japan, passenger car ownership among responding households stood at 82%, with higher ownership rates outside of major cities and lower ownership rates among single person and senior households. The ownership of passenger cars were correlated more closely with necessity than convenience. The survey also recorded a continued growth in mini sized passenger car ownership and in multiple passenger car ownership that included mini car ownership. Economic factors ranked high among respondents’ reasons for non-ownership mainly among single person households and households with children younger than high school age. The survey revealed growing passenger car ownership among seniors and women. Shopping and errands were the main category of passenger car use. Roughly 60% respondents indicated that maintenance costs post a financial burden. Survey results confirmed a shift to smaller models for both first time purchases and vehicle replacement purchases. Longer periods of vehicle ownership prior to carrying out a replacement purchase remained an ongoing trend.

Respondents of the survey expressed their intentions to reduce the number of units owned and extend the period of current vehicle ownership before making a replacement purchase. For future vehicle purchases, respondents indicated a continued desire to downsize.

While the passenger car ownership in Japan has a positive trend, the number of small and mini sized trucks and vans in use continues to decline.

Consumer receptiveness to hybrid vehicles is high, although intentions to purchase a next generation eco-friendly vehicle continues to lag.

Japanese vehicle export and import statistics

Japan’s main export goods are cars. Most important trade partners are China and the USA, followed by South Korea, Taiwan, Hong Kong, Singapore, Thailand and Germany. In total 4,674,633 motor vehicle export by the Japanese automobile to all above country has been made.

In 2013, Japan’s gross exports rose by 9.5% from the previous year, and imports increased by 14.9%. Automotive exports grew 11.7% from 2012 to 14.2 trillion yen, with rises across the board in motor vehicle, motorcycle and parts exports. Automotive imports also increased by 21.9% year on year to 1.8 trillion yen, with both motor vehicle and parts imports showing growth.

Imported vehicle sales in Japan in 2013 totaled 346,000 units, up 9.5% from the previous year. While passenger car sales climbed 10.2% to 331,000 units, commercial vehicles (trucks and buses) dipped 3.6% to under 15000 units. Sales of used imported vehicles finished at 508,000 units, unchanged from the previous year, with passenger cars holding 488,000 units, and trucks growing 5.4% to 15,000 units.

In general, Japan has not imported an unusually large amount as a share of its GNP, but it has been highly dependent on imports for a variety of critical raw materials.

Market Outlook

For the fiscal year 2015, the outlook for Japan’s domestic motor vehicles is hindered by the impact of hike in national consumption (sales) tax implemented in April 2014 and increase in the mini vehicle tax effective from April 1 2015.

The global operations of Japanese automobile manufacturers continue to grow, focusing increasingly on on-site manufacturing to meet local needs. Whether as independent operations, joint ventures or technical tie ups, local manufacturing activities are conducted in numerous countries around the world. Overseas production brings significant benefits to local economies and host countries, including employment, industrial development and technology transfer. With economic globalization, Japanese automobile manufacturers have rapidly adapted to the needs of individual markets, not only by shifting production to those markets but also by forging extensive alliances with overseas manufacturers. Various forms of partnership currently exist between Japanese, US, and the European automakers- including capital and technical tie ups, joint R&D and production operations, and cooperative sales ties, and such arrangements are expanding yearly.

The globalization of automobile industry continues and the expansion of international alliances is flourishing. With the growth of such alliances, companies are able to address niche markets without staggering costs of development, while competition continues in other areas. Such co-operations results in lowered costs and improved efficiency. Alliances with western manufacturers continue to expand and multiply, while ties with Asian manufacturers are increasingly reflecting the Japanese automobile industry’s desire to establish a mutually beneficial global system of trade in automobiles and auto parts.

Overall, looking at how the Japanese Automotive Industry is performing in all aspects including manufacturing, quality control, export and import, we can undoubtedly say that the Japanese Automobile Industry has obtained a remarkable progress in the past few decades.