Volkswagen: "Japan Is Not A Closed Market."

Bertel Schmitt
by Bertel Schmitt

“No, Japan is not a closed market, come on, it has zero percent duty on cars.” Such spoke Yasuo Maruta, Communications Director of Volkswagen Japan, today at Volkswagen’s Tokyo offices. Volkswagen Group sold 66,000 cars in the first ten months of the year in Japan, and is expected to sell roughly 80,000 by the end of the year, making it Japan’s largest car importer, a title it held for as long as I can remember.

Maruta’s employer wants to enlarge its footprint in Japan. As a contribution to Strategie 2018, Volkswagen alone wants to sell more than 100,000 cars in Japan. Together with Audi , that would amount to roughly doubling its sales.

Volkswagen is not worried about the non-tariff barriers alleged by the American Automotive Policy Council on behalf of its paymaster GM, Ford and Chrysler. American companies have for all intents and purposes given up on the Japanese market. Instead of selling cars, they sell fiction about closed markets, manipulated currencies and threatened U.S. jobs. All Detroit brands together sold a little over 10,000 units in the first 9 months in Japan, a fraction of Volkswagen Group’s imports.

Maruta has a hard time coming up with hurdles that may be in the way of successful imports. “Type approval procedures are much less of a problem than in the past,” says Maruta, while noting that Japan’s preferential Handling Procedure allows small series of up to 2,000 units into the country with the barest of paperwork. Pressed hard to find something, he says that his company currently cannot import cars with CNG tanks into Japan. (Volkswagen’s Passat CNG hybrid is not available in the U.S. either.)

Volkswagen wants to expand its sizable dealer network in Japan, something that would be impossible if the propaganda of the anti-Japan lobby is to be believed. “Sure, land for dealerships is expensive in Japan, especially in the cities,” says Maruta. Except for a lack of money or patience, nothing bars an importer from establishing dealers in Japan. “Market entry takes a lot of time and money,” says Maruta, “you must go step by step.” Volkswagen has been in Japan since the ancient times of the original Bug.

Maruta is very familiar with the issue. Before coming to Volkswagen, he worked for Mazda, then GM. He recalls “when Toyota sold the Chevrolet Cavalier, I sold Saturn, and Chrysler tried to sell the Neon, they called it the Japan killer car, but unfortunately …”

Being a company that is heavy on small cars, Volkswagen has issues with Japan’s special treatment for Kei cars. Says Maruta: “Automotive tax for a kei is some 7,200 yen ($90) a year, compared to say a Vitz for which you would have to pay more than 30,000 yen ($374) a year.” Kei cars have 33 percent of the Japanese market, a segment Maruta’s employer can’t touch, because Volkswagen does not have the product.

Nothing precludes a foreign manufacturer from making and importing a kei, but it would be a silly exercise.Volkswagen’s design chief Walter de Silva “drew us a schematic, showing that he would need a completely new platform for a Volkswagen kei car,” chimes in Maruta’s collegaue, Dorothea Gasztner. “An outsider would never reach the volume necessary for a successful entry into the kei car market.” Even Japanese car companies battle with the low volume of keis. Production more and more concentrates on a few key makers such as Daihatsu and Suzuki that produce keis for other Japanese car companies. Subaru for instance handed its kei car production to Toyota’s Daihatsu, in return, Subaru manufactures the low volume hachi-roku sports car.

Volkswagen tried with an engagement with Suzuki, but it was thwarted. Not by a non-tariff barrier, but by a rambunctious Osamu Suzuki. Now, Volkswagen, along with importers allied in the Japan Automobile Importers Association, lobbies for an end of the preferential tax treatment of kei cars.

Another limitation to successful entry into the Japanese market is the Japanese customer that predominantly prefers homegrown cars. Maruta hopes to convince more. A recent study shows that 25 percent of Japanese car buyers would consider a foreign car, “whether they buy one is another matter,” Maruta says.

The key is having the right product that speaks to the peculiar Japanese psyche, where small is beautiful, and big is boorish. Volkswagen found that product in the small but peppy Up! that shapes up to be Volkswagen’s most successful Japanese product launch ever. In a few days (and after we have found a magnifying glass) we will look closer at the success of the Up! in Japan.

In October, sales of cars imported to Japan rose 20.1 percent year-on-year to 23,597 units, data released by the Japan Automobile Importers Association show. January through October, 257,206 units were imported.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Alluster Alluster on Nov 05, 2012

    The American Automotive Policy Council will not tell you the real reason American companies have abandoned the Japanese market, Profits!! There aren't any to be made in Japan for a volume player. Selling Kei cars will only make it worse. The only way to make money is by selling low volume niche products. VW enjoys some branding power and higher Audi sales more than offset negative margins on the Up. Det 3 and Hyundai/Kia do not enjoy the same branding power. H/K has completely left the market and Det3 have reduced themselves to selling low volume niche products. Toyota with nearly 50% market share has lost $13B in Japan over the last four years. Toyota Japan financial results FY2009 – Yen 237.5B loss ($2.96B Loss) FY2010 – Yen 225.2B loss ($2.81B Loss) FY2011 – Yen 362.4B loss ($4.55B Loss) FY2012 – Yen 207.0B loss ($2.58B Loss) There are no profits to me made so there is no point in expanding. The other factor restricting sales is prices. A base Chevy Sonic sells for $24,000 in Japan. How is that going to compete with a $18,000 Auris(Yaris)/Fit? Even the Fit hybrid costs less than a Sonic. For comparison how many Corollas would sell in the US if a base Corolla cost $24,000 while the Focus,Cruze and Dart sell for $18,000? Before you argue that the Sonic is an import in Japan while the Corolla is made locally in the US, 50% of Corollas sold last year in the US were imported before the Mississippi plant came online. A base Camaro costs $55,000 in Japan! It is good to see VW taking the charge and expanding into Japan. In a declining market, these sales have to some from somewhere (Most likely Toyota with 50% market share) further increasing losses for Japanese automakers in their home market. I want to see the Det 3 collaborate and create a joint platform Kei car and produce it locally in Japan to compete with Japanese automakers if only to f$^& with Toyota. The VW communications director is not stupid. He is not going to say anything negative about Japan if he intends on selling cars there. The same reason why Japanese Auto officials haven't been talking smack about Chinese officials fueling riots in China against Japanese automakers.

  • Pch101 Pch101 on Nov 06, 2012

    The ACEA (European Automobile Manufacturers Association) complains about Japan's non-tariff barriers, and opposes a free trade agreement between the EU and Japan. http://www.acea.be/news/news_detail/speaking_points_on_the_launch_of_free_trade_talks_between_the_eu_and_japan Volkswagen AG is a member of the ACEA. I really don't understand TTAC's compulsion to spin this NTB story as a uniquely American complaint. The Americans and Europeans have very similar complaints. Japan signed on to the international agreement for harmonized standards (which is essentially an agreement to apply EU standards outside of the EU). Yet Japan continues to maintain its own standards with its own type certification process, which slows and complicates the process of getting imports approved for sale in Japan. Again, why TTAC chooses to misrepresent the grievances, I don't know, but again, the Europeans are making largely the same complaints about Japan's approval processes that the Americans are.

    • See 2 previous
    • Bertel Schmitt Bertel Schmitt on Nov 06, 2012

      @Bertel Schmitt If you insist to walk into a mine field … but where to start? First off, UNECE is not “essentially an agreement to apply EU standards outside of the EU.” Far from it. UNECE itself was born long before there was an EU, even before there was modern Germany. It was founded in 1947, with signatories such as the U.S. and Russia. The World Forum for Harmonization of Vehicle Regulations, established in 1952, led to the 1958 agreement for a type approval framework, again, under United Nation auspices, but without the U.S.. Granted, the framework philosophy has its roots in Europe, actually in the principle of Germany’s “Allgemeine Betriebserlaubnis,” but saying that the framework applies EU standards outside of the EU would be like saying that Greek and British law applies to the U.S., just because the U.S. is a democracy that follows the common law principle. Second, the unwieldy titled 1958 “Agreement concerning the adoption of uniform technical prescriptions for wheeled vehicles, equipment and parts which can be fitted and/or be used on wheeled vehicles and the conditions for reciprocal recognition of approvals granted on the basis of these prescriptions" basically is a framework for the mutual acceptance of type approvals of car parts and components, and in that, mostly for replacement parts. The UNECE agreement does not govern type approval for whole cars. Basically, if Belgium says that the Frammel XYZ widget is ok for your 2013 Borgward, then that widget is ok with all other agreement signatories - if and only if they have also adopted the respective UNECE regulation pertaining to that widget. You follow? I warned you it’s arcane. Third, there are more than 100 regulations, and each signatory is free to adopt as many as seen fit. Tracking which of the more than 100 regulations is adopted in which of the more than 50 signatories is challenging even for a highly trained expert. Fourth, as noted above, the UNECE framework is not about whole car type approval. A car that is street legal in Europe is not automatically street legal in other UNECE states. The separate EC Whole Vehicle Type Approval (ECWVTA) provides that a car that is street legal in Belgium is also street legal in Austria. But not in Australia. ECWVTA is a EU rule, just like a visa to Germany is valid in all Schengen states. There are ongoing discussions to expand the UNECE type approval of vehicle systems and separate components to whole cars, but this seems to be far away. You can’t blame Japan, Australia or any other non-EU country for signing UNECE and then demanding separate whole car certification. It is not in the scope of the 1958 UNECE agreement. Fifth, from an American perspective it is highly dangerous to use the certification issue as proof for a non tariff barrier or a closed market. The U.S. has chosen to stay outside of UNECE et al and has a completely different regimen. If separate certification is used as a closed market argument, then the U.S. would be the most tightly closed market of all. Careful, mines. Sixth, I have the feeling that the answer might be too complex for a short comment. I think it is worth an extra article. Stay tuned.

  • ToolGuy Once again my home did not catch on fire and my fire extinguisher(s) stayed in the closet, unused. I guess I threw my money away on fire extinguishers.(And by fire extinguishers I mean nuclear missiles.)
  • Carson D The UAW has succeeded in organizing a US VW plant before. There's a reason they don't teach history in the schools any longer. People wouldn't make the same mistakes.
  • B-BodyBuick84 Mitsubishi Pajero Sport of course, a 7 seater, 2.4 turbo-diesel I4 BOF SUV with Super-Select 4WD, centre and rear locking diffs standard of course.
  • Corey Lewis Think how dated this 80s design was by 1995!
  • Tassos Jong-iL Communist America Rises!
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