Japan is the world's 3rd largest auto market yet American cars hardly make a dent there. What gives?
The Japanese auto industry has been catching a lot of flak recently because of President Trump’s distaste for trade imbalances. That imbalance is most noticeable when comparing sales between Japanese cars in the US and American cars in Japan. In Japan, domestic automakers make up 90% of auto sales while in the US, American car brands make up 45% of sales while Japanese companies hold a 39% stake. As The Atlantic reports, one of the reasons for the imbalance lies with dealerships.
While the Trump administration likes to point towards protectionist trade policies that lead Japanese car buyers to favor cars made within the country and force foreign companies to work harder to compete, that doesn’t tell the whole story. And neither does the excuse that American cars are of poorer quality than Japanese cars. That may have held true in the past, but American automakers are slowly bridging that gap with high quality interiors, materials, and build. The reason, says The Atlantic, is that America car companies try to sell Japan cars using dealerships that operate similarly to the ones within our borders. The problem with that model is that the Japanese simply don't buy their cars this way.
And why should they? Here in America the fun of buying a car is dulled by the knowledge that you have to deal with a car dealership. Nobody, after all, wants to haggle with a salesman who’s more interested in commission than customer service or observe extreme caution when trying to avoid the financial trap doors littered in the buying process. In Japan, the picture looks quite different. There, dealerships keep a close relationship with customers while avoiding being pushy. They simply call every once in a while and ask the customer if they’re interested in buying a car. If the customer says yes, the dealership then shows up to their door with a few cars to test drive.
If the test drive ends in a purchase, the dealership handles things like car insurance and even comes back to the buyer’s home if insurance paperwork needs to be filled. The dealerships offer free carwashes as an additional extra, which serves the dual purpose of incentivizing the sale and keeping a close personal relationship with customers. “In Japan, everything is about hospitality,” says CEO of BMW Group Japan, Peter Kronschnabl. “If you are not into this, it will be very difficult to succeed in the Japanese market.” The problem for American car companies is that they have been reluctant to invest money into this sales model.
Ford recently pulled out of Japan after selling only 5,000 cars in 2016 and GM only sold 1,000 units during the same year. Low sales like these make US manufacturers reluctant to invest the serious cash it takes to bring their dealerships up to the same level as those of Japanese automakers, which include things like free maintenance with pick-up and drop-off service as perks that keep customers coming back. It would be a gamble for American automakers to take the leap and invest, but the payoffs could be huge given that Japan is currently the world’s 3rd largest auto market. Additionally, US automakers have been reluctant to make the changes to their cars that would make them more palatable to the Japanese market.
While companies like Buick and Lincoln extend wheelbases for the Chinese market, they have yet to design the sorts of small and light vehicles that Japan's dense urban population demands. All of this goes to show that if American carmakers want to conquer Japan, they have a few decisions and investments to make.