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When Kaoru Eguchi, deputy general manager of Nissan's Iwaki plant, saw the damage after the March earthquake, he thought the plant was finished. (Junko Kimura for The Globe and Mail/Junko Kimura for The Globe and Mail)
When Kaoru Eguchi, deputy general manager of Nissan's Iwaki plant, saw the damage after the March earthquake, he thought the plant was finished. (Junko Kimura for The Globe and Mail/Junko Kimura for The Globe and Mail)

After a year of disasters, Japan's auto sector fights back Add to ...

Mr. Shiga of Nissan acknowledged that building in such redundancies goes against one of the key strengths of the Japanese production system – lean production and low inventory. “But this is also not good for disasters,” he said. “It was proven.”

Arguably, there is more pressure than ever on Japanese auto makers to be efficient and low-cost. Their North American rivals are stronger now – thanks in part to the Chapter 11 bankruptcy restructuring that enabled two of the Detroit Three to flush tens of billions of dollars of debt from their balance sheets.

The Detroit companies and virtually every other global auto maker, from Hyundai Motor Co. of South Korea to Volkswagen AG of Germany, have also vastly improved the quality of the vehicles they offer, reducing what was once an overwhelming Japanese advantage.

“That’s why they have to do something else,” veteran Japanese analyst Koji Endo, managing director of Tokyo-based investment firm Advanced Research, said of the Japanese companies. The challenge for Japan is finding that “something else” – that new competitive edge.

Winning back the market share they have lost over the past three years is critical to restoring profitability, and is one reason why there was so much urgency to getting the factories running quickly again after the earthquake. Without a steady stream of profits, Japan’s auto sector won’t be able to finance the innovations it needs, to compete today and to cope with the big threats that loom on the horizon.

The short-term response is a deluge of new and redesigned models. That includes some vehicles whose arrival in the key North American market was delayed because of the quake, notably the redesigned version of Honda’s CR-V crossover, which is its second-best selling vehicle in Canada and No. 3 in the United States.

Looking further out, the Japanese companies will attempt to regain the technological edge that enabled Honda to become the global leader in engine technology and Toyota to capture the hearts of green drivers with the hybrid Prius.

Nissan has introduced the electric Leaf, making a big bet that battery-powered vehicles are the future.

Toyota is pushing its hybrid technology forward with plug-in hybrids. Honda and Mazda Motor Corp. are pressing forward with new innovations to increase fuel efficiency and cut emissions. And in a major acknowledgment of how the world has changed, Toyota has abandoned its resistance to diesel-powered vehicles and signed a deal with rival BMW AG of Germany to jointly develop diesels for Toyota.

But even with all that, a new threat is emerging for Japan Auto Inc. – China.

Mr. Endo recounts a telling conversation he had with Chinese government officials.

He was told that Beijing wants three of its auto makers to be listed among the top 10 global car manufacturers by 2030, but the officials did not believe China can catch the Japanese, Americans or Europeans in conventional gasoline engines.

That means the world’s most-populous country will focus on battery-powered or plug-in hybrid vehicles and is able to do so without the constraint of investors demanding an immediate return.

“In order to do that, the Chinese government is ready to spend as much money as possible,” Mr. Endo said. “So Toyota has to compete against the Chinese government – not just Toyota, but Nissan, everyone. That’s a tough thing.” The rebuilding of Japan Automotive Inc. has only just begun.

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THE LUXURY FACTOR

Japanese companies held 31.5 per cent of the global auto market when the recession sent the industry reeling at the end of 2008.

By Sept. 30, 2011, that share had fallen to 26.4 per cent amid the recall crisis that battered Toyota for most of 2010, which was followed by the production cuts caused by the Japanese earthquake and tsunami and Thailand floods, and then the soaring yen.

Not all companies have been hurt. Nissan, for example, now holds 5.4 per cent of the global market compared with 4.9 per cent in 2008.

By another measure, however, the quality of Nissan’s share has deteriorated – as has that of Toyota.

That measure is luxury sales. Sales by Nissan and Toyota’s luxury brands – Infiniti and Lexus, respectively – represent a smaller percentage of those companies’ total sales in the U.S. market than they did a year ago.

After leading the U.S. luxury rankings for the past several years, Lexus now trails BMW and Mercedes-Benz in one of the largest and most lucrative markets.

Acura, Honda’s luxury division, is being pressed hard by Audi for the No. 4 spot among offshore brands in the U.S. luxury race.

Those brands are also laggards in some growing markets. Lexus, for example, badly trails Audi and other Germany-based luxury auto makers in China.

Greg Keenan

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