Small is now very big in Japan. When the final figures were tallied last week, the Wagon R’s 1998 sales came to an astonishing 206,550 cars. That was enough to push a vehicle that looks like a Soap Box Derby entry past the Toyota Corolla as Japan’s top-selling automobile. As the good news spread at Suzuki’s headquarters in Hamamatsu, industry watchers pondered the defeat of Toyota’s legendary compact–a car that captured its first sales title in 1969, the year Neil Armstrong walked on the moon, and held it for the next 29 years. Says Noriyuki Matsusima, senior automotive analyst at Tokyo’s Nikko Research Center: “The symbol of the Japanese auto world has fallen.”
Brought down by the smallest, cheapest–and hottest–cars in Japan: the minicars. In showrooms across the country, where the slump that has ravaged the world’s second largest economy dragged down auto sales 15.2 percent last year, consumers are buying these “recession cars” in record numbers. And the fad is spreading. As crony capitalism falls across Asia, big sedans synonymous with privilege are giving way to economical vehicles the middle class can afford. Further afield, Japan Inc.’s marketers are finding little interest among gas-guzzling Americans, but they are preparing a major assault on the European market. “What’s happening in Japan’s small-car segment has global ramifications,” says Peter Boardman, senior analyst at Warburg Dillon Read in Tokyo.
With sticker prices starting at less than $6,000, 70-miles-per-gallon efficiency and taxes set two-thirds lower than for subcompacts, minicars are perfect vehicles for an era of declining expectations. Honda’s top model, the Life, now sells twice as fast as any other vehicle in the company’s fleet. At Mitsuhishi, one of Japan’s struggling automakers, three popular minicars have kept the firm from drowning in red ink. Daihatsu’s Move is selling nearly as quickly as Suzuki’s Wagon R. The same pattern holds across Asia. In South Korea, a Daewoo minicar based on a Suzuki design is the top seller. Malaysia’s national minicar, a Daihatsu joint venture, is also No. 1. In China, a locally manufactured Suzuki is gaining market share from larger Volkswagens, Audis and Jeeps. And the list goes on.
Kept small by strict regulations and limited to maximum engine displacements of just 660 cc (roughly half that of Japan’s largest motorcycles), minicars were once seen as too slow, ugly and dangerous for anything more than a trip to the market. That changed in October, when new regulations permitted slightly larger minis and required them to pass the same crash tests as full-size cars. As a result, many people are losing their main hang-up about minicars–fear of riding in a death trap. “They used to have a stigma–a ‘people mover’ or a ‘mom car’,” says Aiko Morton, an automobile analyst at J.D. Power. “Now they look great.”
The auto world’s titans are watching closely. Japan’s largest automaker, Toyota, recently purchased a majority stake in Daihatsu, the country’s second largest minicar producer. “Daihatsu makes better low-cost, low-priced cars,” concedes a senior Toyota executive–adding that Toyota might put its name on a Daihatsu-built minicar. The Daimler-Chrysler merger aligned the U.S. automaker with the Mercedes Benz A-class economy car and its Smart minicar, codeveloped with Swiss watchmaker Swatch. General Motors, for its part, increased its stake in Suzuki to 10 percent. “Mini and small vehicles are an area where we’re vulnerable,” said GM boss John F. Smith in an industry newsletter, “particularly in the developing world, which wants more affordable vehicles than GM currently offers.”
Japan’s minicars trace their pedigrees to three-wheeled motorcycles popular after World War II. But they owe even more to the Ministry of International Trade and Industry, which in 1955 called for a Japanese “people’s car” emulating West Germany’s Volkswagen. MITI’s concept: a 500-cc sedan that could carry four adults, run at 100 kilometers per hour and cost $700. It proved unrealistic, but the dream of a car for Japan’s masses, as opposed to hefty black sedans favored by the elite, took hold. Using technology transfers from the British (Austin), French (Renault) and the Americans (Willys-Overland), Japan’s industrialists went to work. The 360-cc Suzulight was the first people’s car to market, followed in 1958 by the popular Subaru 360, dubbed the “Ladybug.”
By the 1960s, Japan developed new, larger ambitions: exporting to America. Its opening came during the 1973 OPEC oil embargo, after gas prices quadrupled at a time when Detroit produced cars averaging just 13 miles per gallon. Fuel-efficient exports from Honda, Datsun and Toyota captured huge markets. Back in Japan, second-tier automakers opted out of the American invasion. In 1979, Suzuki introduced Japan’s first modern minicar: the Alto. With three doors, a 550-cc engine and a 100-kph top speed, it cost just $2,200. As Japan lurched toward recession in the 1990s, Suzuki engineer Kiyoshi Aoshima crafted the Alto into a new concept car suited for hard times. “We wanted a car that a couple with two kids could drive to the mountains,” he recalls, “or park in front of a Tokyo coffee shop without feeling shabby.”
Suzuki called it the Wagon R. Launched in late 1993, Aoshima’s creation became Japan’s car of the decade. It accommodates four adults and luggage, and has seats that recline, fold flat into a bed or tuck away to maximize storage space. “It’s like a 4.5-tatami room,” marvels one Tokyo-based analyst, referring to the multifunctional spaces in small Japanese homes. Every Japanese minicar maker borrowed the Wagon R concept, and it appeared later in the two Mercedes designs, the A-class and the Smart.
For fans of Japanese gadgetry, the new minicars are a rare feast. The hottest versions boast turbocharged engines, road-hugging suspensions, six-CD stereos, climate control and satellite navigation systems–all for less than $12,000 a car. Subaru’s new Pleo comes with a high-tech belt-drive transmission that goes from a stop to 130 kph with no lurching gearshifts. Unless you want a few. Select Sport Shift 7 mode and the transmission changes to a seven-speed manual controlled by upshift and downshift buttons located on the steering wheel. “Weird to us,” quips a fortysomething auto analyst. “But for the videogame generation, perfect.”
DESIGNERS STRUGGLE TO MAKE minicars as stable, quiet and roomy as their larger cousins. From a technological perspective, this year’s standout mini is Honda’s “Z.” It boasts four-wheel drive and an engine that sits under the rear seat. The design allows for “crumple zones” in the front and rear that absorb energy during high-speed collisions. Protecting passengers against side-impact collisions was tougher. Honda designers crashed “more than 10” cars before they had it right, says a company engineer.
Japan’s minicar makers rolled out 16 new models in October, with ads portraying minis as safe, environmentally friendly–and cool. (Suzuki’s pitch man is “Titanic” heartthrob Leonardo DeCaprio.) Matsusima, the Nikko analyst, thinks a minicar invasion from Japan “could challenge the world.” Others say the five minicar makers can’t survive on Japanese demand alone, and that makes exporting a necessity.
Here, too, Suzuki is the trailblazer. It makes five different minicars, but all share the Alto’s engine and drive-train components, or platform. (Toyota, by contrast, has 26 platforms.) That allows Suzuki to spread the $500 million cost of each design change over vehicles sold from Beijing to Budapest. The simple platform makes manufacturing profitable in “challenging” countries like China and India. Says Koji Endo, a senior analyst at Schroders in Tokyo, “Suzuki probably has the lowest production cost per vehicle in the world.”
Such efficiency is already paying off overseas. Look at Hong Kong, the former British colony reputed to have more Rolls-Royces per capita than any city on the planet. Mercedes-Benz, once ranked first in sales, has dropped to 10th; Mercedes saleswoman Vivian Leung says she has put off her Japan vacation and “can’t even afford to buy new clothes.” Across town, the Daihatsu showroom in blue-collar Mongkok introduced mini-cars six months ago, and Herbert Wong has already sold more than a hundred–many for just $500 down and $125 a month in payments. “Anyone can buy one,” he says. “All you need is a job–any job.”
Across Asia, the age of the “people’s car” is dawning. In some places, auto sales are down to 1970s levels. Yet in country after country, minicars are taking off. In Malaysia, the national Proton car’s most popular model is losing sales, while the 660-cc Kancil has grabbed 40 percent of the market. In South Korea, where the government gives tax incentives to minicars, Daewoo’s 800-cc model has become the national best seller. In China, the four-door Shanghai Volkswagen, catering to executives and bureaucrats who are losing their perks, risks giving up market share to smaller cars priced for individuals. Suzuki’s Alto, produced by a licensing agreement in Chongqing, saw sales increase 35 percent during the first half of last year. Daihatsu’s compact, the Charade, enjoys similar growth.
Companies are scrambling to respond to shifts in Chinese demand. GM rolled its first Buick off a new, $1.5 billion assembly line in Shanghai just last month, producing an American-size sedan that starts at $36,000. But company officials are eager to diversify in China. “We continue to look for a partner for a small-car project,” says GM China’s president, Lawrence Zahner, adding: “It’s a very flexible factory.”
WHEN THE ASIAN FINANCIAL CRISIS finally eases, the regional car market could look a lot like Sanjay Sikand’s Maruti showroom in downtown New Delhi, where rock music blares from behind potted plants and laser lights glint off candy-colored minicars. One of Asia’s last unsaturated markets, India is now a battleground: Suzuki, Maruti’s joint-venture partner, controls 80 percent of the market, but Korean automakers Daewoo (a former buyer of Suzuki technology) and Hyundai (a current buyer of Mitsubishi know-how) both want in. After investing $800 million in a factory near New Delhi, Daewoo launched a locally made Matiz last month. “With typical Korean aggression,” says automotive writer Murad Ali Baig, “they’re going to go for Maruti’s throat.”
The next battleground is Europe. Nine years ago Tokyo voluntarily agreed to cap exports to Western Europe at 10 percent of market demand. The deal expires at the end of 1999. Analysts forecast Japanese exports will shoot up 40 percent from the current total of 1.4 million. Under the quota system, Japanese makers maximize earnings by selling vehicles with the highest profit margins–typically four-wheel-drives or luxury sedans. When quotas disappear, however, they’ll go for volume–and small cars are the ticket. Daihatsu already test-exports an 800-cc version of its minicar Move, and Suzuki sells a wider, 1.0-liter Wagon R.
Japan is also expanding its production capacity within Europe. Toyota recently broke ground on a $700 million facility in France where, in 2001, it will produce its New Basic Car, to appear in Europe as the Yaris. Designed to replace the Corolla, the NBC is cheaper and more fuel-efficient. Suzuki and GM are developing their own European car–rumored to be a Wagon R-type vehicle–to be manufactured in 2000 in Hungary and Poland. “I can’t tell you the body style, so use your imagination,” says Osamu Suzuki. “It will be a common-sense car.”
However bright their prospects elsewhere, Japan’s minicars face their toughest test in the world’s largest auto market. With gas priced cheaper than bottled water, America’s appetite is for ever-larger cars and trucks. Detroit’s current obsession, giant-size sport utility vehicles, can start as high as $43,000 and earn their manufacturers an estimated $15,000 to $18,000 in profit each. Subcompacts, by contrast, cost just $9,500 on average and usually sell at a loss. Carmakers carry them grudgingly, to meet government fuel-economy standards and to lure in new customers. Only five subcompacts are sold in the United States–down from 26 models in 1990. “It’s not truly one global economy,” says John Hoffecker, an analyst at A.T. Kearny. “Economic realities in each region require different choices.”
Don’t tell that to Yutaka Katayama. President of Nissan’s U.S. operations from 1965-1975, he orchestrated Japan’s invasion of the American auto market and inspired his nation’s most endearing sports car, the Datsun 240-Z. A legendary hands-on executive who once sold pickup trucks door to door in Los Angeles, he believes that Detroit’s obsession with gas-guzzlers offers Japanese automakers opportunities not unlike those he grasped three decades ago. Will American suburbanites start buying a new generation of cheap Japanese cars for their kids or to run down to the local store? “If I were a young man, I’d go to the U.S. to sell minicars,” says Katayama. And like last time, people would call him crazy.
THE RISE OF THE ‘PEOPLE’S CAR’ Since the 1955 government call for a Japanese answer to the Volkswagen, automakers have worked to perfect the ideal of small, swill and affordable.
Subaru 360 (1958) Dubbed the Ladybug, the Subaru 360 was Japan’s first popular minicar. Its 18-horsepower, 360 cc engine was mounted in the rear. Special minicar licenses allowed 16-year-olds behind the wheel.
Honda N360 (1967) Powered by a 31-horsepower engine, the N360 did 115 kilometers an hour. Honda’s debut car, it foreshadowed the Civic, which led Japan’s export invasion of the U.S. in the early 1970s.
Suzuki Alto (1979) Japan’s first modern minicar, the Alto held four adults, cruised at 100 kilometers per hour and cost $2,200. Housewives loved it–and still do.
Mazda AZ-1 (1992) The first attempt to package luxury in a small frame, the AZ-1 was built for Japan’s “bubble economy.” A two-seat, plastic race car with a turbocharged engine and gull-wing doors, it appeared in 1992–after the bubble burst–and flopped. Fewer than 4,000 were sold, and production stopped in a year. Today, AZ-1s rank among the most coveted collector cars in Japan.
Suzuki Wagon R (1993) Built on an Alto platform, the Wagon R looks like a shrunken minivan and drives like a sports car. Priced at $10,000 in 1998, it passed the Toyota Corolla as the top seller in Japan.
Honda “Z” (1998) A technological wonder. A 4-wheel-drive power vehicle with the styling of a Sony Walkman. The “Z” is the safest minicar on Japan’s roads, but for $13,000, will it sell?
