Japan’s carmakers adapt to win back lost European sales

FRANKFURT - Reuters

Japanese carmakers eye to be strong again in Europe, the most demanding market in terms of fuel efficiency, design, handling and build quality.

Japanese automakers are taking steps to win back business in the competitive European market, bringing out new cars with small fuel-efficient diesel engines and smart interiors.

Having seen their sales dwindle while South Korean rivals Hyundai and Kia flourished, Japan’s carmakers have cut costs and invested the profits from a weaker yen to ensure strong European growth over the next few years.

Handicapped by earthquakes, tsunamis and floods that disrupted their supply chains around the world two years ago, companies including Mazda and Toyota initially focused on their solid positions in North America, not wanting to adapt their U.S.-centric models.

European sales suffered as a result, but their fortunes here are starting to improve now that Japanese carmakers are targeting Europe, the most demanding market in terms of fuel efficiency, design, handling and build quality.

“Business has turned around. If you talk to most of the auto companies, it’s doom and gloom but our story is the exact opposite,” said Jeff Guyton, head of Mazda in Europe, in an interview at Frankfurt’s auto show.

Vehicle sales for the brand rose 11 percent in the eight months through August amid a European market that shrank by 5 percent, and average revenue per car sold is on the rise.

“We had the best fiscal first quarter in at least 10 years,” Guyton said.

New strategies in production 

Japanese carmakers have long profited from their reputation for reliability, but were upstaged when Hyundai and Kia brought out a range of stylish, affordable cars tailored to European tastes with extra-long warranties of five or even seven years.

This helped the two South Koreans claw European sales away from rivals such as Toyota.

The Japanese carmakers have funded these changes by slimming down their operations. Toyota, for example, shifted all Auris production to its UK plant and moved some production of the Corolla sedan to Turkey from Japan and South Africa.

“At the same time that the weakness of the Japanese carmakers was being exploited heavily by the rapidly growing Koreans, the Japanese were busy putting their entire cost base to the test,” said Ernst & Young’s senior automotive advisory partner Peter Fuss.

Toyota’s European automotive operations returned to the black for the first time in six years during fiscal 2012/13, selling 838,000 cars in the 12 months through March.

Five years previously it sold a third more cars, but losses ran in the hundreds of millions of euros, according to the Didier Leroy chief executive of Toyota Europe.

“Our cost structure was totally wrong,” he said.


European operations strong

Now his European operations are strong enough to withstand a shrinking market as well as headwinds from the pound sterling, Russian rouble and Turkish lira that more than offset the weaker yen and still be able to rake in “a lot more” than last year’s 246 million euros in profit, he said.

“It’s real sustainable growth, this isn’t doing crazy things to secure market share or volume,” said Leroy.

Japan’s carmakers are also finally investing in a competitive lineup of diesel vehicles which constitute half the European market.