Ad spend cuts have little effect on shrinking Japanese car market

"Toyota, Nissan, and Honda each cut advertising by US$200 to $300 million, but their market shares didn't change," says Chris Bonsi, managing director, TNS Infoplan.

A report from Dentsu shows automobile adspend plunging from 216.9 billion yen ($1.8 billion) in 2007 to -30 per cent to 134.6 billion yen in 2009.

Significantly, Dentsu's automotive category (that also includes products such as motorcycles and boats) under performed most major advertising categories, many of which suffered only single-digit year-on-year drops.

McCann Erickson Japan shows much lower adspend numbers (for passenger cars only), but the downward trajectory paralleled that of Dentsu's data. Car adspend was 152.1 billion yen in 2007 and 98.5 billion yen in 2009.

Yokohama's Big Three - Toyota, Honda and Nissan - spent 27.7 billion yen, 12.9 billion yen and 11.7 billion yen on advertising last year respectively, according to McCann.

Car companies are increasingly looking at digital, says Bonsi. Automakers are using listening platforms and monitoring blogs to ask questions such as do consumers look at banner ads and how can they best be directed to websites. "They are trying to understand the engagement process," Bonsi says.

Market shares have barely budged, however. During the past three years, Toyota's share of full-sized passenger car sales hovered at 46 per cent, while Nissan's was steady at near 16 per cent. The same is true for all of Japan's car makers except for Honda, which saw its share climb to 17.5 per cent.

Meanwhile, the steady decline in car sales that began before the recession continues. Japan's population of 127 million is shrinking and greying, and car ownership is no longer the symbol of social achievement that it once was.

Last year, 3.9 million passenger cars were sold, marking the fifth year-on-year decline since 4.8 million units sold in 2004. Japanese car brands have always dominated domestic sales. Imported cars peaked in 1995 at a modest 401,836 units, but have dwindled to 145,687 units last year, a measly 3.7 per cent of sales.

Another concern for manufacturers is that perceptions of car ownership have changed drastically. Bonsi says the sudden popularity of SUVs in the early 1990s upended traditional views.
"SUVs and MPVs didn't fit into the older hierarchy," says Bonsi. "Toyota had a famous tagline, 'Eventually, a Crown,' which meant that when someone finally made it big, they could afford a Toyota Crown."

But the idea that a car owner should start with an A-class car and then work their way up until eventually affording an E-class, is long gone, even among the older generation.

"People in their 50s and 60s who used to drive big sedans are switching to eco-friendly cars like the Prius," says Hideotomo Yokosuka, account manager at McCann Erickson Japan. "Maybe they are tired of manoeuvring a large vehicle through the city, or maybe they feel guilty about emitting all that CO2."

Many young people, in contrast, are uninterested in owning a car.

"In the 1990s, young men wanted a sporty car with a large displacement engine such as the Nissan Fairlady or Silvia or the Honda Prelude," says Eiryo Gouda, manager at the Japan Consumer Marketing Research Institute. "But now, when they do buy cars, they are looking at kei-cars like the Daihatsu Move or the Suzuki Wagon R, which have engines under 660cc and sell for around one million yen."

Yokosuka says young people are rejecting car ownership, instead spending their money on mobile phones, fashionable clothes and dining out - all at the expense of Japan's car sector.

Analyst comment

"Japan is arguably the maturest of the mature car markets and the Japan experience is an indicator of what other still growing Asian car markets might experience in years to come.

Today, in Japan, most sales are to repeat buyers, rather than first-time buyers.

This is a pattern we see in other mature markets as well. For example, in our multi-country 2009 JD Power Sales Satisfaction Study, repeat buyers accounted for more than 80 per cent of sales in Japan and the US - the world's third and second largest markets - but only 20 per cent in China, the world's biggest and ironically newest car market.

Japanese car makers offer some of the most technologically advanced cars in the world. Yet Japanese buyers are foregoing large, luxurious cars and shifting toward smaller ones.

Kei-cars - mini cars designed in the 1950s to promote car ownership, and currently defined by engine sizes under 660cc - now account for a third of new car sales.

For makers of normal-sized passenger vehicles, the fight for market share will be in the sub-A class.

Makers need to develop inexpensive, fuel-efficient, eco-friendly cars in the compact or A-segments to compete against the minis.

Today, fewer young people buy cars, and old people are keeping their current cars longer.

Dealers are struggling to keep existing customers. Unfortunately, many car dealerships are downsizing, even though surveys show that more than 50 per cent of customers' purchase satisfaction stems from contact with sales personnel."

This article was originally published in the 29 July 2010 issue of Media.