By Christiaan Hetzner
FRANKFURT, Sept 20 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, which ends this week.
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,"
Mazda debuted at the Frankfurt show its Mazda3, a compact
fuel-efficient car that competes with Volkswagen's Golf. Mazda
has already enjoyed success with its popular CX-5 crossover,
which help lift European turnover since it launched last April.
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.
"They fundamentally missed the point about European design
and interior quality," said Mark Hall, who left the Japanese
carmaker after 20 years to run Hyundai's European marketing
operations in 2010.
While the market share of Kia and Hyundai jumped to 6.1
percent last year in Europe from 3 percent in 2008, Japan's
seven traditional brands slipped to 11.8 from 13.7 percent. It
would have been worse had it not been for Nissan's Qashqai, a
The two sibling brands, whose models are both sculpted by a
former chief designer for Audi, successfully shed their
reputation for ugly cars and unreliable engineering with
offerings like the Hyundai i30 hatchback and the Kia Sportage
SUV, manufactured in two state-of-the-art European production
plants that cost 2.6 billion euros ($3.5 billion) to build.
In August, Hyundai even eclipsed Nissan, the most
European of the Japanese brands, to become the second
best-selling Asian badge in Europe in the year to date after
Japan's carmakers are now fighting back, however, improving
handling and rolling out more wagons, a bodystyle that is
popular among company car owners in many parts of Europe.
Toyota is currently launching its Auris Touring Sports
estate, while Honda will bring early next year the
Civic Tourer, a model developed for the first time by a European
and equipped with rear adaptive suspension to meet local demands
for a sportier ride.
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.
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, who like to tout their expertise in
hybrids and electric cars, are also finally investing in a
competitive lineup of diesel vehicles which constitute half the
Toyota will now procure from BMW small 1.6 litre
diesels, a popular European size that was missing from its
engine range. Honda introduced its own 1.6 litre i-DTEC diesel
for the European market, which it says will help provide a
further boost to sales of its CR-V crossover and Civic hatch.
Mazda's Guyton sees no reason to be downbeat despite figures
that showed Europe's new car market in the first eight months
shrank to the lowest level recorded since 1990.
"Two years ago we structured our business to make a profit
contribution to the company at 100 yen to the euro and 20
percent less volume than we have right now," he said.
"Now I've got new product, higher revenue and 130 yen to the
euro, so we are contributing significantly to the company."