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Japan's luxury-car makers resort to local production as a fix-it tool
May 20, 2013, Monday
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WITH disappointing sales and mounting competition staring them in the face, the manufacturers of Japanese luxury cars are beginning to embrace the concept of setting up production lines in China. And that's just a first step in rethinking their mainland strategies.
Toyota's Lexus, Nissan's Infiniti and Honda's Acura either missed sales targets or suffered a downturn last year. Lexus sold 64,000 units; Infiniti, 16,000 units; and Acura, only 2,300 units.
A Sino-Japanese territorial dispute over offshore islands last year and the ensuing national boycott of Japanese goods certainly helped dent sales. A year earlier, the earthquake and tsunami in Japan disrupted supply lines to China.
The decline of Japan as a top auto seller in China has benefitted German rivals and the cheaper offerings of domestic automakers.
In joining the trend toward local production lines, Japanese automakers are following in the footsteps of minority competitors, like Cadillac, Volvo, Jaguar, Land Rover and DS.
At the Shanghai auto show last month, Takanobu Ito, CEO of Honda Motor, surprised everybody by announcing that Acura will start to make cars in China within three years. Johan de Nysschen, president of Infiniti, said his company is well on track to starting mainland manufacturing next year, and Hiroji Onishi, Toyota's China chief, said production of the Lexus in China is being actively discussed.
In all cases, they were bold disclosures. Japanese luxury carmakers have never set up production lines outside Japan and North America.
Whether they can repeat their North American success story in China depends on a lot of factors.
Above all, their products were originally designed with North America in mind, which is clear from their big sizes and displacements. Though Chinese consumers do like spacious cars, the best selling luxury models on the mainland are those with engine displacements no higher than 3.0 liters.
Downsizing the engine is no doubt a priority for the Japanese if they start to make cars in China. Then, too, there is the matter of image. A recent survey by consulting firm McKinsey & Co found that Chinese consumers don't have a clear image of high-end Japanese cars.
Lexus, Infiniti and Acura relied on their reputation for excellent after-sales service and exquisite interior features - or so-called "convenience-oriented luxury" - as selling points in North America. That was to distinguish their models from German competitors who relied on high driving performance to sell luxury brands.
But the same strategy doesn't work well in China where their traditional advantages are not considered as competitiveness distinctions. Car buyers here tend to believe that quality is a given when the price sticker on a vehicle is in the premium range.
Besides, Japanese luxury brands have never given Chinese dealerships much support for marketing campaigns, but handed them inventory pressure in grim years, according to data compiled by the China Car Dealership Association.
Cash-strapped circumstances have led to servicing gaps, such as the shuttering of seven Acura dealerships in China last year, affecting 18 percent of the brand's sales network.
It seems that Japanese luxury car brands are stuck in a deep pothole created by problems related to sales, products, brands, and services.
Locally made models with cheaper prices could help Japanese luxury car makers start to get themselves on the road again. If they really want a fresh start in China, they will need to show the same level of commitment and creativity they gave to conquering the North American market.
Toyota's Lexus, Nissan's Infiniti and Honda's Acura either missed sales targets or suffered a downturn last year. Lexus sold 64,000 units; Infiniti, 16,000 units; and Acura, only 2,300 units.
A Sino-Japanese territorial dispute over offshore islands last year and the ensuing national boycott of Japanese goods certainly helped dent sales. A year earlier, the earthquake and tsunami in Japan disrupted supply lines to China.
The decline of Japan as a top auto seller in China has benefitted German rivals and the cheaper offerings of domestic automakers.
In joining the trend toward local production lines, Japanese automakers are following in the footsteps of minority competitors, like Cadillac, Volvo, Jaguar, Land Rover and DS.
At the Shanghai auto show last month, Takanobu Ito, CEO of Honda Motor, surprised everybody by announcing that Acura will start to make cars in China within three years. Johan de Nysschen, president of Infiniti, said his company is well on track to starting mainland manufacturing next year, and Hiroji Onishi, Toyota's China chief, said production of the Lexus in China is being actively discussed.
In all cases, they were bold disclosures. Japanese luxury carmakers have never set up production lines outside Japan and North America.
Whether they can repeat their North American success story in China depends on a lot of factors.
Above all, their products were originally designed with North America in mind, which is clear from their big sizes and displacements. Though Chinese consumers do like spacious cars, the best selling luxury models on the mainland are those with engine displacements no higher than 3.0 liters.
Downsizing the engine is no doubt a priority for the Japanese if they start to make cars in China. Then, too, there is the matter of image. A recent survey by consulting firm McKinsey & Co found that Chinese consumers don't have a clear image of high-end Japanese cars.
Lexus, Infiniti and Acura relied on their reputation for excellent after-sales service and exquisite interior features - or so-called "convenience-oriented luxury" - as selling points in North America. That was to distinguish their models from German competitors who relied on high driving performance to sell luxury brands.
But the same strategy doesn't work well in China where their traditional advantages are not considered as competitiveness distinctions. Car buyers here tend to believe that quality is a given when the price sticker on a vehicle is in the premium range.
Besides, Japanese luxury brands have never given Chinese dealerships much support for marketing campaigns, but handed them inventory pressure in grim years, according to data compiled by the China Car Dealership Association.
Cash-strapped circumstances have led to servicing gaps, such as the shuttering of seven Acura dealerships in China last year, affecting 18 percent of the brand's sales network.
It seems that Japanese luxury car brands are stuck in a deep pothole created by problems related to sales, products, brands, and services.
Locally made models with cheaper prices could help Japanese luxury car makers start to get themselves on the road again. If they really want a fresh start in China, they will need to show the same level of commitment and creativity they gave to conquering the North American market.
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