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Thursday, Dec. 20, 2007

FUEL-EFFICIENT MODELS IN DEMAND

Japan carmakers find an opening in U.S. market on the skids


Staff writer

LOS ANGELES — High oil prices may be driving down U.S. car sales, but Japanese automakers that depend on the U.S. market for the largest portion of their profits say the adverse conditions could present them with a business opportunity.

News photo
Honda dealerships like this one in Los Angeles are chalking up higher sales of new and used vehicles. HIROKO NAKATA PHOTO

The spread of ecology consciousness as well as recent high gasoline prices are prompting consumers in California to buy more energy-efficient cars instead of light trucks, pickup trucks and large sport utility vehicles.

The trend is benefiting Japanese carmakers, which have had a competitive edge in compact car sales over the U.S. Big Three — General Motors Corp., Ford Motor Co., and Chrysler — carmakers and dealers in California said.

"We have cars people want," said Dave Conant, who owns five dealerships — three Honda, one Toyota and one Ford — in California.

He indicated his customers are increasingly leaning toward smaller sedans and SUVs and away from full-size SUVs, such as GM's Chevrolet Tahoe and Ford's Explorer.

"The high gasoline price is accelerating the trend toward downsized cars, and I expect it to stimulate people's demand to change their cars to smaller ones," Tetsuo Iwamura, president of American Honda Motor Co., said in Torrance, Calif.

Iwamura, who is also a chief operating officer for Honda Motor Co.'s regional operations in North America, added that Honda's compacts, including the Accord, Civic, Fit and CR-V, are attracting American drivers, offsetting weakening demand for their large Odyssey and Pilot models.

In the last four years, the price of gasoline has doubled to about $3 per gallon (¥89 per liter) in line with rising crude oil prices, pushing up demand for small cars instead of full-size vehicles.

Automakers in Japan, where almost all energy resources are imported, have been making continuous efforts to develop fuel-efficient compacts. And those efforts have been paying off so far.

In the last decade, Toyota Motor Corp., Honda and Nissan Motor Co. have eaten into the Big Three's market share in the U.S.

In 1994, GM had a 33 percent share, followed by Ford with 25 percent and Chrysler with 15 percent. In the same year, Toyota's share was a mere 7 percent and those of Honda and Nissan were even smaller.

But as of October, GM's share had declined to 23.7 percent. Ford fell to 14.9 percent, which was surpassed by Toyota's 16.2 percent, while Chrysler slipped to 12.7 percent. Honda stood at 9.6 percent and Nissan at 6.6 percent, according to data by Ward's, an auto industry information provider.

"People are getting more ecology-conscious in the United States, and we think the type of cars that meet the demand most are hybrid cars," Iwamura said.

Honda, following Toyota's launch of the Prius in 1997, started selling its Insight hybrid on the U.S. market in 1999. Audi, Ford and Nissan have also released hybrids.

In the first half of 2007, sales of the Prius accounted for almost half of the overall hybrid sales in the U.S. — a total of 187,000 units, according to marketing and consulting firm J.D. Power Asia Pacific Inc.

Honda plans to introduce its latest hybrid model in 2009, and hopes to sell 100,000 units in 2010, Iwamura said. The figure would represent a threefold rise in the automaker's current annual hybrid sales of 30,000 units.

Many of the details of the hybrid have not yet been released, but the automaker said it will be priced lower than the Civic hybrid model launched in 2003, now priced at around ¥2.2 million, and cheaper than the Prius, priced from ¥2.268 million to ¥3.255 million.

Eco-friendly hybrids are well received, especially in California, which has long taken initiatives to curb air pollution since the state first enacted regulations to limit car emissions in 1960.

Gov. Arnold Schwarzenegger signed the California Global Warming Solutions Act in September 2006, and this year ordered the state's air resources board to take steps to set standards for low carbon fuel.

In California, there are other factors that support Japanese cars — people tend to be more open to foreign cars than in the more conservative Southern states.

"I love Japanese cars," said Virginia Ohanesian, a 63-year-old retiree from South Gate, Calif. Ohanesian, who has three Japanese cars, cited the reason as "good performance and dealership" and the cars "not having broken down for nine years".

Despite the positive factors, however, industry sources said an unpredictable factor still remains — the subprime mortgage loan crisis.

Although the outlook is still uncertain, people's worries over the financial crisis seem to have eased, at least for the time being, as U.S. President George W. Bush announced earlier this month a foreclosure relief plan, including a five-year freeze on interest rates for borrowers.

There had been worries that rising interest rates could boost the number of loan defaults in the U.S. next year, where real estate value tends to have a direct impact on consumer confidence because auto loans are often backed by the value of housing and land.

"We (car dealers) and home remodeling are the most affected businesses," Conant said. One of his profitable dealerships used to sell on average 1,000 new and used cars per month, but the number has dipped by 20 percent, he said.

Conant said his colleagues in the National Automobile Dealers Association talk about a possible decline in overall U.S. car sales. They expect sales to drop to between 15.5 million and 16 million units next year, he said.

If their forecast proves correct, it would be the first time in 10 years that total sales drop below the 16 million mark. The number of car sales in the U.S. has exceeded 16 million annually ever since 1999, and topped 17 million in 2000 and 2001.

Honda's Iwamura said that although the subprime issue has not yet affected Honda's car sales in the U.S. market, high oil prices are slowing demand for its engines for construction machinery because the subprime mortgage problem is hurting housing construction.

Honda supplies technologies of the engines to other makers on an original equipment manufacturer basis.

"In that segment, we expect the demand for engines to fall by 30 percent to 40 percent," Iwamura said.

Toyota Motor Chairman Fujio Cho, who is also the chairman of the Japan Automobile Manufacturers Association, told reporters in Tokyo last month that there has been little impact of the subprime loan problem on the industry so far. He expects the U.S. car market to reach 16.1 million units this year, little changed from the previous year.

But the JAMA chief is also cautious over the outlook.

"We still don't know how the subprime mortgage loan will affect us, so we have to be careful," Cho said.



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