For today’s CN, we’re going to tackle a big issue that I have been meaning to bring up here for years: Why the Japanese never made the huge inroads in Europe as they did in North America. I’m going to dig out a musty old copy of a 1995 New York Times with a relevant article I’ve been saving for this occasion, and I’ll add some commentary before and after. You did stop by to hear me talk, right?
There’s no question that the Europe auto industry in the 80s was deeply concerned (i.e. scared shitless) about the prospect of a Japanese invasion the likes of which had been playing out in NA in the late 60s, 70s and 80s. The Europeans watched in real time as Detroit was decimated by Japanese cars. And they participated too, initially with the VW Beetle and then with their rapidly growing imports of German premium brands.
Of course the two markets were very different. The Japanese exploited the fact that the American Big Three had become very complacent about building small cars (think Vega) as well as the quality of their cars in general. And cheaper European imports like VW and Opel were getting reamed by the dramatic fall of the dollar’s value beginning in 1971. This set the stage for their ascent.
But unlike Europe, with its many tariffs and other trade barriers, Americans had always been very friendly to imports. There was/is only a very low 2.5% import tariff, and in the immediate post-war era, the general feeling was that buying European imports was helping them get off their knees. And Americans were just very open to the whole idea, as many buyers felt constrained by the lack of variety and range of sizes offered by the American makers. The American auto press and media in general was always very fair to the imports, if not even fawning, and there was generally very positive media coverage. It all lead to a most welcoming attitude, and in 1959, imports captured 10% of the US market.
Although that dipped a bit for a few years starting in 1960, it wasn’t long before it was back to that and more, especially once the Japanese entered the market with more competitive cars in the mid-late 60s. This expansion continued rapidly until the mid 80s, when it became obvious that it was impacting the domestic industry quite significantly. That led to the 1980 Voluntary Export Restraint (“VER”), whereby the Japanese agreed to limit exports to an agreed amount for some years (1.86 million per year, initially). That led to the japanese building plants in the US, as well as the unintended effect of raising prices on all cars, creating a huge windfall for the Big 3 at the expense of consumers. But this was really just a temporary blip in the continued growth of the Japanese market share in the US.
As the following article details, various European countries had or raised much more challenging import barriers. But there were other ways the European industry fought back, especially in Germany. I’ll get to that after the article.
Switzerland’s difference from the rest of Europe is clear in a Japanese car showroom here.
At Rolf Wirnsberger’s dealership, a smart little two-door Mitsubishi Colt sells for a little less than $14,000, about $7,000 less than a comparable car, say, a Volkswagen Golf. In Switzerland, the Colt sells relatively well. Not so in Europe’s largest auto markets — Germany, France and Italy, which have effectively limited the sales of Japanese imports.
While Japanese car sales in the United States accounted for about 23 percent of the market last year, in Europe they were half that amount.
The Europeans have limited the sales of Japanese imports by allocating market share and growth rates. They have also forced the Japanese to accept other trade barriers as a price of entry into the world’s second-largest auto market.
Indeed, the tough European trade stance has squeezed the same kind of concessions out of Japan that Tokyo is reluctant to grant the United States. Thus the Europeans have demanded — and gotten — larger quotas of European-made parts in Japanese cars built in Europe, and have forced Tokyo to accept what are in effect market quotas for its cars in Europe.
For years, many European auto markets were kept off limits to Japan thanks to an array of bilateral government agreements, some of them going back decades. Italy, for example, signed a mutual restraint agreement with Japan after World War II that enabled Japan to protect its market from a murderous flood of cheap tiny Fiats. In recent years, the accord served Italy to keep the Japanese at bay.
In 1992, as Europe moved toward a more open market, European trade officials agreed to gradually allow the Japanese a greater portion of the market. But when sales slumped the next year, and European car makers feared a permanent loss of market share, Japan was forced to back off and accept slower growth. In exchange, Europe agreed that it would lift all restrictions by the year 2000.
“It’s totally managed trade,” said Jeffrey Bobeck of the American Automobile Manufacturers Association in Washington.
Under the arrangement, officials from European trade offices and Tokyo’s Ministry for International Trade and Industry meet twice yearly to review car sales forecasts, after which the ministry assigns quotas to the Japanese manufacturers based roughly on their existing European market shares.
The aim is “not to upset the market, but to assure smooth growth,” said James Rosenstein, the spokesman for the Association of European Automobile Makers in Brussels. “The spirit is a fair sharing of both growth and contraction,” he said.
In Italy, for example, where Fiat has had to struggle to stay in the race, the Japanese share has been held to about 5 percent; in France, where auto makers Renault and Peugeot have effectively lobbied the Government for protection, it is less than 4 percent.
Dealers like Mr. Wirnsberger in relatively open markets like Switzerland are lucky. With no competition from a Swiss auto industry and few import restraints, Japanese cars have seized 24 percent of the Swiss market. In Ireland, their share is 37 percent, in Finland 29 percent, and in Denmark 26 percent. Even in relatively liberal Britain the Japanese share hovers at 12 percent, half the North American figure.
Japanese auto makers started making cars in the United States largely to get around voluntary import quotas that Japan agreed to in the early 1980’s. Similarly, the Europeans have forced Japan to agree to build more cars here.
But unlike the United States, Europe got Japan to agree that any cars made in Europe would have at least 60 percent of their content supplied by European parts makers.
For that, the Japanese have taken the costly step of recruiting and training European suppliers. By this year, Nissan and Toyota, which also build cars in Britain, say local content will surpass 80 percent. In the United States, American-made parts account for less than half the content of Japanese cars made in America.
The Japanese have also been hamstrung by a European system of car dealerships that was almost as highly regulated as the Japanese system that has foiled American car makers. In Europe, it is virtually impossible for the Japanese to sell through existing dealers. Only last week, the Europeans announced a partial deregulation that would make things easier for non-European auto makers.
Nevertheless, the Japanese are far from dropping out of the race.
Really? One already has (Daihatsu). We’ll check in on that prediction a bit further on.
There’s more to this story about the issues the Japanese faced than the various import restrictions and other hurdles detailed in this article. One has to step back and survey the automotive landscape in Europe in the 70s. It was a low point in a number of ways, especially in quality and reliability. The standards for durability and reliability had always been somewhat different in Europe than in the US, which explained why the more durable VW succeeded in the 50s and 60s in the US, and most other Europeans didn’t. Europeans drove much less than Americans, rarely commuted with them, and were willing to pamper their cars much more, as they were not so much seen as a daily necessary appliance but more of a luxury/convenience item used more typically for outings and vacation.
The late 60s and 70s were also a time when there were major labor issues all over Europe. The 60s unleashed a dissatisfaction with factory work, and morale dropped accordingly. This was felt more acutely in Great Britain, Italy and France than in Germany. It clearly impacted quality. As did the often overly complex designs of modern European cars at the time.
I had a continuous subscription to Auto, Motor und Sport (“AMS”) from my godfather from about 1970 until he died about 15 years ago. AMS is/was the dominant German-language magazine, and had affiliates in other countries. They were very powerful and influential. And very cozy with the German industry, which were of course their major advertisers.
They also were pioneers in long-term tests, which originally were 50,000 km, later 100,000km. It was fascinating to see how poorly some European cars fared in these tests. I wish I could find reprints, but the number of failures and visits to the dealers were sometimes amazing. Engines experiencing fatal failures, transmissions having to be replaced twice (a Renault), and many other mechanical and electrical failures of all kinds. Not surprisingly, Mercedes sedans, especially the diesels, generally did best. I’m not being biased when I say that French, Italian and British cars pretty consistently fared poorly, as well as some German cars too.
It was in this environment that the Japanese, with their reputation for reliability, should have done very well. But AMS consistently found things to downgrade Japanese cars in reviews and comparison tests. They did that by applying much more weight to extreme performance aspects than the qualities that were more relevant to a typical driver. And this despite the fact that German owners were constantly bemoaning the poor reliability of their cars in the magazine, in surveys and letters.
One example really stands out, but there were many others. The Lexus (Toyota) LS400 took the US by storm, undercutting the German premium sedans in price yet had unparalleled drivetrain refinement, comfort, ride quality, and overall quality. The LS made a huge impact on the Germans in the US, and they greatly feared it might have a similar effect in Europe.
So they found areas to attack the LS400. It was designed specifically to be a more comfortable riding luxury sedan than the rather stiff riding Germans, so its handling was claimed by AMS to be dangerously unstable at high speed, in maneuvers that no normal driver would undertake. And then they attacked the LS’ brakes. They set up extreme comparisons to make their point, including one on the Grossglockner mountain road, the highest in Europe. The test cars were repeatedly accelerated on the steep down grade, followed by full panic stops. Over and over. Who would ever drive like that, charging down a steep mountain road to repeatedly panic stop?
But yes, the brakes on the Lexus did not hold up quite as well as the Mercedes, BMW and Audi, and were deemed to be inferior and therefor unsafe. This was picked up by the German media and hyped. The whole thing was nothing more than a concerted smear campaign. And it worked: everyone now knew that the LS handled dangerously and had bad brakes. As if. It all played right into the tendency of Germans to crow about the superiority of their cars, regardless of how they were actually intended to be used.
Toyota was mortified, but quickly revised their suspension tuning for Europe and beefed up the brakes. They were shown to be comparable, but it got zero attention in the media. The damage was done. The LS never had a chance in Germany; that was highly predictable.
The German car industry is a colossus, and in concert with the press and media were out to do whatever it took to badmouth Japanese cars. The Lexus LS wasn’t the only one. Similar scenarios happened with others too. Let’s just say that the press was not exactly welcoming. But then chauvinism is not uncommon in the press in Europe; how many comparison tests in the British car mags were invariably won by domestic cars, as long as there were some?
That’s not to say the Japanese were the equals of the Germans and other European cars in every respect. The Europeans had a long and deep history of building small cars, and were technologically often advanced. The Japanese were more conservative at timese, and at times, although cars like the Honda Civic were as modern as any in Europe at the time. For discerning drivers and enthusiasts, the European cars were often a better bet. But for the more average driver, these were not issues, and the Japanese had their distinct advantages too.
Despite claims to the contrary, American car magazines actually were much better about putting various cars into the proper context. And the disparity of how Japanese cars are perceived in the US and Europe became mostly quite stark. The 2019 Honda Accord just got its 33rd year of inclusion on Car and Driver’s 10 Best list. Meanwhile, the Accord isn’t even available anymore in Europe. And its image there was invariably as a second-rate car. Who’s right? Are Americans besotten with Hondas, or are Europeans chauvinistic?
AMS was all about test stats and hard numbers, with a scale that tended invariably to favor German cars. Except reliability, of course. They couldn’t do anything about the much better than average durability of the Japanese on their long-term tests. It soon became an embarrassment. The difference was typically and often very acute.
There’s no way for me to dig up those test results, but I do have something roughly comparable: the annual ADAC ratings of their breakdown statistics. ADAC is the organization that responds to essentially every automotive Panne (breakdown) in Germany. And with the Germanic proclivity for thorough record keeping, they have kept them all, and analyzed them accordingly. I did a post on them here, which gives more information on their methodology.
No, they’re not necessarily 100% perfect, but they were accepted as being quite representative by the German industry. Any set of statistics that tends to replicate certain results (high rankings by Japanese and MB diesels; low rankings by French and Italian cars) as well as pass the common sense test is meaningful. Actually, these results were very influential in Germany in their day, although they have lost relevance in more recent years as manufacturers have learned to game the system and have their own roadside assistance programs as well as the improved reliability of modern cars.
Is it a sheer coincidence that France, who clearly built the most unreliable cars, also had the most extreme import restrictions, holding Japanese imports to 4% in the mid 90s as per the NYT article? Even today, the Japanese share in France is one of the lowest, at barely 10%. The term “chauvinism” does originate from France.
So how does high rankings by the Japanese explain the lack of more success in Europe? The Europeans were forced to drastically improve their quality and reliability in the face of the stark disparity with the Japanese. And although some/many/most Europeans undoubtedly still don’t have the stellar reliability of a Toyota, it improved to the point where it was no longer a major issue. Reasonably good was good enough.
As a response to the quality disparity, the Japanese did have a pretty strong early success in countries like Germany that didn’t throw up major import barriers. The Mazda 626 in the mid 80s sold quite well in Germany, as did a number of others. But the early momentum was difficult to maintain, the reason being that the European market increasingly diverged from the US or Japanese domestic market.
In Germany as well as in Great Britain and some other European nations, taxes favor fleet cars, where employees are given cars as part of their compensation. These are typically managers and executives, so the cars tend to be expensive and prestigious (junior and senior executive class cars). This helps explain the rise of the German premium brands all over Europe, especially so where taxes favor fleet company cars. But the Japanese have never cracked this fleet/business market to any meaningful extent. It wouldn’t look right, and the prestige isn’t there.
This also explains why German (and other European country) car sales stats are very misleading: if one takes out fleet sales, true retail sales tend to be mostly quite cheap and modest cars. Analyzing true retail sales one would find that the Japanese brands do much better than the overall numbers suggest. It also explains why Japanese brands have a low image, as in cars driven by the old and thrifty. That’s because they don’t get the tax breaks of company cars and their owners who buy them with their own money do tend to care more about costs and reliability.
The other factor is that the European market has been changing considerably in the past decade or so. It’s been diverging into a market that favors premium brands and ultra-cheap brands. The middle of the market has been hit very hard, which explains why Opel, Ford and some others are doing so poorly. Renault’s big success has been with Dacia, a budget brand. VW has Skoda. But the Japanese are also right in the middle that’s been getting hollowed out. The Koreans have done much better in the past couple of decades as they are seen as budget brands, although their prices are not that much lower anymore.
Environmental regulations are also a huge factor. Diesels are out, small high-efficiency gas engines, EVs and hybrids in. This is impacting everyone, and the smaller players disproportionately so.
These factors have also changed the kinds of vehicles that are in demand. Like elsewhere, larger sedans and wagons have been hit hard, except for the premium brands. CUVs and MPVs and very small cars are what the retail market is mostly buying. That explains why Honda dropped the Accord, and Toyota’s biggest passenger car in Germany is the Auris, which is really a Corolla under the skin.
In NA, the Japanese have invested in numerous vehicles and platforms that are unique to the region. There’s not much overlap at all anymore with the Japanese domestic market, NA and EU. Each one requires unique models to be successful. This is putting huge pressure on the Japanese. Only Toyota is big enough to keep up quite well (4.9% market share in 2018), with a large palette of some 16 models that covers many segments in the market.Toyota’s hybrid technology is a big boost to them currently, as the market moves away from diesels. Almost all of their cars are now either hybrids, or available as hybrids.
Toyota also has Lexus, but it’s been a challenge to compete against the German premium brands. For instance, Lexus sold all of 5,400 cars in France in 2018.
Meanwhile, Honda is down to 0.9% share, and just four: Jazz (Fit), Civic, HR-V and CR-V. That explains why Honda is bailing on EU production and will harmonize its products from China with the EU. It’s a fall-back strategy, at best. Honda is too small to fully compete in Europe.
Nissan is doing better (3.2% share) because of their alliance with Renault, that gives them Europe-appropriate platforms as well as because they jumped into the CUV game early on in a big way. And they have commercial vehicles, as does Toyota, unlike Honda. Nissan also sells Infiniti.
Mazda is hanging in there, slightly better than Honda, with a 1.5% share.
Mitsubishi’s share is in a similar range. And Suzuki’s is even smaller.
Meanwhile Hyundai-Kia combined had a 6.7% market share. That’s a story in its own right.
I have not done this subject justice. It would require a book. Each European country has its own story to tell in terms of their ways of reacting to the feared Japanese Invasion. But the overarching one is that although the Japanese had an opening in terms of superiority in quality/durability/reliability at the time they arrived in Europe, their real or perceived dynamic shortcomings (such as they were) were amplified in the press and media. And as the NYT article details, there were and still are other barriers to the Japanese brands in Europe.
The reality is this: the Japanese may well fade from Europe, with the likely exception of Toyota, which has six plants and a joint venture.The European market is stagnant and in demographic decline. Mobility, autonomy, mass transit and other forms of transportation meanwhile are growing. The European market for private automobiles has seen its best days. This is why GM sold Opel, and why Ford is struggling mightily.
Meanwhile, there are much better opportunities in other parts of the world, in areas the Japanese have generally already done well. China has of course been a major growth opportunity in the past two decades. Now the very fast growing Southeast Asia area outside of China is at the top of the list. But South America, Africa and the Middle East are all high-growth markets. And the Japanese, especially Toyota, is very strong in all of them. Why kill yourself in a shrinking, complicated, highly-regulated market that has often created barriers of one kind or another? There’s more fertile opportunities elsewhere.
The key take-home point: The Europeans may have successfully fended off a Japanese invasion, but they have the Japanese to thank for much more reliable domestic cars.