The Incredible Shrinking Car Market

From Time Thursday, May. 17, 2007 -

Japanese sales of minicars — tiny, inexpensive vehicles powered by glorified motorcycle engines—rose 5.2% 2006 to reach a record 2.02 million. More than one out of every three cars sold in Japan in 2006 was a mini, or kei. Offering affordability — most are in the $10,000 price range — and impressive fuel economy of around 20 km per liter, kei cars could play a big role in the future of Japanese transport.

Previously referred to as "perseverance cars" because drivers had to put up with cramped passenger compartments and anemic 50-h.p. engines, kei cars transformed in 1998, when government restrictions on maximum minicar size increased to 3.3 m long and 1.5 m wide. This gave manufacturers creative space to build better, roomier models — most now have four doors — and alleviated consumer concerns about safety and comfort.

Still kei cars are dinky even compared with conventional subcompacts. The popular Daihatsu Move, for example, is 28% smaller on the outside than BMW's iconic Mini. But social and demographic trends in Japan favor tiny, frugal cars.

The best-selling kei cars such as the Move and Suzuki's Wagon R are practical and conservative. But manufacturers introduced 11 new models last year, among them sportier, more technologically sophisticated cars geared for younger buyers. Mitsubishi automotive designer Akinori Nakanishi likens the company's new Mitsubishi i to an iPod Nano on wheels, down to the bright colors.

With fuel prices likely to remain high and awareness of the environment growing globally, small, efficient cars are beginning to gain traction not just in Japan but all over the world. DaimlerChrysler plans next year to begin selling its two-passenger Smart in the SUV-loving U.S. At the same time, most of the world's major automakers expect to produce low-cost subcompact cars for growing middle classes in developing countries. Yet the market for kei is likely to remain largely restricted to Japan. That's partly because profit margins are too low to justify international sales. Daihatsu sells some of its minis in Southeast Asia and is working on a deal in China. But Suzuki — Japan's top minimaker until Daihatsu passed it — is reducing mini production in favor of subcompacts and compacts. "Minicar engines made for the Japanese market are too small," says Yoichi Kojima, a spokesperson for Suzuki. "Here you have only four passengers, but in India, for example, you need space to pack in as many people as possible."

Even in Japan, the market appears to have limits. Kei sales in April fell 6.4% from a year earlier, the first drop in 16 months. The slump is unlikely to last, however.

Full article here.