While Detroit pouts, EU carmakers are about to grab a very big small car share in Japan

Japanese Mustang owners - Picture courtesy calwing.com

The EU and the U.S. are both negotiating a trade pact with Japan. It could light a fire under international commerce while putting China in a box. Detroit wants it to fail. The style of the negotiations can’t be more different. In the U.S., the Detroit 3 regurgitate trite and untrue rhetoric. Meanwhile in Europe, shrewd dealmakers could alter Japan’s automotive landscape.

Japanese Mustang owners 2 - Picture courtesy kurumaerabi.com

In the U.S., massive barriers to entry could fall if the trade deals are successful. America’s insular safety regulations, that aren’t much better, but much different than those around the rest of the world, make low volume car imports practically impossible, driving down choice and driving up prices. Protected by a 25 percent “chicken tax” tariff, pickup trucks are massively overpriced. No wonder “U.S. automakers are resisting,” writes Automotive News, “arguing that Japan should not be rewarded when its car market is virtually closed to U.S. imports.”

This is an old argument, and it is a lie. With a zero percent tariff on car imports, the Japanese market is open wider than most in the world. I have no problems buying Chevrolet, Ford, and Chrysler cars right here in Tokyo. Many of their steering wheels are on the wrong side. They are sold by Detroit automakers that do not want to make a sale. At this year’s Tokyo Motor Show, Detroit carmakers will be absent, as they were since 2008. In Japan, Camaros and Mustangs appeal to an extremely small subculture of affluent bomber-jacketed hooligans. Even Yakuza members won’t get caught dead in one, they prefer the subdued power of a black Mercedes with tinted windows, or, increasingly, a large Lexus.

Japanese Mustang owners 3 - Picture courtesy advance-international.co.jp

You won’t hear EU carmakers complain about a closed Japanese market. Volkswagen, Daimler and BMW dominate Japan’s growing import market, up 10 percent in the first nine months of the year. EU carmakers could sell even more cars in Japan, could they penetrate a Japanese oddity, the mini vehicle, or kei car. These strange vehicles hold a nearly 40 percent share of the Japanese market. The “cars” enjoy lower taxes and lower insurance premiums that their regular brethren. According to The Nikkei, one of the goals of the EU negotiators is “prompting Japan to revise minivehicle specifications” in exchange of the EU dropping its 10 percent tax on Japanese car imports.

Japanese Mustang owners 4 - Picture courtesy gmblog.net

The Japanese side could warm up to that deal. The kei car market is pretty much closed to foreign importers – not because they are not allowed in, simply because it does not make sense to build a car for the Japanese market only. Likewise, kei cars don’t find a market in the rest of the world, and lack the all-important scale. Opening kei car specs so that the small cars of the EU would fit would also open markets for kei cars abroad.