With the withdrawal of America from the Trans-Pacific Partnership, Donald Trump’s tough talk on imported cars, and the Japan’s large trade surplus, Japanese Prime Minister Shinzo Abe is asking the question: how does he get his public to buy more American cars? The answer: he can’t. Because the Japanese don’t want them.
Basically, Trump and Abe are frustrated by what seems at first glance to be a lack of parity between how Americans buy Japanese cars and how the Japanese buy American cars. But the problem of selling American cars there was outlined in a recent report from Bloomberg. It correctly identifies the problem: “Japan has the fourth-largest trade surplus with the U.S. after China, Mexico and Germany. It exported more than 1.6 million vehicles to America in 2015, while the U.S. sold less than 19,000 vehicles to Japan.”
Bloomberg didn’t contest the assertion by Trump that trade barriers are what restricts the sale of U.S. vehicles into Japan, or the claims by Ford and others that Japan is a currency manipulator to the extent that selling their products in the land of the rising sun is near impossible.
So let’s talk about why there are so few American cars in Japan and why Abe and Trump aren’t going to change that. At least, they won’t change it anytime soon.
First, it’s not an issue of trade barriers. There is no 25-year import rule here in Japan. Not only is it possible for any individual to import and register American vehicles in Japan, some people do. Just not very many.
Second, it’s not because there are regulations preventing the establishment of American dealerships. We have American dealers. I lived near the Chrysler dealer in Saitama. I’ve seen other dealerships. There just aren’t that many, but they definitely exist.
And sorry, Ford, it’s not just because of currency manipulation. While it’s true that the Bank of Japan has been participating in quantitative easing, so has everyone else. The European Central bank has had so much quantitative easing (QE), half of Europe is in negative rates territory far beyond what’s in Japan. And it’s not like America’s Fed hasn’t essentially done the same thing, keeping interest rates near zero since the Great Recession. Everyone’s like Oprah handing out Pontiacs when it comes to QE.
No, American cars don’t sell here because foreign cars, even ones we consider luxury, like BMW or Mercedes, have a resale value lower than the comparable Japanese car in the same market space. They’re also seen as less reliable, especially American cars specifically. This is especially true after GM bungled its Chevrolet Cavalier sales through Toyota.
This is even something Bloomberg’s writers just tacked on the end of their story, but didn’t follow through on. Yet, honestly, it’s the entire story.
“I wouldn’t mind driving American cars if they didn’t need maintenance for a year,” said Kunihiko Miyake, a former diplomat who is now visiting professor at Ritsumeikan University. “Cost-performance wise, American cars are not good. That’s why I don’t buy them, not because of the non-tariff barriers.”
When you drive modern cars from Ford or GM you realize that isn’t the case; American cars are now more reliable and better-built than they’ve ever been. But they don’t have that perception in Japan.
In addition, taxes are calculated based on engine size and age, so you can pay the same in taxes for a more reliable car (in your Japanese mind), and have a higher resale value.
Besides, this is only 60 percent of the market anyway. The other 40 percent of the Japanese market is “Galapagos”—isolated, unique to Japan—because of kei cars.
Kei cars with their tiny 660cc engines, generous tax rebates, and no proof of parking space required, are still a massive part of the Japanese market. Attempts to kill the kei car’s subsidies are met with extreme hostility, especially from farming communities and small business lobbying groups, where they are especially prevalent in their hauling forms.
The last reason is nationalist, but it’s not protectionist: there’s a very obvious “not made here” bias. Japanese people take pride in their vehicles, and unless they are intentionally trying to buy different (and in many cases different is BAD in Japan), there will be a strong loyalty to Japanese brands.
There are barriers to selling American cars in Japan, but they aren’t trade laws or regulations. They’re the hearts and minds of the Japanese people—and their tiny parking spaces, too.