PARIS (Reuters) - Japanese automakers, battered by a strong yen, are hunkering down in a stormy Europe, taking tentative steps to stand up to their aggressive South Korean rivals, in a market they see as challenging, but worth the effort.
All Japanese carmakers’ sales declined in Western Europe in the eight months to August from a year ago, ranging from Toyota Motor Corp’s (7203.T) 0.9 percent dip to Mitsubishi Motors’ (7211.T) 34.5 percent tumble.
That compares with South Korean Hyundai Motor’s (005380.KS) 9.3 percent rise and its affiliate Kia Motors’ (000270.KS) 25.1 percent jump, as aggressive marketing of their stylish, affordable cars paid off, helped by a weak won and a free trade agreement between South Korea and the European Union.
Hyundai’s market share grew to 3.2 percent in western Europe through August from 1.8 percent in 2007, while Kia’s rose to 2.4 percent from 1.5 percent.
“It’s a tough region for Japanese companies to do well, and also if we use cars from Japan, of course it’s very difficult in terms of export,” Karl Schlicht, Executive Vice President of Toyota Motor Europe said ahead of the Paris auto show, which opened to the media on Thursday.
So why do Japanese carmakers bother?
In fact, some don’t - Daihatsu 7262.T, part of the Toyota group, will stop selling new cars in Europe in January 2013, blaming the high costs needed to meet Europe’s tough environmental regulations and the strong yen.
But for many automakers, Europe’s tough regulatory requirements are part of the answer.
“This is where all global standards for cars are set. If we don’t fight here, we can’t fight anywhere else,” Hiroshi Harunari, Executive Vice President of Mitsubishi, told Reuters this week.
Executives cited standards such as the European Union’s Euro 5 and Euro 6, which cap permissible emissions from various kinds of vehicles.
The European market may be struggling as austerity measures, high unemployment and fears about the future keep customers away from showrooms, but it still represents a major chunk of global auto sales.
The 27 EU member states accounted for 19 percent of worldwide motor vehicle registrations - or 15.1 million vehicles - in 2011, data published on the website of European industry association ACEA shows.
At a tough time for the region, Japanese automakers can count themselves lucky their presence in Europe is limited, said Christopher Richter, a senior analyst at CLSA Asia-Pacific markets based in Tokyo.
“Their exposure to the region, compared to the state of the German makers or the American makers, is very small. And given the state of economy and the state of the vehicle market there, that’s not such a bad thing.”
Despite their decades-long presence, most Japanese carmakers have failed to make significant inroads in the highly competitive market, which is dominated by western brands such as Volkswagen (VOWG_p.DE), PSA Peugeot Citroen (PEUP.PA), Renault (RENA.PA) and Ford (F.N).
The exception is Nissan Motor Co (7201.T), which has an alliance with Renault, receiving diesel engines and manual transmissions popular in Europe from the French firm. It is the only major Japanese carmaker whose market share has grown in western Europe in the last five years.
It rose to 3.4 percent in 2012 from 2.0 percent in 2007.
Nissan also produces about 80 percent of products sold in Europe within the region, a higher rate than that of Toyota at around 67 percent and Honda at 60 percent.
Japanese firms suffered as the yen soared to about 77 yen against a dollar from 120 yen five years ago, making it more expensive to export from Japan. Supply chains were also disrupted by the 2011 Japan earthquake and Thai floods.
Honda Motor (7267.T), whose market share in Western Europe shrank to 1.0 percent in 2012 from 1.9 percent five years ago, has seen its European business lose money for three years in a row and is not optimistic about a quick recovery.
Toyota, whose market share dropped to 4.2 percent from 5.8 percent in 2007, brought its European business back to profit two years ago thanks to its financial services business.
In common with its peers, one of its strategies to help European operations is reducing reliance on imports. Toyota is investing $350 million to build the new Auris compact hatchback in Britain and the Corolla in Turkey.
“It’s very easy to lose money here in Europe. So we have to be careful and we want to go step by step, said Toyota’s Schlicht. “There is no bravado or nobody is saying we need to do crazy things in Europe.”
Toyota aims to start making money this year in European car manufacturing.
Nissan is investing 900 million pounds ($1.45 billion) in projects at its Sunderland plant in Britain, including production of the Qashqai crossover, Note compact car, and the LEAF electric vehicle.
Meanwhile, Mitsubishi agreed to sell a plant in the Netherlands for 1 euro to a local bus maker on condition that employees did not lose their jobs, taking care of a sluggish operation that had troubled it for years.
The carmaker will start selling the Outlander SUV and the Mirage compact car in Europe soon.
“We are currently on the defensive, but as we introduce new products into the market, we will also be on the offensive,” said Mitsubishi’s Harunari. “We shouldn’t be pessimistic.”
Editing by Helen Massy-Beresford