Japanese Luxury Car Manufacturers: Issues and Solutions

The global automobile industry has being growing at its fastest since after the 2008 crisis. This has mainly been due to the growing economic might of China and other developing countries like India. Also, car sales in the USA have reached pre-recession levels.  The car industry is at its liveliest in terms of technology with new technologies like hybrid power and electric vehicles gaining traction among manufacturers worldwide. Furthermore, the consumer base is now younger than ever, as such, consumers are more than ready to lap up such advances.

However, in this scenario the biggest gains have been made by luxury car manufacturers. These include brands like Audi, BMW, Jaguar, Mercedes-Benz, and Porsche to name a few. These brands are all growing at their fastest and with an ever expanding model range. However, the aberration here is that while European luxury brands like the ones mentioned earlier, have witnessed tremendous growth, the Japanese brands have remained laggards. The only region where they have been able to make a sizeable impact is in the North American market.

There are a multitude of reasons behind this. The main reason has been that the European brands enjoy better economies of scale. For example, Volkswagen owns a number of luxury brands including Audi, Porsche, Lamborghini and so on. This helps to ensure that high quality, expensive parts and technologies find greater applications, greatly reducing costs while increasing profits. In the case of Japanese manufactures, they only have a single luxury brand in their portfolio while their other brands are known usually for providing low cost mass motoring. This makes part sharing difficult and as such they cannot take advantage of economies of scale.

Another reason why Japanese luxury car makers lose out is because most of the highly skilled manpower needed in the luxury car industry is situated in Europe. Most luxury cars offer a high level of quality in their construction. This requires highly skilled tailors, leather and wood craftsmen and so on. These skills are more developed in Europe than elsewhere, as such, Japanese manufacturers lose out.

Lexus RC-F
Credits: GTSpirit

European brands also have greater brand value. While European luxury brands, like Mercedes Benz can in fact be credited with the invention of the automobile in the late 1800s, Japanese brands like Lexus, Infiniti and Acura have only been around since the 1980s. Thus, these European brands have a distinct advantage in a market such as this, where brand value and perception are what buyers like to pay for.

Japanese brands can also be accused of neglecting investment in research and development or investing in less lucrative areas. European luxury car makers invest billions of dollars in their motorsport programs. This has lead to great success for brands like Ferrari, Porsche, Audi and Mercedes Benz. Japanese manufactures generally tend to make investments in more ethical areas like alternative fuels and hybrid power. This is not as lucrative because motorsport success attracts a younger customer base which remain brand loyalist for the rest of their lives. This can be seen in the fact that the average age of buyers of Japanese luxury cars is much higher.

There are a number of ways that Japanese car makers can remedy the problems faced by them. So far, they have only concentrated on the American market along with the Chinese market of late. They have only a minor presence in Europe and developing countries like India. In some cases, like Lexus, they have started operations in their home market of Japan only recently. These attempts at expansion will help improve their economies of scale and attract a whole new clientele with different perceptions about the brand.

They can also make efforts to hire the highly skilled manpower that European manufacturers enjoy. This will allow them access to the quality and exclusivity or at least the superior perceived quality that European makers enjoyed by employing these craftsmen. This will help them make strides in newer markets like India where such factors are held in very high regard by the luxury market consumer base.

Another way for them to increase their presence worldwide would be greater spending on motorsport activities. The research and development done for these purposes usually have a trickledown effect into road cars. Furthermore, success in motor sport brings about a younger consumer base as they now aspire to own such brands. This always good from the standpoint of a luxury goods manufacturer.

Of late, Japanese luxury makers have made efforts to find solutions to some of the issues plaguing them. New R and D facilities have been set up in Europe, there has been hiring of new talent from European carmakers. These brands are also started making some investments in motor sport activities, like Infiniti sponsoring the Red Bull F1 team. These are nascent steps, but considering the fortitude and perseverance that the Japanese are known for, it is safe to assume that Japanese luxury manufacturers will be more competitive in the future.