Reinventing the car

The important news from the motor industry yesterday was neither the fall in sales by Germany's most successful car firm, BMW, nor the curate's egg of analysis from the German motor manufacturers' association, but the 22 per cent fall in car exports last year from Japan.

The problems of the European motor industry have been widely appreciated here: there are too many manufacturers; their cost structure in most cases is too high; average quality is well below Japan and in some cases below the US; the market is stagnant, or worse. By contrast, perhaps because it is Japanese technology that has helped to rebuild the UK car industry, we tend to assume that Japan's industry is universally successful. In terms of manufacturing production technology, Japan remains unquestionably world leader, while in design and development it is at least equal to Germany. Yet being the best is evidently not good enough.

Japanese sales in the US have been losing market share for some time, even including US-built models, while car demand in Japan itself last year was some 18 per cent below the peak of 1990. This year may be worse still. The Japanese car makers are still forecasting a rise in domestic demand this year of around 6 per cent, but to many outsiders this seems hopelessly over-optimistic. It would require a sharp upturn in economic demand, of which there is no sign.

The plight of the Japanese car makers raises an important strategic question for the entire world industry. The industry is going through a miserable time, but are its problems principally cyclical or structural? Does the motor trade, at least in the developed world, face a long period of contraction similar to that of basic industries like steel and shipbuilding?

There is a strong case to be made that contraction is inevitable, and that the only issue is how fast that contraction will take place. There are two problems for the manufacturers. The first is that as growth in car ownership has tailed off, the market has inevitably become a replacement one, rather than a growth one. That happens to all consumer durable industries - the stage where everyone who would like one already has one - but because the unit cost of a car is so much higher than, say, a TV set, it has taken longer to occur.

The second is that cars have become too good. Because each year they become more reliable and durable, there is no need for them to be replaced so quickly. Nor, since new models offer only modest incremental improvements over old, is there much incentive to do so. The result is that the average age of the car fleet in mature markets such as the US has tended to rise since the 1970s.

In Japan, the age of the fleet has been kept down by strict regulation: annual checks that become progressively more expensive. These are nominally for safety and anti- pollution reasons, but in practice are a device intended to keep small garages in work and stimulate demand for new products. Imagine an MOT test that cost nearly pounds 1,000 a year; it is cheaper to buy a new car.

But the new mood of consumerism in Japan is chipping away at such regulation, and despite it, car sales can fall sharply, as has happened in the past three years. It would be surprising if Japan does not see a rise in the age of its car fleet over the next decade.

By contrast, there is very rapid growth in car manufacturing in the emerging economies of East Asia, particularly mainland China. If China follows the course of countries like Taiwan or Korea (and large parts of it will), then it will become a large market for cars and, inevitably, a large production centre. Cars will have become a commodity to be made wherever labour is cheap, unless . . .

The unless is this: could there be technological developments in the wings that will enable advanced industrial countries like Japan (or Britain) to remain competitive production centres?

DIFFERENT PRODUCTS

It is possible to sketch what these might be. Getting rid of the internal combustion engine would be one. Getting rid of steel would be another. Thus, if the manufacturers were able to develop a new generation of vehicles that required higher technology than the metal-stamping of the present car plant, or which brought genuine advances in product design, safety, or economy, then it would take some while before the newly industrialised countries could catch up. The new products would have to be radically different in themselves, and perhaps also be produced by quite different technologies, before the motor trade could embark on a new period of growth. It is quite hard to see how this might happen: no-one has yet managed to bring a radical advance anywhere near the market.

In the next two or three years the cyclical recovery taking place in the US and now the UK will spead to Europe and eventually to Japan. This will bring cyclical recovery to these regions' motor manufacturers, just as it has to the US domestic industry. But it will do nothing for the long-term structural problems of an industry that is still too big for the available demand, unless the industry can somehow reinvent itself, so that cars cease to be a commodity sold principally on price, like supertankers or TV sets.

The best place to look for such a reinvention must be Japan, partly because it has the most inventive consumers, partly because it has all the problems of congestion, which put the lid on vehicle growth. But there really is little sign.