April 9, 2009 at 1:00 am

Carmakers push technology to lure buyers

Cars have lost their appeal in Japan and are not necessary for transportation, creating a challenge for automakers in their home market. (Junko Kimura / Getty Images)

Japanese automakers face a major challenge in their home market: Cars just aren't cool here anymore.

But declining U.S. auto sales have prompted companies like Toyota Motor Corp. and Honda Motor Co. to take a renewed interest in the Japanese market.

They know that Japan, with its shrinking population, can never make up for the losses the automakers have sustained in the United States. But they are eager to do what they can to improve their numbers. To that end, they are reaching out to a new generation of consumers with the thing they love most: technology.

Japan's population is aging, and younger consumers care a lot more about electronics than they do about cars.

"We have a good public transportation, so they do not need one," said Kozo Koide, chief economist at DIAM Co. Ltd., a leading asset management firm. "Driving a car is not an icon of style anymore."

The economic crisis has only made things worse, according to the Japan Automobile Manufacturers Association Inc., or JAMA. Executive Director Toshihiro Iwatake expected domestic sales to be down 500,000 vehicles for the last fiscal year, which ended here March 31. And he predicted they will fall by another half a million units this year.

"Almost 1 million units are going to disappear," Iwatake said. "That is very serious. We are not asking for a bailout program, but we are asking the Japanese government to spend money to stimulate demand."

Japanese officials have responded with incentives to spur the purchase of hybrids and other fuel-efficient vehicles.

JAMA members would like the government to do even more. But they are also working to bring a new generation of high-tech hybrids and battery-powered electric vehicles to market that they hope will appeal to younger consumers who love technology and have become passionate about protecting the environment.

They are also trying to make these vehicles affordable. Witness the new Honda Insight, which went on sale first in Japan and hit the U.S. market last month, where it sells for less than $20,000.

"Having a strong, stable home market is very essential, but not many young people are showing an interest in automobiles," said Honda spokesman Yasuhiro Wada. "We need to recapture their imagination. Our environmental approach with cars like the Insight is one way to do that."

To make it more appealing to younger Japanese, Honda is turning the Insight into a mobile gaming platform, allowing drivers to upload their gas mileage and compete with other motorists to see who can achieve the highest fuel economy.

Wada said consumer testing shows the plan is working, and Honda has already raised its production targets.

"This is the first good news we've had in a while," said Takehide Takahashi, executive managing director of the Japan Auto Parts Industries Association. "In Japan, the younger people are losing interest in purchasing cars. Unless this problem is solved, the domestic market will not recover."

Other automakers are rolling out green, high-tech vehicles of their own.

Mitsubishi Motors Corp. is debuting a new battery-powered subcompact electric car -- the iMiEV -- in July. But it already has been overwhelmed with lease requests from corporate customers, prompting the Mitsubishi to announce last week that it is increasing its own production goals.

"We are very excited about the prospects for the iMiEV," said Kenichi Tsutsumi, one of the program leaders. "You gain the most attention if you are first."

Koichi Sugimoto, senior automotive analyst at Merrill Lynch's Tokyo office, hopes these new products will stimulate demand in Japan.

But not everyone is convinced that the home market is worth saving.

"No one is expecting much out of the domestic market," said Iwao Nakatani, director of research, Mitsubishi UFJ Research and Consulting Co. Ltd. "It would be better to focus on emerging markets."

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