A Post-Car Society

Kimiyuki Suda should be a perfect customer for Japan's carmakers. He's a young (34), successful executive at an Internet-services company in Tokyo and has plenty of disposable income. He used to own Toyota's Hilux Surf, a sport utility vehicle. But now he uses mostly subways and trains. "It's not inconvenient at all," he says. Besides, "having a car is so 20th century."

Suda reflects a worrisome trend in Japan; the automobile is losing its emotional appeal, particularly among the young, who prefer to spend their money on the latest electronic gadgets. While minicars and luxury foreign brands are still popular, everything in between is slipping. Last year sales fell 6.7 percent—7.6 percent if you don't count the minicar market. There have been larger one-year drops in other nations: sales in Germany fell 9 percent in 2007 thanks to a tax hike. But analysts say Japan is unique in that sales have been eroding steadily over time. Since 1990, yearly new-car sales have fallen from 7.8 million to 5.4 million units in 2007.

Alarmed by this state of decay, the Japan Automobile Manufacturers Association launched a comprehensive study of the market in 2006. It found a widening wealth gap, demographic changes—fewer households with children, a growing urban population—and general lack of interest in cars led Japanese to hold their vehicles longer, replace their cars with smaller ones or give up car ownership altogether. "Japan's automobile society stands at a crossroads," says Ryuichi Kitamura, a transport expert and professor at Kyoto University. He says he does not expect the trend to be reversed, as studies show that the younger Japanese consumers are, the less interested they are in having a car. JAMA predicts a further sales decline of 1.2 percent in 2008. Some analysts believe that if the trend continues for much longer, further consolidation in the automotive sector (already under competitive pressure) is likely.

Japanese demographics have something to do with the problem. The country's urban population has grown by nearly 20 percent since 1990, and most city dwellers use mass transit (the country's system is one of the best developed in the world) on a daily basis, making it less essential to own a car. Experts say Europe, where the car market is also quite mature, may be in for a similar shift.

But in Japan, the "demotorization" process, or kuruma banare, is also driven by cost factors. Owning and driving a car can cost up to $500 per month in Japan, including parking fees, car insurance, toll roads and various taxes. Taxes on a $17,000 car in Japan are 4.1 times higher than in the United States, 1.7 times higher than in Germany and 1.25 times higher than in the U.K., according to JAMA. "Automobiles used to represent a symbol of our status, a Western, modern lifestyle that we aspired for," says Kitamura. For today's young people, he argues, "such thinking is completely gone."