Volkswagen: "Japan Is Not A Closed Market."

“No, Japan is not a closed market, come on, it has zero percent duty on cars.” Such spoke Yasuo Maruta, Communications Director of Volkswagen Japan, today at Volkswagen’s Tokyo offices. Volkswagen Group sold 66,000 cars in the first ten months of the year in Japan, and is expected to sell roughly 80,000 by the end of the year, making it Japan’s largest car importer, a title it held for as long as I can remember.

Maruta’s employer wants to enlarge its footprint in Japan. As a contribution to Strategie 2018, Volkswagen alone wants to sell more than 100,000 cars in Japan. Together with Audi , that would amount to roughly doubling its sales.

Volkswagen is not worried about the non-tariff barriers alleged by the American Automotive Policy Council on behalf of its paymaster GM, Ford and Chrysler. American companies have for all intents and purposes given up on the Japanese market. Instead of selling cars, they sell fiction about closed markets, manipulated currencies and threatened U.S. jobs. All Detroit brands together sold a little over 10,000 units in the first 9 months in Japan, a fraction of Volkswagen Group’s imports.

Maruta has a hard time coming up with hurdles that may be in the way of successful imports. “Type approval procedures are much less of a problem than in the past,” says Maruta, while noting that Japan’s preferential Handling Procedure allows small series of up to 2,000 units into the country with the barest of paperwork. Pressed hard to find something, he says that his company currently cannot import cars with CNG tanks into Japan. (Volkswagen’s Passat CNG hybrid is not available in the U.S. either.)

Volkswagen wants to expand its sizable dealer network in Japan, something that would be impossible if the propaganda of the anti-Japan lobby is to be believed. “Sure, land for dealerships is expensive in Japan, especially in the cities,” says Maruta. Except for a lack of money or patience, nothing bars an importer from establishing dealers in Japan. “Market entry takes a lot of time and money,” says Maruta, “you must go step by step.” Volkswagen has been in Japan since the ancient times of the original Bug.

Maruta is very familiar with the issue. Before coming to Volkswagen, he worked for Mazda, then GM. He recalls “when Toyota sold the Chevrolet Cavalier, I sold Saturn, and Chrysler tried to sell the Neon, they called it the Japan killer car, but unfortunately …”

Being a company that is heavy on small cars, Volkswagen has issues with Japan’s special treatment for Kei cars. Says Maruta: “Automotive tax for a kei is some 7,200 yen ($90) a year, compared to say a Vitz for which you would have to pay more than 30,000 yen ($374) a year.” Kei cars have 33 percent of the Japanese market, a segment Maruta’s employer can’t touch, because Volkswagen does not have the product.

Nothing precludes a foreign manufacturer from making and importing a kei, but it would be a silly exercise.Volkswagen’s design chief Walter de Silva “drew us a schematic, showing that he would need a completely new platform for a Volkswagen kei car,” chimes in Maruta’s collegaue, Dorothea Gasztner. “An outsider would never reach the volume necessary for a successful entry into the kei car market.” Even Japanese car companies battle with the low volume of keis. Production more and more concentrates on a few key makers such as Daihatsu and Suzuki that produce keis for other Japanese car companies. Subaru for instance handed its kei car production to Toyota’s Daihatsu, in return, Subaru manufactures the low volume hachi-roku sports car.

Volkswagen tried with an engagement with Suzuki, but it was thwarted. Not by a non-tariff barrier, but by a rambunctious Osamu Suzuki. Now, Volkswagen, along with importers allied in the Japan Automobile Importers Association, lobbies for an end of the preferential tax treatment of kei cars.

Another limitation to successful entry into the Japanese market is the Japanese customer that predominantly prefers homegrown cars. Maruta hopes to convince more. A recent study shows that 25 percent of Japanese car buyers would consider a foreign car, “whether they buy one is another matter,” Maruta says.

The key is having the right product that speaks to the peculiar Japanese psyche, where small is beautiful, and big is boorish. Volkswagen found that product in the small but peppy Up! that shapes up to be Volkswagen’s most successful Japanese product launch ever. In a few days (and after we have found a magnifying glass) we will look closer at the success of the Up! in Japan.

In October, sales of cars imported to Japan rose 20.1 percent year-on-year to 23,597 units, data released by the Japan Automobile Importers Association show. January through October, 257,206 units were imported.