Carlos Ghosn with Nissan's new March. (Jiji)

While the auto market as a whole appears to be at a standstill, subcompact cars, which are defined as having engine displacement of between 1,000-1,300 cc, are currently enjoying booming sales due to the changing preferences of car buyers. In addition to a certain level of comfort, people are looking for cars that are more affordable, and interest in environmentally friendly vehicles is growing as well. Subcompacts seem to be a perfect fit for these consumer trends.

Affordable and Functional
The initial interest in subcompacts was sparked by the release of Toyota Motor Corp.'s Vitz (sold in Europe as the Yaris), which comes with a standard 997 cc engine, in January 1999. The Vitz is an extremely affordable car, priced at just around ¥1 million (about $8,700 at ¥115 to the dollar). It also has a design reminiscent of European subcompacts, and it has received high marks for its functionality and handling. The Vitz immediately became one of Japan's most popular cars, and in the first half of 2000 it became the number-one seller, displacing the Toyota Corolla (1,300-2,200 cc engine), the car that had held the top spot for the last 33 years. As of this spring, more than 500,000 people in Japan had bought a Vitz.

Following Toyota's lead, Honda Motor Co. released the Fit (1,339 cc) in June 2001. The Fit (marketed in Europe as the Jazz) is noteworthy in that while it feels much roomier than a subcompact, it still comes with a very affordable ¥1,065,000 ($9,260) price tag. What made it possible for Honda to offer such a low price was the company's efficient production methods. Toyota purchased a Fit after the car was released and undertook a thorough analysis of its competitor's latest model. The cost-cutting measures that were used in the construction of the car were surprising even to Toyota, a company famous for holding costs down. The Fit has proved incredibly popular, taking the top ranking among all automobiles sold in Japan during the first half of 2002, with 117,000 vehicles purchased by consumers in that period.

New Models Most Popular
In March 2002 Nissan Motor Co., which has been headed by Carlos Ghosn since its tie-up with French automaker Renault, released its own new subcompact, the March (997-1,386 cc). The March (available in Europe as the Micra) has been a big hit with the public; a reported 40% of purchasers had switched from a car made by one of Nissan's rivals. In addition to Nissan and Renault realizing their goal of creating a common platform for cars that will sell for between ¥950,000 ($8,261) and ¥1,320,000 ($11,478), the two companies put a great deal of effort into maximizing the vehicle's features, such as a new type of keyless system. Even though it only went on sale in March (the month), this new model chalked up the third-highest sales for the entire first half of 2002 at 66,000 units.

All three of the cars introduced above have environmentally friendly engines. In order to promote the spread of vehicles that do less damage to the environment, the Ministry of Land, Infrastructure, and Transport has created an accreditation system that grades automobiles on the degree to which they reduce harmful emissions. A car that emits 25% less harmful gasses than what is allowed under emissions standards created in 2000 earns a "good" rating; a 50% reduction gets an "excellent" rating; and a 75% cut marks that car as "superior." The three subcompacts introduced above have all earned a rating of either "excellent" or "superior." Any type of car that has been accredited as a low-emission vehicle (LEV) is eligible for tax breaks. Under preferential tax measures, low-pollution vehicles qualify for a reduction of the automobile-acquisition tax and a special tax that is applied only to vehicles registered in Tokyo. In addition, customers can receive a subsidy under the Ministry of Economy, Trade, and Industry's program to promote the spread of clean energy vehicles.

Strategic Vehicles
Even smaller than the subcompact is the minicar, which is defined as having an engine of 660 cc or less and a length of 340 cm or less. One of the main factors behind the popularity of minicars in Japan is that they are taxed relatively lightly in comparison with other types of vehicles. As of December 2001 there were more than 20 million minicars in Japan, about half of them used for carrying passengers and half used to carry freight.

Both subcompacts and minicars combine comfort with high fuel efficiency, and automakers around the world are paying close attention to these classes of cars, believing that they will play a key role in the battle for market share. Japan's automakers consider that the subcompact in particular is a strategic asset for competing in the world market, and they are marketing these vehicles under different names in Europe and elsewhere.

In 2001 Toyota sold about 660,000 subcompacts in Europe, taking a 3% share of that market. In April 2002 the company teamed up with the Peugeot Citroen group to break ground on a new joint plant in the Czech Republic, an effort that is seen as part of a strategy by Toyota to gain a foothold on the continent. Honda began selling its Fit (under the Jazz brand name) in Europe in December 2001, and dealers in every country there have been asking the company to send more. Nissan, meanwhile, plans to begin production of the March (sold in Europe as the Micra) at a factory in Britain by the end of 2002.

But Japan's automakers are not looking to sell subcompacts exclusively to Europe; the Chinese market figures in their plans as well. Beginning in October 2002, Toyota plans to manufacture cars based on its Vitz at a joint factory in the city of Tianjin. The plant will produce some 30,000 vehicles annually. And Honda is considering producing subcompacts in China based on its Fit. Considering the warm reception they received in Japan and Europe, these cars may prove to be quite popular in the rest of Asia as well.