Domestic auto retailers revamping sales channels

by Akemi Nakamura

Domestic automobile retailers find themselves in a state of flux as intensified competition due to structural and demographic changes in the market lead many Japanese automakers to revamp their sales networks.

The reorganization of domestic sales networks has become a pressing issue for manufacturers because “the domestic market will probably not expand in the mid- to long-term” due to the sluggish economy and a declining population, according to Shinji Kitayama, an automobile industry analyst at Shinko Securities Co.

Diversifying customer needs are also transforming existing sales channels, he said.

Traditionally, according to Kitayama, dealer networks were established on a “sedan hierarchy.”

Mitsubishi Motors Corp., for example, sold luxury sedans like the Diamante through its Galant channel, which was formed in 1970, while compact models like the Mirage were distributed via its Car Plaza network, set up in 1978.

“Many people bought sedans; having a certain class of sedan was indicative of social status — until the (asset-inflated) bubble economy collapsed in the early 1990s,” Kitayama said. “Now people don’t care much about social status, so they buy vehicles like minivans and SUVs to have a good time with their families or enjoy their hobbies.”

To cope with the changes, Mitsubishi Motors, which has experienced poor sales in recent years and posted an operating loss of 66.8 billion yen on its domestic business in the year to March 31, is in the process of rebuilding its sales network by integrating the Galant and Car Plaza sales channels.

During the 1990s, other struggling carmakers, including Nissan Motor Co. and Mazda Motor Corp., also downsized sales channels and rebuilt their dealer networks to survive.

According to the Japan Automobile Dealers Association, the number of sales outlets operated by or affiliated with Japan’s 11 automakers has been on the decline since peaking at 17,995 at the end of fiscal 1997. The figure stood at 16,861 at the end of fiscal 2001.

Carmakers expanded their sales networks to suburban areas up until the mid-1990s, but ended up closing unprofitable outlets to cut costs in the late 1990s, one association official explained.

Even industry leader Toyota Motor Corp., which controls about 40 percent of the domestic market, is planning an aggressive revamp of its sales networks to meet changing consumer tastes.

Next year, it plans to merge its Vista network, which mainly handles midsize cars, with its compact model-focused Netz channel to create a retail line that primarily targets young customers and women. While this would reduce Toyota’s existing five retail networks to four, it will establish a new Lexus network to sell models that target the wealthy in 2005.

“The Lexus channel will probably cultivate a market for corporate customers as well as rich people who want vehicles that differentiate them from other luxury car owners,” said Kitayama of Shinko Securities, adding that Toyota is probably the only domestic automaker with both the brand and financial power to set up an entirely new distributor network amid the current environment.

For Mitsubishi Motors, the integration of its two sales networks would help reduce fixed costs as it slashes dealerships and showrooms.

At the same time, the automaker hopes to bolster sales by creating a newer image by retraining salespeople and refurbishing all of its sales outlets, installing silver aluminum blinds in their fronts and wood floors and glass partitions to increase brightness and light inside.

“We will not expand our dealer network but upgrade its quality,” said Eiji Iwakuni, Mitsubishi Motor’s executive corporate manager of domestic sales and marketing.

Although Mitsubishi plans to spend 35 billion yen on the makeover during the three years from April, the move is expected to help make its domestic business profitable in a few years, he added.

Meanwhile, Fuji Heavy Industries Ltd., the maker of Subaru vehicles, is taking a cheaper approach to reinforce its 550-outlet dealer network.

Fuji Heavy has set its sights on so-called “gyohan” dealers, which, unlike dealers directly affiliated with an automaker, operate car repair factories as their main business and sell minivehicles regardless of make on the side. Industry experts say about half of all new minicars sold in Japan are handled by these dealers.

Since late April, the carmaker has been wooing gyohan dealers to join its marketing network, aiming to get 200 of the roughly 2,000 that currently handle Subaru minivehicles to work as Subaru Shop dealers, which would enable them to sell larger Subaru vehicles.

To be selected, however, the dealers have to meet a number of requirements, including opening a showroom, employing at least one salesperson and installing computer software to provide customers with pricing estimates, all at their own expense.

But while Fuji Heavy spokesman Shinichi Murata admitted this may seem like a high price for some gyohan dealers to pay, he argued that they will be able to earn more by selling high-margin popular Subaru models, including the Legacy wagon.

“It’s too much of a risk for us to strengthen sales units by employing (more) salespeople,” he said, adding that his firm estimates it will spend less than 1 billion yen on getting capable gyohan dealers to join its network.

“Our sales will only decrease if we don’t take steps to increase our brand presence,” Murata said, adding he hopes the strategy will help the carmaker increase domestic sales by about 100,000 units to a total of 350,000 in fiscal 2004.

“With the diversification of consumer tastes regarding cars, Japan’s car market now boasts a wider variety of vehicles, although the (sales) volume of most of the models remains small,” Shinko Securities’ Kitayama said. “Carmakers need to cope with this market by operating their sales networks at low costs.”