While most of the media attention has focused on the recall problems of Toyota over the past year, a much more significant trend has been occurring behind the scenes. As reported in multiple news outlets yesterday, for the first time since 1998, both Honda’s and Toyota’s North American market share is projected to decline. While Honda’s decline is expected to be modest (less than 6/10ths of a percent), the implications of this change are potentially profound. For the first time in over twenty years, the assumption that Japanese market share will continue to increase is now uncertain. So what is the cause of this change?
• The Quality Gap Has Narrowed Dramatically
This is the positive collateral damage of the Toyota recall debacle. For years, the Japanese manufacturers have enjoyed a significantly better quality reputation than either their North American or European counterparts. It is what drove their growth in North America and made it so easy for them to compete. In the last few years, however, that quality gap has narrowed dramatically, just in time for the Toyota recall. As Americans entered Big 3 showrooms, they liked what they saw and recognize that the quality gap, if it still exists, is relatively minor. (For what it is worth, you will never convince a Honda or Toyota true believer in that regard.)
• Hyundai
Hyundai has justifiably put the fear of God into Toyota, Honda, and Nissan. With terrific designs and even better pricing, we anticipate Hyundai will continue to pick up share.
• The End of the Anti-American, Pro-Japanese bias of the Baby Boomers/Gen Xer’s
This assumption (and for years it was completely true) that the Big 3 couldn’t walk and chew gum at the same time and that the Japanese could do no wrong, drove much of the Japanese market share success over the last twenty years. What many in the industry have failed to recognize is that this bias does not exist with the Millennial generation (which is bigger than the Baby Boomers by the way). Given that they grew up in the age of electronics and imports from all over the world, and they did not suffer the truly horrible product the Big 3 produced in the 1980s and 1990s, they are demonstrating that the Big 3 can count on them as buyers in increasingly larger numbers.
• Design
Last but certainly not least, this is also the end of the Japanese being able to ignore the importance of design. From consistently boring product (e.g. no one ever bought a Camry for its looks) to truly bad design (a good client of ours that has a lot of product on the new Honda Crosstour refers to it as “butt ugly”), the Japanese have a lot of catch up to do here, both with Hyundai and their Big 3 competition. In our opinion, this will be the most difficult hurdle to overcome.
So while I would not plan on a major decline of Japanese share in North America, the era of the Japanese market share juggernaut is over.