Nissan takes on quirky minivehicle market

TOKYO, April 10 Reuters reported how Nissan Motor Co Ltd has pulled itself from the brink of bankruptcy to record profits under a foreign chief executive. Now it is setting its sights on a peculiarly Japanese segment of the auto sector -- minivehicles.

On Wednesday it becomes the last major Japanese automaker to venture into the minivehicle market by unveiling the ``Moco'', a model produced by Japan's top minicar maker, Suzuki Motor Corp, for sale under the Nissan badge.

Nissan, which has staged a dramatic turnaround since partner Renault SA (RENA.PA) sent in Brazilian-born Frenchman Carlos Ghosn to take the helm, will use its tie-up with Suzuki to gain a foothold in an unusual domestic sector that has thrived thanks to quirks in regulations on parking, registration and safety.

Sales of minivehicles -- cars with an engine displacement of 660 cc or less -- account for over 30 percent of the domestic auto market and have held up well in the face of Japan's gloomy economy and slumping sales of larger vehicles.

So while Nissan's cost-cutting efforts have been a success and the popularity of its new March subcompact has answered some worries over whether it can deliver new cars that sell, its lack of a minicar has left a gap in its line-up.

``To grow, we must compete in every segment, including this important minicar segment, in our home market in Japan,'' Ghosn said last year when announcing the tie-up.

Selling the minivehicles is not going to have a major effect on the bottom line of Japan's third-biggest car producer since it is offering relatively low volumes and Suzuki -- 20 percent owned by General Motors Corp will be handling production.

But it may help draw customers into its showrooms where they can be tempted by higher margin products and could stave off defections to other brands by Nissan car owners, 24 percent of whom also own a minicar.

The agreement to supply an expected 36,000 minivehicles a year to Nissan also works out nicely for Suzuki, which can boost its production volume without really endangering its own sales and losing its prized spot as Japan's top minicar maker.

``It's a win-win situation,'' Howard Smith of ING Barings said.

Suzuki sold 569,324 minivehicles in 2001, maintaining a solid lead over Daihatsu Motor Co Ltd (7262.T), 51 percent-owned by Toyota Motor Corp (7203.T), which sold 514,089.

A VIABLE OPTION

With minivehicle sales likely to continue taking over 30 percent of the Japanese market and rise to around 1.87 million vehicles in 2002, it has become even more important for Nissan -- currently shifting focus from cost-cutting to boosting sales -- to have a presence in the market.

Japan's economic doldrums have driven consumers towards cheaper cars and minivehicles have reaped much of the benefit.

Much of their success has been a lucky side-effect of an overhaul of safety regulations by the government in 1998, which brought minivehicles into line with regular vehicles in terms of what impact they must be able to withstand in an accident.

This forced makers to redesign the vehicles to make them wider and longer, and sales quickly shot up. Minivehicle sales accounted for only 24 percent of the market in 1997, but that had risen to 32 percent by 1999.

``In the past they were never really direct substitutes for non-minivehicles,'' ING's Smith said. ``But the fact that they became larger and safer made them more of a viable option for people who were shopping for a small car.''

Registration fees and taxes on minis -- often used for travelling short distances in rural areas where bus and train services are lacking -- are much lower than on regular vehicles.

Loose rules on parking in rural areas have also helped sales, particularly among women and families using them as second cars.

The lower cost of ownership has kept minivehicle sales strong in the face of a strong pipeline of subcompacts like Toyota's (7203.T) Vitz and Honda Motor Co Ltd's (7267.T) Fit, leading to a jump in the size of the small car market as a whole.

Nissan has given no indication it intends to produce minis on its own or take on the likes of Suzuki, but the real aim of its new venture probably lies elsewhere.

``Up until now, any time one of their customers wanted a minivehicle, that meant they were going to be in a competitor's showroom,'' said Christopher Richter of HSBC Securities.

``Which is just the place Nissan does not want their customers to be.''