Japan's love of tiny cars sore spot as Trump, Abe meet

[February 10, 2017]  By Naomi Tajitsu, Norihiko Shirouzu and Bernie Woodall

TOKYO/DETROIT (Reuters) - When Japanese Prime Minister Shinzo Abe meets on Friday with U.S. President Donald Trump, Japan's bulging automotive trade surplus will be a sore spot, but the path to balancing auto exports and imports will be no easier than it was in the 1980s.

Trump may press Abe to do more to level the trade imbalance with Japan during a White House visit or a round of golf, but the two leaders are unlikely to change the fact that the big cars and trucks that America makes do not sell in Japan.

Many Japanese consumers, faced with congested cities, favor tiny domestically-made vehicles, called kei cars, which make up more than a third of the market. Priced from around 1.1 million yen, or about $9,800, these cars have engines most Americans would consider inadequate for a motorcycle.

Even Japan's Toyota Motor Corp <7201.T> and Honda Motor Co <7267.T> cannot convince Japanese consumers to buy models that are popular in the United States. Small sport utility vehicles such as the Toyota RAV4 and Honda's CR-V are seen by Japanese consumers as too big.

Only about 13,000 vehicles from U.S. automakers sold in Japan in both 2016 and 2015, and of that about three-fourths were Jeep SUVs made by Fiat Chrysler Automobiles <FCHA.MI> <FCAU.N>. Ford Motor Co <F.N> announced last month that it is pulling out of the Japanese market entirely, after selling just 2,400 vehicles there in 2016.

The Japanese auto market has shrunk not only in terms of vehicle size, but in sales volume. As a result, global automakers, including Japan's, are focused on boosting sales in China, the United States and growing emerging markets.

"It would take a painstaking fine-tuning of vehicle specs to suit American cars to those driving and other conditions and develop a strong distribution network to be able to gain traction in Japan. It is nothing short of a 20-year effort," said a Toyota executive who spoke on condition he not be named.

Jaguar Land Rover Japan Ltd Chief Executive Magnus Hansson said the low sales of U.S. cars in Japan did not mean it was a closed market, but rather reflected "a total and absolute lack of effort over 50 years" by Detroit.

Still, Japan remains an export hub for the big Japanese automakers. The U.S. Commerce Department this week reported that the U.S. trade deficit with Japan in 2016 was $68.9 billion, and of that total surplus, some $52.6 billion was in vehicles and automotive parts.

Japanese Prime Minister Shinzo Abe and his wife Akie Abe arrive ahead of his meeting with U.S. President Donald Trump at Joint Base Andrews, Maryland, U.S., February 9, 2017. REUTERS/Joshua Roberts

Japan's automakers have more than 90 percent of the Japanese market. Last year U.S. automakers controlled only 45 percent of their home market, the world's second-biggest after China.

A bigger factor than imports in the Detroit automakers' loss of U.S. market share since 1980 is the surge in investment by Japan's automakers in U.S. factories. Last year, 56 percent of the vehicles Toyota sold in the United States were made in America, the company said. Toyota said it employs more than 34,000 in the United States.

For years the growth of Japanese-owned auto factories in the U.S. heartland has helped cool trade tensions.

But Trump, a Republican, has turned up the heat by complaining about the trade surplus and accusing Japan of manipulating the value of the yen to disadvantage American-made goods.

On Thursday, a bipartisan group of senators from auto manufacturing states called on the new president "to address currency manipulation and auto-related non-tariff barriers.”

They are not alone in urging changes to help bolster U.S. business.

"(Trump) must bring Abe up short on any cheery notion that business will continue as usual," said Kevin L. Kearns, head of the U.S. Business and Industry Council.

The group represents smaller U.S. manufacturers, many of which feed the U.S. auto industry.

(Reporting by Naomi Tajitsu, Norihiko Shirouzu and Bernie Woodall; Editing by Joseph White and Tom Brown)

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