Yet there is an unexpected bright spot. Sales of minicarstiny, inexpensive vehicles powered by glorified motorcycle enginesrose 5.2% last year to reach 2.02 million, a record high. More than one out of every three cars sold in Japan in 2006 was a mini, or kei, making the country by far the biggest market in the world for these runty runabouts. Offering affordabilitymost are in the $10,000 price rangeand impressive fuel economy of around 20 km per liter, Hello Kitty-cute kei could play a big role in the future of Japanese transport. "It's a good bet that minis are going to be an increasing part of Japan's auto market," says Christopher Richter, Tokyo-based auto analyst for investment bank CLSA.
Japanese minis were once dowdy, spartan econoboxes purchased mainly by consumers who couldn't afford anything better. Japanese called them "perseverance cars" because drivers had to put up with cramped passenger compartments and anemic 50-h.p. engines. That began to change in 1998, when government restrictions on maximum minicar size (owners are eligible for discounts in annual car taxes worth at least $200) increased to 3.3 m long and 1.5 m wide. The bump in dimensions gave manufacturers creative space to build better, roomier modelsmost now have four doorsand alleviated consumer concerns about safety and comfort. "I feel perfectly safe in a minicar," says Ayako Yamamoto, a 57-year-old housewife in Nagasaki prefecture whose family owns a kei and a minitruck. "The interior is very spacious, and it drives just as well [as a full-size car]."
Make no mistake, kei are dinky even compared with conventional subcompacts. The popular Daihatsu Move, for example, is 28% smaller on the outside than BMW's iconic Mini. Social and demographic trends in Japana country known for its affinity for bonsai and miniature electronicsappear to favor tiny, frugal cars. Young people are postponing or forgoing marriage and children, lessening demand for family-sized autos. For retirement-age baby boomers, minis make practical second vehicles; they are especially favored by obasans, older housewives like Yamamoto who have been the kei's most faithful customers. In Japan's less prosperous regions, minis easily outnumber full-size cars. "Japanese consumers don't need big cars to show off their life," says Masa Ogawa, managing director for the automotive industry group at research firm J.D. Power. To many Japanese, "a car is just another tool."
Indeed, the best-selling kei such as the Move and Suzuki's Wagon R are practical and conservative. But manufacturers introduced 11 new models last year, among them sportier, more technologically sophisticated cars geared for younger buyers. Mitsubishi automotive designer Akinori Nakanishi likens the company's new Mitsubishi i to an iPod Nano on wheels, down to the bright colors. (A deluxe version comes with a docking port for a Nano and a satellite navigation system.) Mini design might sound like dull worktight budgets, less room for bells and whistlesbut Nakanishi says his team welcomed the challenge of coloring within the lines. "It's like baseball," he says. "The reason why baseball is fun is because you have rules. Playing around with the restrictions is actually fun."
With fuel prices likely to remain high and awareness of the environment growing globally, small, efficient cars are beginning to gain traction not just in Japan but all over the world. For example, DaimlerChrysler plans next year to begin selling its two-passenger Smart mini in the SUV-loving U.S. At the same time, most of the world's major automakers expect to produce low-cost subcompact cars for growing middle classes in China, India and other developing countries. Yet the market for kei is likely to remain largely restricted to Japan. That's partly because profit margins are too low to justify international sales. Daihatsu sells some of its minis in Southeast Asia and is working on a deal in China. But SuzukiJapan's top minimaker until Daihatsu passed it last yearis reducing mini production in favor of subcompacts and compacts. "Minicar engines made for the Japanese market are too small," says Yoichi Kojima, a spokesperson for Suzuki. "Here you have only four passengers, but in India, for example, you need space to pack in as many people as possible."
Even in Japan, the market appears to have limits. Kei sales in April fell 6.4% from a year earlier, the first drop in 16 months. The slump is unlikely to last, however. "Over the long term the minicar market is expected to grow continuously," says Tsuyoshi Mochimaru, an auto analyst for Deutsche Securities in Tokyo. When a country's population shrinks, apparently so do its cars.