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Marketing Strategy of Daihatsu Motor Company, Ltd.

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Marketing Strategy of Daihatsu Motor Company, Ltd.
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Marketing Strategy of Daihatsu Motor Company, Ltd. - December 16th, 2010

Daihatsu Motor Co., Ltd. (ダイハツ工業株式会社, Daihatsu Kōgyō Kabushiki-gaisha ?, TYO: 7262, OSE: 7262) is a Japanese manufacturer of cars, well known for its smaller models and off-road vehicles. Many of its models are also known as kei jidōsha (or kei cars) in Japan. Its headquarters are located in Ikeda, Osaka Prefecture.[1]

The name "Daihatsu" is a combination of the first kanji for Osaka (大) and the first of the word "engine manufacture" (発動機製造, hatsudōki seizō ?) ; when put together they are pronounced "dai hatsu."

Daihatsu was formed in 1951 as successor organisation to Hatsudoki and, by the 1960s, had started exporting cars to Europe, although it did not enjoy any major sales success until well into the 1980s.

Since February 1992 in North America, it has been common for Toyota to distribute Daihatsu models.

Public Company
Incorporated: 1951
Sales: 793.5 trillion (US$7.4 billion) (1996)
Employees: 11,415
Stock Exchanges: Tokyo
SICs: 3711 Motor Vehicles & Car Bodies; 3713 Truck & Bus Bodies; 3714 Motor Vehicle Parts & Accessories; 3799 Transportation Equipment, Not Elsewhere Classified; 5010 Motor Vehicles--Parts & Supplies

Company History:

Daihatsu Motor Company, Ltd. is one of the world's leading producers of "microcars," with models sold in more than 120 countries around the world. Daihatsu's line of small passenger cars, trucks, and utility vehicles ranks it among Japan's top ten car manufacturers. One of Japan's oldest automakers, the company pioneered its key market segment, producing the world's first one-liter diesel engine. Daihatsu was also first to realize in the postwar era the need for three- and four-wheel small delivery vehicles; as a result, in the 1950s the company introduced its extremely successful "Midget" minivehicle (marketed in the United States as the "Trimobile"). By virtue of its 33.4 percent holding in the company, Toyota Motor Corporation held veto power over Daihatsu; about one-fourth of the latter's production is manufactured for sale under the Toyota nameplate. Despite its 1992 exit from the U.S. market, the company remained a tenacious international competitor in the small vehicle and electric car markets. In the wake of its pull-out, Daihatsu returned its focus to cutting-edge technologies like electric cars as well as emerging auto markets in Southeast Asia, particularly China.

Early Twentieth-Century Origins

Daihatsu Motor Company began as the Hatsudoki Seizo Company, Ltd., established in Osaka in 1907 by a team of professors from Osaka University whose project it was to advance Japan's domestic motor vehicle industry. That year there was little demand for the six horse power automobile built by the Hatsudoki Seizo Company. After the First World War, when the importance of automotive vehicles in modern warfare was established, domestic vehicle production was encouraged. During this time Hatsudoki Seizo focused its production on trucks for the military, motorcycles, and small three-wheeled vehicles that could easily negotiate Japan's narrow streets and alleyways.

Despite encouragement from the military, resulting in large purchase orders for domestic motor vehicles, passenger cars were considered too risky an investment for Japan's big manufacturers. Lacking a sophisticated machine tool infrastructure, Japan produced only 1,000 passenger cars in 1929, while it imported nearly 15,000, primarily from the United States. This foreign monopoly of the Japanese automobile market ended with the military takeover of the Japanese government in the mid-1930s. The Automotive Manufacturing Industries Law was enacted in 1935, providing tax incentives and other benefits to producers of domestic motor vehicles. Still, neither the Hatsudoki Seizo Company nor other automotive businesses in Japan were willing to risk investing in passenger cars, but continued instead to focus on wartime needs, especially medium-sized military trucks and weaponry.

In 1930 Hatsudoki Seizo became the first Japanese automotive business to produce a three-wheeled vehicle with a domestically manufactured engine. Seven years later they introduced the first "mini four wheeler." As a result of its reputation as a machinery and small vehicle manufacturer, Hatsudoki Seizo was increasingly relied upon by the military, and the company began to expand; the first major plant opened in Ikeda in 1939.

Post World War II Growth

After World War II, with Japanese industrial facilities destroyed and the country occupied by the allied military powers, Japanese manufacturers were encouraged to rebuild and resume production of motor vehicles, especially trucks and urban transportation vehicles. However, as in prewar days, the import of foreign automobiles resumed. The first real stimulus to the domestic automobile industry as well as to Hatsudoki Seizo--which adopted the name Daihatsu Motor Company, Ltd. in 1951--was the outbreak of the Korean War. Japanese industry recovered as huge purchase orders were received from the allied occupation government.

In the 1950s Japanese automakers entered into technical agreements with European manufacturers in order to improve passenger car technology. The Japanese government, no longer pressured by military demands as in prewar days, stepped in to support and protect the domestic auto industry, especially by imposing restrictions on imported vehicles.

Benefiting most from these incentives were companies well experienced in the manufacture of motor vehicles and machinery, particularly Daihatsu and its chief competitor, Suzuki. In the mid-1950s, a thoroughly modern market research study of consumer needs, undertaken by Daihatsu, indicated a widespread desire for a high-quality, lightweight, three-wheel truck; in 1957, Daihatsu marketed the Midget minivehicle. In that year alone, over 80,000 Midgets were sold in Japan. The golden years of the minivehicle and small passenger car had arrived.

The Midget was marketed as the "Trimobile" in the United States in 1959, and its phenomenal success at home and abroad enabled Daihatsu to expand and market new products, such as the lightweight four-wheel truck "Hijet" in 1961, followed two years later by the four-wheel "Compagno Van." In February 1964, Dalhatsu introduced a small, four-wheel passenger car, the "Compagno Berlina."

Consolidation of Japanese Auto Industry in 1960s

In the mid-1960s, the Japanese auto industry underwent a major transformation. Mergers took place among the major motor vehicle manufacturers, and Toyota embarked on a joint venture with Daihatsu and Hino, while Nissan merged with other Japanese auto firms. Together, these two main auto-producing groups controlled over 60 percent of the Japanese car market. Pooling resources in this way enabled Daihatsu to expand further into the small vehicle market, increasingly gearing itself to exports. Over 50 percent of Japanese car production after 1968 would be for the international market.

The 1960s and 1970s marked the heyday of the minivehicle and small passenger cars, which were affordable and therefore popular among the middle and working class. Daihatsu produced several small passenger car models, including the "Fellow" in 1966, the "Charmant" in 1974, and the highly popular and acclaimed "Charade" in 1977, which won the Car of the Year Award in 1978 and other prizes in following years. In 1980, the highly successful minivehicle "Mire" was introduced. Daihatsu's small car and minivehicle production passed the ten million mark in 1985.

European and Asian exports remained Daihatsu's lifeline through the 1980s. In 1979, a European branch office was established in Belgium, and in 1984, production and sales of Daihatsu vehicles began in Taiwan as well as limited production on mainland China. There are Daihatsu sales offices in Australia, Indonesia, Malaysia and Hong Kong. For the sake of greater efficiency, Indonesia became the main parts supplier for Daihatsu in the all-important southeast Asian market. With the production of the locally built Mira mini pickup in Thailand, sales picked up in that country 50 percent in 1990, and with the fall of communism in eastern Europe and the unification of Germany, Daihatsu established offices in Poland and a branch in Germany, Daihatsu Deutschland GmbH. Also, a joint venture was concluded with Piaggio of Italy to produce and market vehicles like the "Hijet" pickups and vans. Having expanded its reach to more than 100 countries worldwide, Daihatsu set its sights on the United States in the late 1980s.

U.S. Launch in the Late 1980s

By the 1980s, the "big three" auto manufacturers in the United States had become as vulnerable to Japanese competition as Japanese automakers had been to American competitors fifty years earlier. Hoping to penetrate the U.S. market for fuel-efficient, yet well-built small cars, Daihatsu opened a new branch, Daihatsu America, Inc., headquartered in California, in 1986. The company opened with its well-established Charade three-door hatchback and a pint-sized sport utility vehicle dubbed the Rocky. At prices as low as half the average new car, the company offered what it called "small cars to be proud of," featuring air conditioning and compact disk players.

Despite its long experience in the auto industry and its success elsewhere in the world, Daihatsu seemed destined to fail in the United States. Since it was the ninth and last Japanese manufacturer to enter the market, its imports were limited to less than 12,000 units under Japan's voluntary quota system. Furthermore, unlike other Japanese auto companies, Daihatsu delayed establishing assembly plants in the United States. Daihatsu's already limited line was held up further when the company became entangled in a dispute with the producers of the "Rocky" films over the Rocky sport utility vehicle. With its exports restricted and without production facilities in the country, Daihatsu's foothold seemed tenuous. Added to these factors were: intense competition in the small vehicle market, a simultaneous decline in demand due to low fuel costs, an early 1990s recession, and the enactment of costly new safety and emissions regulations. But out of all these concerns C.R. (Dick) Brown, head of Daihatsu America, told David C. Smith of Ward's Auto World that "our number one problem is brand awareness." In fact, the company was dubbed "Daihats-who" by some industry insiders. This in spite of the fact that in 1992, J.D. Power & Associates, the leading market researcher of the automotive industry, rated Daihatsu first in terms of customer satisfaction after two to three years of ownership. So, having suffered a US$14 million loss in 1992, Daihatsu pulled out of the U.S. market and brought in a new president, Takashi Toyozumi.

Focus On Growing Markets, New Technologies in 1990s

After its exit from the American market, Daihatsu shifted to two primary strategies: development of new automotive technologies and penetration of emerging markets. Ongoing concern with global environmental standards boded well for the company's future. Striving to meet the stringent environmental controls of most developed countries, Daihatsu discontinued using harmful chlorofluorocarbons in its air conditioning systems and in the cleaning of its parts, and it continued its intensive research and development efforts on what it considered the automobile of the future, the electric car.

The company's research and development team had begun designing a silent, high-quality electric car as early as 1965 and unveiled a prototype electric car in 1966. Four years later, Japan's Ministry of International Trade and Industry commissioned Daihatsu to produce nearly 300 electric buses to drive visitors about Japan's first International Exposition in Osaka, where the vehicles ran without any problems over a period of six months. Since then, the number of electric vehicles in Japan has grown steadily. Daihatsu supplied electric golf carts, newspaper and milk delivery vehicles, and security patrol cars, while the Ministry of Construction successfully employed Daihatsu Rugger electric vehicles that could run on an eight-hour charge.

Daihatsu remained concerned with developing a low-cost electric vehicle for the 21st century. While some analysts were critical of Daihatsu's, or any automobile firm's, ability to bring down the prohibitive cost of electric cars, most acknowledged Daihatsu's leadership role in the development of the electric vehicle and pointed to the fact that unlike most automotive companies, Daihatsu has gone well beyond the planning and design stage: it already had working models. In 1977, at Chicago's International Electric Vehicle Expo, Daihatsu unveiled its electric "Hijet" model as well as its electric three wheeler. While sales of electric vehicles remained low, in 1988 Japan's Environment Agency developed a long-range plan to encourage their research and development.

But perhaps more important than its electric car developments were Daihatsu's major strides in emerging markets in Southeast Asia, especially China, which was forecast to generate half the global auto industry's growth through 2005. Daihatsu's strengths fit well with the Communist country's goal of doubling auto production to three million units from 1994 to the year 2000. It offered compact, yet very affordable cars that embraced leading-edge technology and "luxury" features. Daihatsu started its joint venture with China's Tianjin Automobile Industry Group in the mid-1980s, and the new company grew to become one of the nation's largest carmakers by the end of 1996. Some analysts even speculated that the reason Toyota paid US$325 million to double its holding in Daihatsu in 1995 was to get a piece of the affiliate's Chinese action. Daihatsu also formed joint ventures with national automakers in Malaysia and Vietnam. While overseas markets would clearly play a vital role in Daihatsu's growth in the mid-1990s and beyond, domestic sales continued to contribute nearly 86 percent of company revenues in 1996.

Principal Subsidiaries: Daihatsu Auto Body Co., Ltd.; Daihatsu Metal Industry Co., Ltd.; Daihatsu Transportation Co., Ltd.; Daihatsu Credit Co., Ltd.; Daihatsu Estate Co., Ltd.; Daihatsu America, Inc.; Daihatsu Deutschland G.m.b.H.

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