Terrie's Take 498 -- Car Sharing Gains Pace, ebiz news from Japan

Mon Dec 15 07:52:59 JST 2008

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, December 14, 2008 Issue No. 498

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

Over the last four weeks, we have witnessed the possible
demise of a 100-year old business sector -- the auto
manufacturing industry in the USA. We found it almost
surreal to watch video footage of the captains of the U.S.
Big Three (Ford, GM, Chrysler) travel a second time to
Washington, this time in their hybrid test vehicles, to
beg for money to keep their businesses afloat. The
predicament of The Three comes of course as a direct result
of a perfect storm in the auto industry: a global credit
contraction, expensive oil (temporarily cheaper but
guaranteed to go back up again), pressure from better-made
foreign products, and the pending emergence of electrics.

Sales are dramatically down and the trend is for the buying
public to hold off on any new purchase for the foreseeable
future. This may be good news to parts suppliers and for
those companies launching an electric vehicle in 2010, but
it is a disastrous state of affairs for one of the first
world's largest industries.

The Japanese are not immune, either. Toyota has seen its
sales drop across the board -- down by 34% in the U.S. and
here in Japan by 28%. Toyota has said that it may lose up
to JPY100bn (US$1.1bn) in the second half of this fiscal
year, ending March 31st, 2009. Honda, Nissan, and Mazda are
not faring any better.

Against such a bleak backdrop, it is hard to see any silver
linings. However, necessity is the mother of invention and
we believe some interesting opportunities will come out of
the current situation. One of these opportunities is the
emergence of electric plug-in vehicles -- and given the
timing leading up to their launch in 2010, things are
shaping up for an initial boom in sales of such cars.
Certainly there will be plenty of pent up demand from
people who held off buying between now and then.

But for those of us living in major cities, another
opportunity is to do away with the private car altogether.
In the West people can and do spend up to 20% of their
income (2002 U.S. Bureau of Statistics) on owning and
operating a car, and given the cost of parking here in
Japan, the number is probably not dissimilar here (see the
Orix numbers later). This writer has not personally owned
a car for years, and getting around Tokyo is much more
efficient by train, bus, cab, bicycle, and on foot. There
are plenty of other people thinking the same thing, and the
Japan Automobile Dealers Association (JADA) reckons that
domestic auto sales will drop to 4.75m vehicles annually by
2020 (we think the fall will be much greater), with the
absolute number of passenger cars also starting to fall
from 2010.

But not everyone lives in areas well served by public
transport, and furthermore there are times when we do need
a car -- if only to pick up and deliver kids and shopping,
visit friends, or get some mental respite by heading out
to an onsen or to view the greenery of the countryside. So it
comes as some relief that car sharing in Japan seems to
be finally gaining traction.

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[...Article continues]

Car sharing has been going in Japan for about five years
now, with the major player being Orix. Despite the company
spending significant effort on the business model -- both on
technology and vehicles, it has really only been in the
last 12 months that the idea of sharing a car has started
catching on. Orix now has about 2,500 members in its
Puchi-Renta club, and provides more than 210 locations and
1,000 cars to those members.

The total market size in Japan for car sharing, as of
mid-2008, was estimated to be around 4,000 people served by
1,500 vehicles. This is a small number of members compared
to car sharing in Europe, the USA, and Canada, where the
largest player, ZipCar says it has more than 180,000
members sharing around 5,000 vehicles. But on a ratio of
people to cars, Japan is clearly the place to be -- with
one car for every 2.5 members, compared to ZipCar's 1:30
ratio. ZipCar started in Europe, and like Japan, it has
large populations living in cities well serviced by public
transport. ZipCar hasn't come to Asia yet, but we expect
them to, any time now.

The basic program for Japanese car sharing was set by Orix.
Members sign up for a usage rate of up to 9 people per
single vehicle, and they get to use that vehicle based on
prior online scheduling, by either PC or cell phone. The
cars are based in unmanned parking lots, and to use one you
simply walk or cycle to the nearest lot and activate the
car with your IC-chip equipped member's card. The business
model depends a lot on the goodwill and community spirit of
the members, so members are exhorted to keep their vehicles
clean, and to get them back to the parking lot before the
scheduled usage time expires. Being late more than a couple
of times can apparently result in a person being expelled
as a member.

Orix charges between JPY1,050 and JPY2,980 per month basic
members fee, then offers either an hourly plan or daily
plan time-related price. A K-class car (660cc or smaller)
is JPY160 per 15 minutes or JPY4,980 per day. In addition
there is a mileage charge -- to cover gas and consumables,
and Orix recently increased this rate from JPY14 to JPY19
per kilometer for a K-class car and from JPY15 to
JPY20/km for an S-class car. According to Orix, if an
average family K-class car is used around 8 hours and
travels 40km a month, it costs around JPY64,000/month to
own, run, and maintain, including gas. In comparison,
similar usage of a shared car would cost JPY8,660/month.
Clearly this is a compelling argument for families wanting
convenience but also needing to reduce monthly expenses.

The benefits of car sharing are significant: i) it's
convenient, in that you can usually get a car when you need
one -- and there are different models available depending
on what you want to do; ii) it's practical, as it is much
cheaper than owning or renting; iii) it's easy, as the
companies running the car sharing programs look after
maintenance, servicing, parking, cleaning, and even gassing
up; iv) it's environmentally sound and declogs our city
streets.

The government has obviously decided that car sharing is a
desirable trend, and in August the Transport Ministry said
it would ask for JPY1bn in the 2009 budget to provide
subsidies for municipalities and businesses promoting car
sharing. The subsidies would apparently cover about 50% of
the upfront costs by organizations wanting to establish car
sharing facilities. We find it interesting that the
subsidies will be open not only to private companies but
also local governments. Hopefully this will get local
bureaucrats out of the habit of buying vehicles that get
used only a couple of times a week.

Anyway, it appears that the pending subsidies have prompted
a number of new players to enter the market. In September,
parking space operator Nippon Parking Development said that
it has been trialing a car sharing system and would start
regular commercial operations that month. The company
expects that it can profit from the fact that normally
expensive car lots are already paid for with its network of
parking lots around the country.

Nippon Parking said that it will charge individual
customers JPY2,980 per month for a K-class car (no surprise
that this is the same as Orix), but with the advantage of
sharing by only two drivers. For corporates it will charge
JPY3,980/month for use by up to five drivers. In addition,
users will pay 160 yen per 15-minutes and JPY20/kilometer
for gas. As with Orix, members will be able to book a car
with their keitai (cell phone), selecting vehicle type, date, time,
and location to pick up. Of interest to us, the company says
it will place 7 of its initial 13 car stations around
Omote-sando, Aoyama, and Shibuya. This compares favorably
to Orix, which only has two Shibuya Ward locations --
neither of which are close to the station.

Other players entering the market include Mitsui and
Parking Management Organization. Both companies say they
expect to have 30-50 locations and 100+ cars each to start,
and that their business plans call for hundreds of vehicles
and 20,000 members or more in five years time. With all
these new players showing up, sharing a car is looking
pretty good. However, where we see a real opportunity is in
sharing next generation electric vehicles -- since these
will be costly to buy and yet there will be a surge of
consumer interest in them once they start becoming
available next year.

**********

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+++ NEWS

- Towa takes big hit on cancellation
- Dollar hits 13-year low versus yen
- One company closes down in Japan...
- ...And another opens its doors
- More tax breaks on the way

-> Towa takes big hit on cancellation

Another major real estate developer is clearly in trouble.
Developer Towa Real Estate Development announced that it
was taking a JPY4.3bn penalty for canceling a JPY21.5bn
land purchase which was to be used for a 1,000-unit
apartment complex. To cover the loss, the company has sold
its shareholdings in a joint venture company with
Mitsubishi Jisho. Overall, Towa expects to report a
JPY3.8bn loss this fiscal year, compared with a net profit
of JPY5.6bn last year.(Source: TT commentary, Dec 13, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20081212D12JFA04.htm

-> Dollar hits 13-year low versus yen

Failing car companies, deep economic problems, and low
interest rates have led to a sell off of the dollar, and on
Friday, the yen rose to 88.42, the highest it's been since
the dollar sank to 79.75 in 1995. The dollar subsequently
recovered to 90.87 later in the day. Traders are now
wondering if the Japanese government will go ahead with
rumors that it plans to intervene in the FX markets and
sell off the yen. Last time the government intervened, it
spent JPY35trn (US$382bn) over almost a year and a half.
***Ed: And the jury is still out on whether they made much
difference. It's the financial equivalent of the Marginot
Line.** (Source: TT commentary from reuters.com, Dec 12,
2008)

http://www.reuters.com/article/hotStocksNews/idUSTRE4B94W620081212?sp=true

-> One company closes down in Japan...

Although it only opened for business as a Japanese firm in
July of 2007, Activision Japan is reported to already be
considering shutting its doors as early as the end of this
month, due to restructuring and poor sales in Japan. The
company is probably best known for its Guitar Hero games,
which although monster hits in North America and Europe,
were poorly received here in japan. Apparently less than
10,000 copies were sold. (Source: TT commentary from
1up.com, Dec 12, 2008)

http://www.1up.com/do/newsStory?cId=3171812

-> ...And another opens its doors

You can never have too much frozen yoghurt. We're about to
get blitzed by California's Golden Spoon, the largest
frozen yoghurt chain in that fair state. The company will
open two more stores in addition to the ones at Universal
Studios in Osaka, Roppongi, and Shonan (Izu). You will now
be able to buy peanut butter and pumpkin flavor cones at
the Kansai International airport and Tokyo station. The
company has a 100-store, 3-year franchise arrangement with
TMP Asia. ***Maybe people turn to frozen yoghurt in
recessions -- there has to be some reason for their
unparalleled confidence. This company is going ballistic,
planning to add 500 more stores next year to its existing
100-store operation.** (Source: TT commentary from
marketwatch.com, Dec 13, 2008)

http://tinyurl.com/58fu3z

-> More tax breaks on the way

Although probably not as useful as a tax break for
photovoltaic panel installations, the government has
decided to stimulate the property and auto markets with tax
breaks for buyers. For homes, existing owners will be able
to receive higher tax deductions of up to JPY5m over 10
years for home loans worth up to JPY50m. This is almost a
tripling of the current allowance and loan values. New home
buyers from 2009 may be able to get more than this again.
At the same time, the government is going to waive 100% of
the purchase tax and tonnage tax for hybrids and electrics.
This will amount to an approximately JPY120,000 cost
reduction on a JPY2.4m Toyota Prius. ***Ed: Not great as
far as incentives go, but not peanuts, either.** (Source:
TT commentary from nikkei.co.jp, Dec 13, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20081213D12JFA23.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

*** To our TT497 piece concerning the survival of print,
and Canada's highly successful micro-publisher David Black,
a Canadian reader rightfully points out: "...Terrie and to
your non-Canadian editorial staff: Canada doesn't have
states, it has provinces. Geez eh! :-)"

*** To which we respond, 10 provinces and 3 territories to
be exact. On a map, they sure look like states to us...
Makes us wish we hadn't forgotten to feed the fact checker
down in the dungeon. Now we need another intern...

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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