Section 3. Rapid Growth of the Japanese Market and Development of the Lexus

Item 1. Achievement of Sales of 2.5 Million Vehicles in Japan

Market under the 'bubble' economy

In the second half of the 1980s, the Japanese government continued to implement monetary relaxation policies in order to battle the recession caused by the soaring yen. This led to excessive liquidity and brought about the so-called "bubble economy" exemplified by surging prices of assets such as real estate and the expansion of personal spending beginning in the middle of 1987. Car sales increased significantly as a result and when the introduction of the consumption tax in April 1989 also reduced various car-related taxes, sales of high-priced cars such as luxury cars and imported cars expanded particularly rapidly.

When it was introduced, the consumption tax was 3 percent, except for passenger cars, for which it was 6 percent until a revision of the consumption tax system in 1997. Still, the introduction of the consumption tax greatly reduced the tax burden for car buyers. Previously, cars had been considered luxury items in Japan, and the applicable commodity tax rate had been 23 percent for passenger cars with "3 category" license plates (vehicles with a length greater than 4.7 m, width greater than 1.7 m, height greater than 2 m, or engine displacement larger than 2 liters), 18.5 percent for compact passenger cars with "5 category" license plates (vehicles with a maximum length of 4.7 m, maximum width of 1.7 m, maximum height of 2 m, or maximum engine displacement of 2 liters), and 15.5 percent for passenger minivehicles. However, these taxes were abolished when the consumption tax was introduced. Furthermore, the automobile tax (local tax) that had been established according to engine size was also significantly reduced for cars with "3 category" license plates, also helping to vitalize the car market.

As a result, the total Japanese auto market including minivehicles increased by more than 1 million vehicles in as few as two years, from 6.72 million vehicles in 1988 to 7.77 million vehicles in 1990. The market excluding minivehicles, which had been steady at slightly above 4 million vehicles in the first half of the 1980s, swelled to nearly 6 million vehicles (5.98 million) in 1990.

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