Section 6. Strengthening Development and Sales Efforts in the Japanese Market

Item 1. Structural Changes in the Japanese Automotive Market

Changes in the automotive market

The Japanese market of so-called "registered cars" (excluding minivehicles), fell to approximately 3.99 million vehicles in 1999, dipping below the 4 million mark for the first time in 14 years, but subsequently returned to and remained above 4 million until 2005. There was no prospect of new demand and replacement demand continued to be responsible for about 80 percent of car purchases. Improvements in car quality, decreases in distances driven, and lack of new car product appeal all helped solidify the trend of car owners keeping their vehicles longer and prevented the car market from expanding. In the case of registered cars, the average usage period went above 10 years in 2001, reaching as many as 11.66 years by 2007.

While the registered car market remained sluggish, the minivehicle market grew rapidly beginning in the late 1990s. In addition to lower maintenance costs (including lower taxes), the October 1998 adoption of a new standard for minivehicles that expanded their maximum length by 10 cm and their maximum width by eight centimeters helped improve their appeal, with such features as a more spacious cabin. From its 1999 level of approximately 1.8 million vehicles, demand for new minivehicles began to gradually increase, climbing above 1.9 million in 2005 and 2 million in 2006. The expansion of the demand for minivehicles signified a deflationary phenomenon in the automotive market and also indicated the spread of a sense of values that placed the utmost importance on practicality.

In the second half of the 1990s, IT devices such as cell phones and PCs became popular, creating new consumption expenditure and putting more distance between cars and younger generations in particular. Furthermore, from the late 1990s to early 2000s, a long-term recession caused companies to refrain from hiring, causing the societal problem of greatly reduced hiring nationwide. An increase in the number of younger people who could not find regular employment decreased the purchasing power of younger consumers and further distanced them from participating in the car market.

Thanks to the implementation of product enhancement plans and similar programs, Toyota's market share-which had hovered below 40 percent since the second half of the 1990s-recovered to a level above 40 percent in 1999 for the first time in four years and subsequently increased to 41.7 percent. From there, Toyota's market share continued to grow steadily, reaching 43.2 percent in 2000 and 44.4 percent in 2004. However, because the registered car market remained flat at slightly above 4 million vehicles, Toyota's annual car sales volume peaked at a level slightly above 1.7 million vehicles.

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