In Germany, for example, the largest and most competitive European car market, Japanese automakers had a market share of 15.4% in 1990. By 1992, their share was down to 12.2%; by 1994, it was 9.5%. This year, it is down to 7.8%.
Market leader Nissan's unit sales in Germany plunged a third from 1991 to 1994; the smallest Japanese carmaker in Germany, Daihatsu, saw its sales cut in half over the same period.
"One reason for the severe drop is the high yen," said Klaus-Jurgen Muller, chairman of BMZ/FCA of Dusseldorf, which handles the Toyota account in Germany. "But another reason is that while most European car models are immediately available, clients often have to wait several weeks for a Japanese car."
Cookie-cutter styling, smaller dealer networks and lower resale values have also cut into Japanese car sales in Europe. Another problem for the Japanese is that the low-priced Korean Daewoo, Czech Skoda and Spanish Seat cars launched in Europe in the last year are attracting the customers who once bought low-priced Japanese cars.
"The Koreans are taking over, pricewise, the position the Japanese once had," said Ingo Krauss, chairman and chief executive of Young & Rubicam in Frankfurt.
"There is an awful lot of competition out there," said Graham Dymott, spokesman for the U.K. Society of Motor Manufacturing.
European and U.S. automakers selling in Europe have become more competitive, too. "Over the last three years, 75% of the cars sold by the Europeans have changed," said John Lawson, an auto analyst with DRI/McGraw Hill in London. "At the same time the strong yen has sapped their competitors' strength."
A pan-European recession, still lingering in the auto industry, forced U.S. and European carmakers to cut costs-actually helping them, Mr. Lawson said.
German carmakers, too, have become more competitive. Volkswagen, GM/Opel and Ford improved their vehicles, expanded product ranges, cut costs and offered special models with free extras and good financing.
The European Automobile Manufacturers Association shows the market share of Japanese cars in Europe has fallen to 10.9% this year from 12.6% in 1992.
Japanese automakers today don't seem to be nearly as much of a threat to domestic automakers as they did in 1993, when they agreed to limit exports to Europe to 1.1 million cars per year.
But the Japanese have not reached that limit. Last year, Japan exported 1 million cars to Europe, and sold another 300,000 made in Japanese plants in Europe, mostly in the U.K. Sales from transplant factories are unrestricted, but these vehicles, containing many Japanese parts, are also hurt by a strong yen.
One mistake the Japanese made was to focus on the car industry's high-profit upper segment. "All the transplants were targeted toward the upper-medium segment of the European car market," Mr. Lawson said. "It is historically the strong suit of the Europeans, but not the strong suit of the Japanese..... Now they are going back to their traditional strengths to build market share, and in some cases that will mean producing smaller cars."
Honda's plant in Swindon, England, has been making the Accord model since 1993. Last October, the plant also started making smaller five-door Civic subcompacts. "We are moving into sectors where we haven't had a significant presence," said Kate Edmonds, product marketing strategy manager for Honda Motor Europe in Reading, England.
The new small-car focus is also visible in pan-European Nissan Europe ads by TBWA. "We are trying to present a more unified image to the outside world," said Han Tjan, a spokesman for Nissan Europe, headquartered in Amsterdam. "The first example is the Micra. We tried to convey the same message in all countries-it lives in the city; it loves the motorway."
Nissan's pan-European approach is also evident in its U.K. campaign, "You can with a Nissan," used on all British Nissan brands, now imported to Germany as "He can. She can. Nissan."
Japanese automakers have made other mistakes. In Germany, they did not offer a diesel engine, although diesels account for 10% of German car sales. And all German cars offer at least one air bag, while Japanese cars began offering them only recently.
"Japanese car marketers here did not invest in brand image," said one German ad agency manager who has been involved in several car pitches. "I doubt they know what brand image really is. They think in terms of technical advantages but have no feeling what a brand is and what it can do. Japanese cars are technically first-rate, but they have a negative image as a job-killer."
That image has hurt the Japanese across Europe, where patriotic passions can border on the xenophobic.
"During the European recession, there was an emotional retreat into the national brands," Ms. Edmonds of Honda said. "When people are being laid off of their jobs, people feel uncomfortable driving something that is not indigenous."
A decline in sales has not persuaded most Japanese car marketers to reduce their media budgets. In Germany, Nissan, with TBWA, Dusseldorf, still spends $60 million a year on advertising. Mazda, spends $50 million annually with Rempen & Partner, Dusseldorf.
Toyota, handled in Germany by BMZ/FCA Dusseldorf, cut its budget from $62 million in 1993 to $27 million last year, shifting much into below-the-line spending.
Toyota is also looking for a new strategy in Germany. BMZ/FCA had been using ads featuring monkeys talking about Toyota cars. Now the monkeys are used less, and they sing a new tag line: "Nothing is impossible-Toyota."