Minicar craze?

Small is big in Japan. The country's minicar boom is the silver lining of an otherwise gloomy domestic car market.  Annual sales of Kei cars (K-cars), Lilliputian passenger vehicles with a maximum engine capacity of 660cc and dimensions no bigger than 3.8 yards by 1.6 yards, soared in 2006. More than one out of every three cars sold in Japan last year was a Kei, making the country by far the biggest market in the world for these bonsai-sized city runabouts. Japan's appetite for minicars will not diminish in 2007, but the models will not catch on in Europe or the United States.

Vehicle registrations 1999-2006

Japan's fascination with the miniature that is fuelling the minicar craze. Price is also a big factor. Minicars cost around just $10,000 and get tax breaks from the Japanese government. There are also savings to be made from the cars' fuel efficiency -- a boon in a country where petrol and diesel sells at over $4.75 per gallon. Increased urbanisation is also a factor. The Kei cars allow for easier manoeuvrability in the narrow roads common in Japan's cities. Drivers are also motivated by the promise of no parking costs. In Japan, one cannot buy a car unless there is proof of a rented or owned parking space, but these rules are waived for minicars.

It is not big names like Toyota or Nissan that corner the market, but second-tier players like Suzuki, Daihatsu and Mitsubishi. The intense competition has also forced these minicar manufacturers to improve specifications. Daihatsu's Sonica boasts a continuously variable transmission and a turbocharged engine that achieves 54 miles per gallon. Suzuki's Cervo model includes Bluetooth connectivity, a keyless entry system, and a choice of two- or four-wheel drive. Suzuki's Wagon R has been Japan's bestselling car over the past few years, outselling even the ubiquitous Toyota Corolla.

Kei cars may catch on in developing economies like India and China. Suzuki is already making slightly larger cars in India based on its minicar technology. Yet Japan's minicars may not appear soon on the streets of Europe or the United States:

• Profit margins are razor thin, meaning it is not cost–effective to ship Kei cars abroad.
• Europe already has its own -- albeit more expensive -- minicar models, such as DaimlerChrysler's Smart car.
• The United States is still SUV-obsessed and regards access to cheap gasoline as practically a basic human right.

The Kei craze may even die out in Japan. Stabilized fuel prices and fewer new model launches could cause consumers to think big again.