Kimiyuki Suda should be a perfect customer for Japan's carmakers. He's a young (34), successful executive at an Internet-services company in Tokyo and has plenty of disposable income. He used to own Toyota's Hilux Surf, a sport utility vehicle. But now he uses mostly subways and trains. "It's not inconvenient at all," he says. Besides, "having a car is so 20th century."
Suda reflects a worrisome trend in Japan; the automobile is losing its emotional appeal, particularly among the young, who prefer to spend their money on the latest electronic gadgets. While minicars and luxury foreign brands are still popular, everything in between is slipping. Last year sales fell 6.7 percent—7.6 percent if you don't count the minicar market. There have been larger one-year drops in other nations: sales in Germany fell 9 percent in 2007 thanks to a tax hike. But analysts say Japan is unique in that sales have been eroding steadily over time. Since 1990, yearly new-car sales have fallen from 7.8 million to 5.4 million units in 2007.
Alarmed by this state of decay, the Japan Automobile Manufacturers Association launched a comprehensive study of the market in 2006. It found a widening wealth gap, demographic changes—fewer households with children, a growing urban population—and general lack of interest in cars led Japanese to hold their vehicles longer, replace their cars with smaller ones or give up car ownership altogether.