Yamaha drives ahead with third attempt at four wheels

After two high-profile failed attempts to enter the car market, Yamaha Motor, the world’s second largest motorcycle maker, is hoping a third try will do the trick.

The Japanese company is teaming up with Gordon Murray, the former Formula One car designer, to launch a two-seater commuter vehicle in Europe as early as 2019. The product would mark a foray into the city car market that has yet to be cracked by rivals, including Daimler, Renault and Toyota.

Hiroyuki Yanagi, Yamaha’s chief executive, says in an interview with the Financial Times that there is increasing demand for fuel-efficient small cars to drive through the narrow streets of Berlin, London, Paris and other major European cities where environmental regulations are tightening.

These cities are expected to face the toughest crackdown on carbon dioxide emissions globally and this explains why Yamaha is planning to launch its mini car in Europe rather than elsewhere in the world, Mr Yanagi adds.

“I think we have a chance to capture this new market [for city cars] that is developing in Europe,” he says.

However, market estimates are not so bullish. IHS Automotive, a research company, calculates that sales of minicars in EU countries will only increase from 1.1m units last year to 1.24m units by 2020.

Yamaha’s ambitions to go beyond motorbikes and make four-wheel vehicles date from the late 1960s when it helped to manufacture Toyota’s 2000GT, the sports car famous for its appearance in the 1967 James Bond film You Only Live Twice. Sales never took off due to its expensive price.

In the early 1990s, Yamaha revealed the OX99-11, another sports car that used a detuned version of its F1 Grand Prix engine with room only for a driver. With an anticipated price tag of more than $800,000, the product never hit the market.

“It’s been a history of various projects popping up and disappearing. But this time we’re planning a real, practical business,” Mr Yanagi emphasises.

He adds the company is planning to first produce and sell the cars in Europe at affordable prices and later expand sales to emerging markets.

In 2013, Yamaha showcased a prototype called the Motiv, which combines its motorbike technology with Mr Murray’s iStream manufacturing system that features a lightweight steel frame with low production costs. The car will be made in petrol and electric versions.

“They might be able to find a useful niche in the market” if they can keep the costs down and sell the car at a lower price than existing models, says Tim Urquhart, an analyst at IHS Automotive.

Yamaha’s efforts to create a new growth driver alongside its motorcycle and marine businesses comes as its earnings recover following job cuts and plant closures in the wake of the global financial crisis.

Since Mr Yanagi took over as chief executive in 2010, sales have increased more than 30 per cent to Y1.5tn last year ($12bn). Net profit reached Y68bn in 2014, compared with a loss of Y216bn in 2009. Its stock price has more than doubled in the past five years.

“If we can increase our [group] operating profit margin to 10 per cent from 7 per cent expected this year, we can invest in new businesses,” Mr Yanagi says.

Still, analysts question Yamaha’s ambitions to enter an already crowded market filled with rival city car models such as Daimler’s Smart Fortwo and Renault’s Twingo.

General Motors’ European arm Opel will soon launch a new city car called Karl with a starting price of €9,500 in Germany.

New formats such as the Renault Twizy, an electric micro-vehicle with room for a driver and a passenger riding in a fighter-pilot formation, are also on the horizon.

None of the manufacturers focused on selling small cars in Europe are enjoying runaway success, but some are finding it harder than others. Toyota last year suspended sales of its microcar iQ in Europe amid sluggish sales. It also narrowed its minicar line-up to the Aygo for the European market.

With Yamaha’s know-how in engines, technological hurdles to building a car are not high, but Masahiro Akita, analyst at Credit Suisse, says that establishing a sales network from scratch will be difficult.

“Since Yamaha is a motorcycle maker, it still has room to make improvements in its core business,” Mr Akita adds.

In spite of a recent turnround, Yamaha’s motorcycle division still has a relatively low operating profit margin of 2.3 per cent, compared with 10 per cent at rival Honda’s equivalent business.

To raise its margin, Yamaha is consolidating its engine platforms and reducing the costs of its key components.

Mr Yanagi says there is room to grow its core businesses through new product launches, but he adds: “In order to become a bigger company, we need to try something new in addition to our existing businesses.”