Japan taxi industry seeks to navigate new roads

Six weeks after Toyota chief executive Akio Toyoda was accused of joining hands with “the enemy” in its investment in Uber, the carmaker sought to mend ties with the Japanese cab industry with a promise to build the “taxi of the future”.

The partnership, unveiled earlier this month, came the same day that Tokyo launched an out-of-the-ordinary experiment, lowering the minimum taxi fare in a bid to reboot an industry struggling to stem a decline in passengers.

The number of taxi users in Japan has dropped 45 per cent during the last two decades, while industry revenue has fallen by more than a third from its peak in the early 1990s, according to the country’s taxi federation.

The decline of the traditional taxi industry and the backlash against new entrants such as Uber are not unique to Japan. But the country is one of the rare few where the pricing and number of taxis on the road is under the direct control of the central government rather than local cities.

Even Prime Minister Shinzo Abe has weighed in by including a reference to promoting the “sharing economy” in his “Abenomics” growth strategy. That prompted an outcry from traditional cab drivers, who took the clause as a sign that the government is open to freeing up the market to new players such as Uber.

When Toyota agreed in May to provide leasing arrangements for Uber drivers, the move was in line with the global car industry’s attempts to capture opportunities in what many see as the future of urban transport.

General Motors has made a $500m investment in US group Lyft, while Volkswagen has taken a $300m stake in Israeli app Gett. By forging links with ride-hailing apps, carmakers can develop on-demand services and offer a shop window for Uber and Lyft drivers seeking new vehicles.

Yet Toyota’s deal drew blunt criticism from the head of Japan’s 200,000-taxi federation.

“The fact that Toyota joined forces with our enemy could be a huge blow for us,” Masataka Tomita, the chairman of the Japan Federation of Hire-Taxi Associations, told its annual meeting in June. “The taxi industry is facing an unprecedented crisis.”

In his speech, Mr Tomita disclosed that Mr Toyoda had apologised for failing to notify the association in advance about the Uber deal. Toyota confirmed the meeting between the two men but declined to comment further.

For the carmaker, the taxi industry remains a major client. Ties go back 80 years, with Toyota’s Prius hybrid and other models comprising many of the country’s 241,000 taxi vehicles.

The taxi industry is facing an unprecedented crisis

Taxis are strictly regulated globally, but Kazuhiro Ohta, professor at Senshu University, says the heavy involvement of Japan’s national government, rather than local authorities, is partly to blame for creating an industry that has become too reliant on regulations to protect it from competition, and slower to adapt to market changes.

“It’s a feature of this industry that there are few business managers who are willing to change the status quo on their own initiative,” adds Seiji Abe, professor at Kansai University, who specialises in transportation economics.

In 2002, the government dramatically eased regulations to make it easier for new entries to the taxi industry. But that sparked a surge in taxi companies, and in 2013, regulations were tightened again to control the number of cabs on the roads. During the past year, the industry has lobbied hard against the emergence of ride-sharing.

But Uber is hardly a threat in Japan. Local regulations bar the US-based company from offering its services using cars and drivers without professional taxi licences outside of remote areas where public transport is not readily available. As a result, Uber operates a service in its original model, using non-professional drivers, only in the depopulated part of Kyotango city in western Japan, which has just 5,560 residents. In Tokyo, it matches taxi company drivers with users via its app.

Still, the perceived threat of new foreign rivals has triggered change in the industry.

For a trial period from August 5 to September 15, taxis in certain areas of Tokyo will operate with a starting fee of ¥410 ($4) for the first 1.059 kilometres compared to the current price of ¥730 for the initial 2km. That would bring fares closer to the initial charges in New York and London of $2.50 and £2.60, respectively.

Proponents say users will get lower fares for short rides, while prices will go up for longer distances, allowing overall industry revenue to stay flat. Critics question whether the move will rev up enough new demand to keep revenue from falling.

“We hope to remove the image that Japanese taxi fares are expensive and attract the use of many foreign tourists,” says Ichiro Kawanabe, chief executive of Nihon Kotsu, Japan’s biggest taxi company, and chairman of the Tokyo Hire-Taxi Association.

Mr Kawanabe, who is also a former McKinsey consultant, has pushed for the industry to adopt a common ride-hailing smartphone app. He predicts the arrival of self-driving vehicles could eventually lead to free taxis if fares can be substituted by revenue from car ads in the absence of personnel costs.

“With social conditions changing drastically in line with technological advances, we fear the industry will be left behind to dwindle if we cannot reform ourselves,” Mr Kawanabe says.