By Chang-Ran Kim, Asia auto correspondent
TOKYO, Sept 30 (Reuters) - Just when the Japanese car market seemed to be shifting from small, cheap models to more profitable minivans, the country's finicky consumers are now demanding 'mini-minivans' with more gadgets that eat into profit margins.
"All in all, the price of cars hasn't risen much in the past few decades, but car makers are having to add more and more gadgets and technology without passing the cost onto consumers," said Tatsuo Yoshida, auto analyst at Deutsche Securities.
Conditions in Japan are already tough, with eight domestic makers chasing a four-million-unit passenger car market that is not growing, as consumers' purse-strings remain tight in a fragile economy. The only consolation is they rely mostly on overseas markets for profits.
"At this pace, there's not much hope for a general improvement in the Japanese car industry's profitability," Yoshida said.
Toyota Motor's Sienta minivan, launched on Monday, is a case in point.
With three rows of seats, remote-controlled sliding doors and seats that can double as a couch or hide under the floor, the Sienta starts at 1.37 million yen ($12,370) -- not much more than the entry-level Vitz subcompact, which seats five and has none of the advanced features.
"Our finance people wanted us to charge more for the Sienta, but we had to price it with the market in mind," said Kyoji Sasazu, senior managing director at Toyota.
Sienta's direct competitors, Nissan Motor's functional, feature-loaded Cube Cubic, which went on sale earlier this month, starts at 1.40 million yen and Honda Motor's Mobilio at 138.9 million yen.
Car makers do not disclose profit margins on individual models. But a Toyota spokesman said there was little difference in margins between a mini-minivan and a subcompact.
"Generally speaking, cost-conscious cars tend to have much lower margins than those with a higher sticker price," he said. "In that sense a conventional minivan would be more profitable."
THE WEAK GET WEAKER
Still, Toyota, Japan's top auto maker and the nation's most profitable company, would appear to have little room to complain next to its smaller competitors.
Toyota can achieve better economies of scale by producing more volume -- its monthly sales target for the Sienta is 7,000 units against Cube Cubic's 3,500 and Mobilio's 3,000.
With an expansive line-up and a powerful brand, Toyota also makes plenty of money on its more expensive models. The Sienta is its only mini-minivan, but it sells seven other seven-seater models and has nearly 60 percent of that market, which itself accounts for a fifth of Japan's passenger car market.
No surprise then that Toyota has the highest operating profit margin in Japan among the top five makers, at 9.2 percent in the business year that ended in March.
Mitsubishi Motors , Japan's fourth-largest car maker, was the worst with a negative margin of 12 percent. Because the cash-strapped company is usually the last to launch a car in a growing segment, it is under even more pressure to one-up the existing models with value-added features, which eat into profits.
To make up for the weaker brand, Mitsubishi Motors must also differentiate itself in other ways.
Last year, it began offering custom-made cars at no extra cost even on the cheap compact model. On Monday, it said it would open its customer service centre seven days a week instead of six starting next month in another effort to lure customers.
To make matters worse, smaller auto makers don't have the same bargaining power that companies like Toyota, Nissan and Honda have with their parts suppliers to further cut costs.
"While parts makers that do business with companies like Toyota are themselves strong and smart, with the wherewithal to achieve cost cuts, those under the weaker ones may not have the same ability," Deutsche's Yoshida said.
"The way things work, the gap between the strong and the weak is left to widen."
($1=110.79 yen)