First in a 6-part series exploring powertrain strategies for Japanese auto makers.

TOKYO – Despite new initiatives in telematics and safety, powertrains continue to be the main focus of automotive research in Japan.

Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Co. Ltd., befitting their size and market power, aggressively are pursuing a broad range of powertrain options – from direct-injection gasoline and diesel engines to continuously variable transmissions, hybrid-electric propulsion and fuel cells.

Meanwhile, Mazda Motor Corp., Mitsubishi Motors Corp. and Fuji Heavy Industries Ltd.’s Subaru unit, all smaller and with fewer resources, must be more selective and usually follow the lead of Japan’s Big Three.

At the low end of the market, Suzuki Motor Corp. and Daihatsu Motor Co. Ltd., Japan’s largest makers of popular 0.6L mini-vehicles, are looking for affordable niches.

Since the mid-1990s, Japanese auto makers have improved fuel economy an average 23%. They are targeting a further 20% gain by 2015, which would require greater usage of hybrid, diesel and other alternative-fuel drivelines.

Against this backdrop, analysts predict the industry will produce 25 million vehicles in 2010, up from 22 million in 2006. All Japanese auto makers are on track to meet (or already have met) future emission standards in the U.S. and Europe, including both U.S. federal Tier 2, bin 5 and Euro 5.

In Europe, nearly half of Japanese-badged vehicles sold now are diesels, up sharply from five years ago, while Honda, Nissan and Mitsubishi have announced plans to introduce “clean” diesel vehicles in North America by the end of the decade.

And mainly in North America, Toyota and Honda continue to grow their hybrid-electric vehicle business – despite signals of flagging demand. Last year, the pair sold close to 365,000 HEVs, including, in Toyota’s case, the first Camry Hybrids built in the U.S. at the auto maker’s sprawling assembly plant in Georgetown, KY.

This year, with 50,000 Camry Hybrids expected to roll out of Georgetown and another 12,000 Altima Hybrids to come from Nissan’s Smyrna, TN, site, combined HEV sales by Japan’s Big Three are projected to exceed 400,000 units.

Longer term, Toyota hopes to sell 1 million HEVs globally by 2012, roughly 10% of the auto maker’s total sales. Honda also has set an aggressive sales target of 200,000 units for a new compact HEV (smaller and cheaper than the Civic Hybrid) it plans to introduce in 2009.

Combined with Civic and Accord hybrids, Honda’s annual HEV sales total could top 250,000.

Elsewhere, Mazda will introduce to the U.S. its first HEV in June. Unlike competitors’ offerings, Mazda’s first HEV will be built by Ford Motor Co. and be based on Ford’s Escape Hybrid. No sales targets have been announced.

No Japanese auto maker plans to mass-produce a fuel-cell vehicle until about 2015.

In the transmission sector, Toyota introduced the industry’s first 8-speed automatic last September for the new Lexus LS 460, its top-of-the-line sedan. Nissan, through its JATCO Corp. subsidiary, finally began marketing a 6-speed unit for the U.K.-built Qashqai cross/utility vehicle.

JATCO also began supplying 6-speed torque-converter automatic gearboxes to Renault SA, Nissan’s largest shareholder, and Mitsubishi, which holds a minority equity stake in the transmission supplier.

In the Japanese market, continuously variable transmissions now are installed in more than one-fourth of all vehicles sold and nearly half of standard models excluding 0.6L minis and medium- and heavy-duty trucks.

Honda, Nissan and Fuji have been leaders in adopting CVTs, with Nissan and Honda installing the stepless automatic transmissions in an estimated 70% of front-wheel-drive vehicles in their lineups. Since 2000, Toyota, Mitsubishi and Daihatsu have followed and now are increasing their offerings.

Mazda, the last of Japan’s major auto makers to introduce a CVT, still has only one unit on the market as it waits to coordinate further with Ford.

Suzuki, Japan’s leading producer of 0.6L minicars, commercialized a CVT several years ago, then withdrew it from the market, only to re-enter last September with the remodeled Wagon R, the auto maker’s all-time best-seller.

A 2005 study by IRC Inc., a Nagoya-based market research company, found CVTs now are installed in about 20% of vehicles built in Japan and an estimated 40% of passenger models sold in the market, excluding minicars. When including minis, CVT market share in Japan is expected to reach 50% by 2010.