Quota Busters : Japanese Pay Price to Call Sport Vehicles ‘Trucks’ and Avoid Limits on Car Imports
Customs officials at the Port of Los Angeles figured they knew a car when they saw one.
And the Japanese-built “sport-utility vehicles” that had poured into the port the last couple of years--popular new urban fun machines like the Suzuki Samurai and the Isuzu Trooper--sure looked like cars to them, even if their manufacturers called them trucks.
Rep. John D. Dingell (D-Mich.) wondered, too, why the Customs Service was allowing nearly 200,000 sport-utility imports to enter the United States each year as trucks when even their distributors acknowledged that the vast majority were being outfitted with rear seats and sold as passenger vehicles.
So in Los Angeles and Washington last summer, the question was posed: Were the Japanese trying to circumvent their own voluntary export quotas, quotas that put strict limits on car exports to America but no limits on the truck trade?
And thus began a high-stakes battle over the future of the auto industry’s hottest market segment. It’s a dispute in which importers are accused of a not-too-subtle act of commercial legerdemain and the U.S. government is charged with threatening to put distribution companies and dealer networks out of business while forcing up consumer prices and costing the Treasury some $200 million in tariffs.
The conflict boils down to some basic numbers.
Suzuki and Isuzu have little or no room under the export quotas--as assigned by the Japanese Ministry of International Trade and Industry--to bring their sport vehicles into the United States as cars.
So the companies have happily paid 25% tariffs--10 times greater than the 2.5% tariff on cars--to bring the Samurai and Trooper into the United States as trucks. Suzuki of America--whose only automotive product is the Samurai--sold more than 82,000 of the jeep-like vehicles last year, all but 3,000 of which were imported as trucks. American Isuzu Motors sold nearly 43,000 Troopers, only 2,500 of which came into the country as cars.
Mitsubishi, which also has relatively little flexibility under its quota, imports most of its 11,000 Monteros as trucks. Toyota has opted for the truck designation for its 4Runner and Land Cruiser as well, although the high yen and depressed auto sales might give it room, as the company with the biggest car quota, to import the vehicles as cars. Nissan, with the second-biggest quota, has done just that with its Pathfinder, designating it a car to avoid paying the higher truck duties.
The Customs Service had approved the designation, ruling that the vehicles met the government’s criteria for being considered trucks at the time they entered the United States. No one has suggested that the importers were doing anything illegal.
Dingell’s Complaint
Counting the Pathfinder--which Nissan imports as a car to avoid the higher truck duties--the Japanese captured more than 30% of the sport-utility market by the end of 1987, tripling their share of sales and providing all the gains in a fast-growing market segment over the last two years, according to an industry analyst at J. D. Powers & Associates. Sales of the category-leading Chevrolet S-10 Blazer fell 18% in the same period.
Dingell, who represents a district adjacent to Detroit and is chairman of the powerful House Energy and Commerce Committee, began complaining to the Customs Service last summer about reports that the Japanese were skirting the export quotas.
“If there is no quota, then the public should know that,” Dingell wrote in a letter to Customs Commissioner William von Raab. “If there is, the Japanese government should know that its manufacturers are violating it by this practice of shipping the vehicles as trucks and removing the back seats.
“No one,” he said, “should be misled in the name of market share, competition or profits.”
The Customs Service, in turn, initiated a review of its earlier findings that the Samurai, Trooper and Montero, in particular, were trucks. Customs officials in Los Angeles, the nation’s leading auto-importing port, urged that the vehicles be reclassified as cars, after finding that many of them, though lacking back seats, were arriving equipped with features indicating they would be converted for passenger use.
The re-evaluation is continuing; insiders say a ruling could come as early as this month.
In the meantime, the Japanese vehicles’ U.S. importers--all of whom are headquartered in the Los Angeles area--are putting up the fight of their lives.
“It could potentially be pretty devastating to us,” said E. F. Kern Jr., vice president of marketing for Whittier-based American Isuzu Motors. “It is a very important issue to our company. The Trooper has probably enjoyed the most success of any model we’ve brought into the country.”
Brea-based Suzuki of America, General Manager Douglas Mazza said, would not have been created in 1985 had the Customs Service not classified the Samurai as a truck.
“It’s important to send a message that when you get a ruling from the federal government of the United States, and that government says these are the rules by which you may begin an investment, that a deal is a deal,” Mazza said.
Besides, the importers insist, their vehicles really are trucks. Really.
“It is manufactured in a truck factory,” Mazza said of the Samurai. “It is built on a truck bed.” In Japan, he said, Samurais are popular farm vehicles.
But what about those American ads showing four happy yuppies tooling around town in their Samurai? They don’t think they’re sitting in a truck, do they?
“It is the American spirit in marketing to find out not what a product is, but what it can be,” Mazza explained. “That’s American ingenuity.”
The firms have enlisted Sen. Alan Cranston (D-Calif.) to spread warnings of the dire consequences that might ensue if their sport vehicles are dubbed cars. In a letter last week to Von Raab, Cranston said one or more of the Japanese importing companies--an apparent reference to Suzuki--could be forced out of business, eliminating 610 jobs in California and shutting down 32 dealers who have invested $2 million each in their franchises.
In a letter to Customs, Suzuki officials also warned that a shutdown of their dealer network “would leave the approximately 114,000 Americans who have purchased Samurais without warranties, service or parts from local dealers.” In an interview, however, Mazza said Suzuki would find some way to reconfigure the Samurai and win back the truck designation if Customs rules against it.
Cranston’s letter argued, too, that consumer prices would be forced up if the availability of the sport vehicles was reduced. And the Treasury, he said, would lose about $200 million, because the Japanese importers no longer would be paying the 25% truck tariff.
Already, in fact, supplies of the popular vehicles are shrinking. Toyota, which imported 31,000 of its 35,000 4Runners as trucks last year, has halted truck imports pending a ruling from Customs, according to spokesman Jerry Giaquinta. Mitsubishi has cut back production of the Montero to only a little more than the 300 units per month it imports as cars.
“It isn’t business as usual,” said Richard D. Recchia, executive vice president of Carson-based Mitsubishi Motor Sales of America.
CLIMB OF THE CAR-TRUCKS Sales of Japanese “sport-utility vehicles” in the U.S.
1000s of vehicles 1987 1986 1985 Suzuki Samurai 82.2 47.7 2.6 Isuzu Trooper 42.7 36.9 25.8 Toyota 4Runner 35.0 35.7 18.9 Nissan Pathfinder 34.4 7.0 0 Mitsubishi Montero 10.9 6.7 2.7 Toyota Land Cruiser 5.0 4.5 4.7
Source: J.D. Power & Associates
