First Imports, Now Auto Plants in the U.S. : Japanese Stepping Up Pressure on Big 3
When Toyota President Shoichiro Toyoda traveled to Kentucky last week to dedicate his company’s new assembly plant, it was a watershed moment in the history of the American auto industry.
For with Toyota’s entry into domestic production, the Japanese auto industry has today virtually completed its long-heralded move to re-create a smaller version of itself halfway around the world in America’s industrial heartland.
Toyota’s launch marked the first time that the four largest Japanese auto makers--Toyota, Nissan, Honda and Mazda--were all building cars on their own in factories scattered throughout the central United States.
Now, Detroit’s Big Three not only face a continuing onslaught from imports but a rapidly growing threat from within America’s borders as well.
The Japanese, whose imports have been limited since 1981 by trade restrictions, now have gained the capability to dramatically increase their share of the U.S. market at the expense of General Motors, Ford and Chrysler with cars built on the Big Three’s home turf.
“It’s basically going to be a squeeze play,” says Chris Cedergren, a sales analyst with J. D. Power & Associates, an Agoura Hills automotive market research firm. “And it’s Detroit that is going to be squeezed.”
It has happened almost overnight; just six years ago, in November, 1982, Honda rolled the first “Japanese-American” car off its Ohio assembly line. But this year, six “transplant” facilities--American assembly plants owned or run by Japanese auto companies--are operating and are expected to turn out more than 900,000 cars and trucks in 1988.
In addition to Toyota’s new Georgetown, Ky., operation, Honda builds cars in a Marysville, Ohio, complex, Nissan in Smyrna, Tenn., and Mazda in Flat Rock, Mich. Toyota also produces subcompacts in a joint venture with GM in the San Francisco Bay Area city of Fremont.
In September, meanwhile, Mitsubishi, a smaller Japanese auto maker, also began producing small cars in a Bloomington, Ill., joint venture with Chrysler.
Even more plants are soon to follow. Isuzu and Subaru plan to open their joint venture to build cars and light trucks in Indiana in November, 1989, while Honda is building a second car assembly plant in Ohio that will also open next fall.
Parts Stores Open
Meanwhile, Toyota, fresh from opening its Kentucky car plant, is now on the verge of announcing plans to build a separate light truck assembly plant, while Nissan and Ford have just announced a joint venture in Ohio to build vans in a converted Ford facility. A spate of small satellite assembly operations are also being built by the Japanese in Canada, both to supply the Canadian and American markets.
Already, a staggering 300 to 400 Japanese auto parts companies have set up shop here, either through joint ventures with American companies or on their own, in order to supply those assembly operations.
With so much Japanese production capacity in place or on the way, industry observers believe that the long-expected American “car glut” may now just be a matter of months away. With too much auto production capacity chasing too few car buyers, an industrywide shakeout seems at hand.
“I think the real impact could start to come in the middle of next year, when Toyota and some of these other new plants are in full production,” says Maryanne Keller, an automotive analyst with Furman-Selz, a New York investment firm. “If that coincides with a slowdown in car sales, as it might, then certainly there will be a lot of talk about excess capacity in the industry.”
Full Production Expected
A number of industry analysts now believe that GM and Chrysler may bear the brunt of such an industry shakeout, with both firms forced to close more assembly plants as their sales decline.
This fall, for the first time, Japanese auto makers are producing on a weekly basis nearly as many American passenger cars as the nation’s third-largest auto maker, Chrysler. In the first full week of October, for instance, the Japanese produced nearly 18,000 cars in the United States, compared to about 22,000 at Chrysler.
And, with many of the recently opened facilities expected to reach full production soon, analysts predict that the Japanese will break the 1-million marker in 1989, producing a combined total of nearly 1.3 million vehicles in the United States next year. By 1992, analysts predict, the Japanese will be producing nearly 2.2 million cars and trucks in the United States and Canada.
“If anything, I think analysts are now underestimating what the presence of the transplants will be in the industry in the 1990s,” notes William Pochiluk, an analyst at Autofacts, a Paoli, Pa., market research firm.
While most analysts expect Detroit to be hurt the most by the huge increase in transplant production, some of the Japanese auto makers are also likely to suffer as well as the competition intensifies.
Stagnating Imports
U.S. sales slumps at Nissan, Isuzu and Subaru this year have been seen as warning signals by the entire Japanese industry.
Direct imports from Japan, already hurt by the rapid rise in the value of the Japanese yen against the dollar, are expected to stagnate; by 1990, analysts believe that the Japanese will sell only 78% of the cars they are allowed to import under the current quota system.
But if the Big Three expect the flood of transplants to simply replace direct imports without eating into the domestics’ share of the market, they will be sadly mistaken, Cedergren warns.
“They are obviously concerned” about the transplants, he says, “but they may not be as concerned as they should be.”
TRANSPLANT PRODUCTION
Year DIAMOND- to date HONDA NISSAN TOYOTA MAZDA STAR 1982 1,500 -- -- -- -- 1983 55,325 -- -- -- -- 1984 138,876 -- -- -- -- 1985 145,337 43,810 -- -- -- 1986 239,815 65,232 13,649 -- -- 1987 324,065 117,291 43,675 4,150 -- 1988 227,837 84,387 41,813* 105,732 1,000
* Includes production at both NUMMI and Toyota-Kentucky.
