FTC Probing Japanese Auto Firms, Suppliers


Koito Manufacturing, the Japanese auto parts supplier that has become the prime target of raider T. Boone Pickens Jr.'s campaign to open up corporate Japan, is partly owned by Toyota Motor Co. and is heavily dependent on Toyota for its business in Japan.

Koito is even a member of Toyota’s keiretsu , a tightly knit group of parts suppliers that form around each major auto maker in Japan. Traditionally, keiretsu members have worked almost exclusively at the behest of that auto maker and have thus gained an inside edge for its future business; American trade negotiators charge that the keiretsu system thus effectively blocks American auto parts firms from competing in Japan.

Yet for Koito, things are different in the United States. The company has established a manufacturing presence in Illinois through a joint venture with a German company and is now supplying headlights, not only to Toyota’s American assembly plant, but to Ford, Mazda and Nissan as well.

Koito’s American experience provides a glimpse of just how difficult it may be for federal investigators to determine whether the Japanese are violating American antitrust laws as they attempt to transplant their business relationships from Japan to the United States.


At the urging of Congress, which is also studying the issue, the Federal Trade Commission has launched an investigation into whether Japanese auto makers and their suppliers have transferred their old interlocking relationships from Japan to the United States as they have opened new manufacturing operations here.

The FTC’s Bureau of Competition is studying whether an Americanized form of the keiretsu system is working to secretly fix the prices the Japanese auto makers pay for their auto parts, and so shut out U.S.-based suppliers from doing business with the Japanese auto plants in this country.

American antitrust laws are thus becoming the latest weapons to be used by the Bush Administration in the increasingly fractious trade battle with Japan.

But despite the new federal probe, it is difficult to determine whether the Japanese auto industry has duplicated its keiretsu system in this country.


To be sure, the Japanese have mounted a massive invasion into the American auto assembly and parts manufacturing base. Already, eight Japanese owned or managed assembly plants have opened in the United States, while more than 250 Japanese auto parts manufacturing facilities have also been set up in this country--primarily to serve the Japanese assemblers.

Critics of the Japanese say many of those Japanese parts makers are setting up shop close to the American assembly operations of the leaders of their Japanese keiretsu families.

“Most have located near the major auto makers; you really do have many of the elements of the keiretsu system operating here,” complains Linda Hoffman, vice president for government affairs of the Automotive Parts & Accessories Assn., an industry trade group.

Still, it is becoming increasingly clear that the Japanese auto industry’s U.S. operations are becoming increasingly dependent on domestic parts; growing numbers of American suppliers are now working with the Japanese auto plants here.


General Motors’ Delco Products division, for instance, has become a major supplier to Toyota’s U.S. operations, and has also just been awarded a contract to supply suspension parts to Toyota in Japan. Meanwhile, Milwaukee-based Johnson Controls has just opened a plant near Toyota’s U.S. assembly operation in Georgetown, Ky. to supply seats to Toyota.

“I think a lot of American companies will tell you it’s not hard to do business with Toyota or other Japanese companies,” notes Toyota spokesman John McCandless.

“I don’t think there is really strong evidence that they have tried to bring that system here,” adds David Cole, director of the Center for the Study of Automotive Transportation at the University of Michigan, which has conducted an exhaustive survey of the American operations of the Japanese auto parts makers. “That’s going to be a tough issue for the FTC. When is a business relationship a restraint of trade?”