GloboCars: THE NEXT CENTURY : Asia’s Industrial Giant Hits Some Potholes : But Tokyo remains a favorite in the auto wars. It has a great track record and top technology.
Once seemingly invincible, the Japanese auto industry is suffering declines in both exports and domestic sales. Profits are falling, work forces are being trimmed. Has the juggernaut reached the end of the road?
Most analysts say no. After all, despite hard times now, it is the Japanese who taught the world how to build a first-rate car economically--and how to market it abroad. Whatever the challenges, they will be heavyweight players for many decades to come. London-based Financial Times Business Information foresees 40% of the cars sold worldwide at the turn of the century bearing Japanese brand names. Pemberton Associates of Britain puts the figure at 50%. At present, the Japanese share is about 33%.
Still, the old self-confidence has been shaken. After a binge of investment in the late 1980s, Japanese auto makers have been battered by recession and a painfully strong yen, which drives up the price of their cars abroad. The days of export-led growth seem gone forever. Industry executives talk of building new factories overseas to promote growth, while holding their existing capacity in Japan to meet any rebound in domestic demand.
The recession and yen appreciation “very heavily damaged the strength of Japanese auto manufacturers. . . . We are struggling for survival,” said Yoshikazu Kawana, Nissan’s executive managing director. At least two years will be needed to recover, said Mazda Executive Vice President Makoto Miyaji.
Since 1971, Japanese auto makers have overcome one spurt after another in the value of the yen. But this time they have been staggered. The yen shot up more than 20% against the dollar at one point last year--with devastating effects on export profits. Although the currency then softened for a while, last month’s historic summit clash between President Clinton and Prime Minister Morihiro Hosokawa sent it back to a near-record level.
The rate was regarded as competitive when it was 115 yen to the dollar. Now, Japan’s auto makers face a rate of about 104 to the dollar.
The strong yen cost Japanese auto makers 300,000 cars in lost production last year, according to Richard Koo of Nomura Research Institute.
Suddenly, two new threats have entered the picture: the possibility that the Clinton Administration might take further action to force open Japanese markets--perhaps a 25% tariff (a tenfold increase) on minivans and sport utility vehicles, which would effectively wipe out exports of those vehicles--or American pressure for an additional increase in the value of the yen.
Japanese auto makers’ share of the U.S. car market slipped to 29.1% last year, down from 30.1% in 1992. And the situation was far worse at home, with sales down 7%. Of Japan’s 11 manufacturers, only one--Fuji Heavy Industries Ltd.--posted gains. Toyota, the Japanese giant, saw its profits in the second half of 1993 sliced razor-thin. Nissan ran in the red last year, as did Mazda.
Meanwhile, reinvigorated competition from Detroit’s Big Three--General Motors, Ford and Chrysler--may put further pressure on Japanese manufacturers.
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To offset declining profits at home and in the U.S. market, Japanese auto makers are seeking a major share of anticipated growth in Latin America, the Middle East and, especially, Southeast Asia. The strategy will be establishment of overseas assembly plants because many developing countries forbid imports of finished cars.
“Maybe profits in Japan will go down, but on the other hand, profit in the outside operations will go up,” said Reijiro Kuromizu, a Mitsubishi managing director. “That’s exactly what we’re aiming at.”
But the Japanese are not giving up on exports. For instance, Mazda hopes to make itself competitive overseas even at an exchange rate of 100 yen to the dollar in the next two years, said Toshio Wakiya, manager of its North American market.
“All of the auto makers will once again rejuvenate their structure, and in two or three years become strong again,” Miyaji, the company’s executive vice president, predicted.
Toyota’s production “will become really global” by the year 2000, predicted Iwao Isomura, a Toyota executive vice president. “On the world scale we’ll be producing about 6 million cars, with domestic production about 4 million.” This would mean a doubling of overseas production.
As it looks to the future, the Japanese industry still has great advantages to draw upon. Its technology stands at the forefront of the world’s auto makers. And of the 12 producers turning out 1 million or more cars a year, five are Japanese.
Japanese factories already operating in the United States have a combined capacity of 2.4 million units a year, ensuring that they will remain major players in the world’s biggest market. Investments in Southeast Asia have given the Japanese a big head start over their competitors in what is widely expected to be the world’s next boom auto market. And throughout the world, including the United States, auto makers remain reliant upon the Japanese to supply top-quality parts.
Even the higher yen has a positive side. Overseas investments and imports of raw materials and parts become cheaper. And the excessive investments of the late 1980s in the home market mean there is fat that can be trimmed. Mazda’s labor union chief, Takeshi Morikawa, cited several examples.
One step, he suggested, would be to reduce the number of models. Mazda, for example, increased its models from six to 30 between 1985 and 1992 and, as a result, was producing only 30,000 a year of some of them.
Morikawa also said companies end their “excessive competition on sales.” “We workers struggle to save even a single yen on the assembly line, and they (the management) spend 200,000 yen ($1,942) on incentives to sell a single car,” he said.
Already, the trend toward offering consumers an ever-expanding array of choices is being reversed. “During the ‘bubble era,’ cars became overly high quality and overdesigned, and too expensive,” said Toyota’s Isomura. “After the bubble burst, people didn’t want cars that were too expensive. The biggest issue now is how to redesign cars to be less expensive.”
The effort to meet that demand is already paying off, with the reduction of parts in new models exceeding 20%, Isomura said. Toyota and other manufacturers are also moving toward greater “commonization” of parts--using the same parts for various models.
Pragmatic collaborations in which manufacturers make certain models for each other are growing. Toyota, for example, offers a fuller line of vehicles by procuring trucks from Hino and mini-cars from Daihatsu. Such hookups help keep Japan’s weaker manufacturers alive.
Harmonious labor-management relations also offer Japanese auto makers hope for overcoming current difficulties. For example, workers who last year found themselves taking home smaller paychecks for the first time in decades have not complained.
Foreign cars, while still a minuscule 3.1% of the market, are running against the trend. Last year, sales of imported vehicles rose 9.1%. Imports came mainly from Japanese plants in the United States--which produce right-hand-drive cars for export to the home country--and from European car makers.
Exports to Japan by Detroit’s Big Three amounted to only 19,000 last year, or 0.29% of the total market. Although Japan imposes no tariff on car imports, U.S. makers claim the market is closed--chiefly because few dealers are willing to handle imports.
Motor vehicle production (units)
1993: 11,227,545 Source: Japan Automobile Manufacturers Assn.
