U.S.-JAPAN TRADE ACCORD : INDUSTRY IMPACT : Global Competition and U.S. Auto, Parts Makers Should Benefit

The eleventh-hour trade agreement on autos and auto parts hammered out Wednesday by the United States and Japan will increase global automotive competition while boosting the business prospects of U.S. parts suppliers.

Both sides took comfort in the agreement, which averted the imposition of 100% tariffs on 13 luxury models imported from Japan. But it was the U.S. auto makers and their suppliers who were claiming victory the loudest.

“The U.S. is the clear winner,” Chrysler Chairman Robert Eaton said in a teleconference.

The agreement wins U.S. auto makers greater access to the Japanese market by providing more dealer outlets and making it easier to sell replacement parts in Japan. Japanese auto makers also agreed to increase purchases of U.S.-made auto parts and auto production in the United States.

Auto experts said it could take years to see how the deal reshapes the worldwide auto industry.

“The devil is not only in the details but in the future details,” said J. Ferron, an international auto expert for accounting firm Coopers & Lybrand in Detroit.

This much is clear:

* U.S. auto makers and parts suppliers should gain greater access to the Japanese market. Success will depend in part on the Big Three’s ability to build cars that appeal to Japanese consumers.

* The U.S. economy should get a boost as Japanese auto makers increase production here and buy more U.S. auto parts. This should mean thousands of new U.S. jobs. But Toyota, Nissan and Honda, already fierce competitors, could become even tougher foes for Detroit as their costs are lowered.

* The domestic Japanese auto industry and market are likely to undergo wrenching change, with the potential weakening of its fabled keiretsu (that is, interlocking relationships among manufacturers, suppliers, distributors and financial institutions) system. Greater competition could also hurt sluggish sales of domestically built cars. But Japanese consumers should benefit from greater choice.

Chrysler, Ford and General Motors have all announced plans to sell more than 100,000 U.S.-made vehicles in Japan by decade’s end. But they have complained that it is too difficult to gain access to dealer networks.

The Japanese, however, contend that U.S. manufacturers have not tried hard enough to build cars that appeal to their consumers. U.S. cars are often too big and do not have the steering wheel on the right-hand side.

To prove its commitment, Chrysler announced Tuesday that it would spend $100 million to acquire a dealership network in Japan. Eaton said that move, coupled with Japan’s agreement Wednesday to increase dealer outlets for U.S. cars by 1,000 in five years, should help Chrysler meet its sales goal.

Almost everyone agrees that the trade agreement’s biggest winners are U.S. parts suppliers. Japanese auto companies vowed to boost auto parts purchases in both the United States and Japan by $9 billion in three years. They bought about $19 billion from U.S. suppliers last year.

“This is a real boost to the parts companies,” said Joseph Phillippi, analyst for Lehman Bros. “It should create jobs, but it is hard to tell how many yet.”

One reason is that many U.S. parts suppliers have factories abroad. In some cases, they could supply auto makers in Japan from Southeast Asian plants or build new factories in Japan. Still, there should be a significant boost in U.S. production, industry officials said.

Most Japanese manufacturers were already planning expansion of production facilities in North America as a way of counteracting the high value of the yen against the dollar. With the accord, they are expected to expand or quicken that process.

For example, Toyota announced Wednesday that it will increase North American production from 735,000 vehicles last year to 1.1 million in 1998.

In Japan, the manufacturers and their suppliers could face some difficult decisions. New competition from U.S. companies could pressure the close relationships between Japanese auto makers and parts manufacturers. This comes at a time when the domestic market and some of Japan’s auto-related companies are already weak.

For U.S. auto officials, the opening of the Japanese market is the agreement’s most important aspect. They argue that Japan has been a sanctuary market with little or no competition. This allowed auto makers to keep domestic prices high and use those profits to expand into foreign markets.

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The United States and Japan hold the largest motor vehicle market share in each of their markets. Canada had the highest proportion of imported cars in its market in 1994, and Britain topped the list on auto parts:

1994 motor vehicle market share in United States United States: 61.9% Japan: 22.9% Canada: 11.1% Europe: 3.1% Other: 0.9%

1994 motor vehicle market share in Japan Japan: 95.4% Europe: 2.5% U.S. (Japanese-made): 0.9% U.S. (Big Three): 0.7% Other: 0.5%

1994 percentage of imports in passenger car market: Canada: 79% France: 64% Italy: 56% Britain: 55% Germany: 39% United States: 36% Japan: 5%

1994 percentage of imports in auto parts market Britain: 60% France: 49% United States: 33% Germany: 25% Italy: 16% Japan: 2%

Note: Numbers may not add up to 100% due to rounding.

Source: American Automobile Manufacturers Assn.

Researched by JENNIFER OLDHAM / Los Angeles Times