The Japanese Auto

Industry
A Window on Japan's Economy

Michael Smitka
Professor of Economics
Washington and Lee Alumni College
July 20, 2000
Japan's Car Market…?!

Enjoy the strong yen!

Big Sale Now…!
 Price -- a mere ¥16,800,000
• Exchange rate: ¥108 per US$
(Wednesday's rate)
• Price in dollars: $155,555.55
• And this is after the 10% "strong yen" sale
discount!!
 Luxury Cars aren't Representative

• Mercedes will sell 50,000 cars in 2000

• 2.8 million -- regular cars

• 2.0 million -- minicars

• 1.0 million -- light trucks

• 0.3 million -- imports

 Japanese Auto
• Toyot Firms Daihatsu
a Hino
• Nissan Nissan
•• Honda
Mitsubishi Motors Diesel
Suzuki
• Mazda Isuzu
• Fuji Heavy Industries (Subaru)

• Defunct: Prince .. Ohta .. Kurogane .. Several

others
 The
Domestic
Industry's
Geography
• Firm All Cars Regular Minicars
• Toyota 917,120 917,120
• Daihatsu 286,555 286,555
• Nissan 388,548 388,548
• Honda 375,725 223,506 152,219
• Mitsubishi 307,949 161,815 146,134
• Mazda 165,613 142,436 23,177
• Suzuki 324,059 324,059
• Fuji (Subaru) 151,100 64,799 86,301
• Isuzu 35,529 35,529

• Cars 3.061 2.043 mil 1.018 m

• Trucks & Buses mil
0.051 mil
 Import Brands
• VW 33,078
• D/C 28,248
• BMW 20,110
• GM 14,217
• Ford 13,511

• All less than 1% share in a 3 million car

market….
 Definitions
• Production inside Japan versus global
production
– Honda is almost as much American as
Japanese!
– Toyota is rapidly internationalizing
 Missing from List?!
• Nissan is owned by Renault
• Mazda is owned by Ford
• Isuzu is owned by GM
• Suzuki, Fuji are partly owned by GM
• Mitsubishi will be owned by DaimlerChrysler
• Hino & Daihatsu are now owned by Toyota
• Nissan Diesel is (?) Volvo
 Definitions (ii)
• Production by Japanese firms
– Mazda, Isuzu and Nissan are all controlled
by non-Japanese companies
– Suzuki, Fuji Heavy Industries (Subaru) and
Mitsubishi have foreign firms as major if not
dominant shareholders
– Only Honda and Toyota are "Japanese"
Production outside of Japan
NAFT
A

EU
 Asian
expansion
 "The" Auto Industry
• 888,000 (1.3% of labor force)
Manufacturing
– 262,000 assembly
• 1,280,000 Sales
– 626,000 parts & Repair
and body (2.0% " "
")
• 957,000 Materials (Steel, rubber, paint…)
• 1,106,000 Ancillary (Gas Stations,
• 3,033,000 Transport services Insurance….)
(Truck
• 7,260,000 Total -- 11% of Labor Force drivers….)

• 13% of mfg shipments, 20% of exports

 Definitions (iii)
• Parts versus Assembly
– Employment is in parts, not assembly
– Dealerships and repair shops, too
• Dealerships in Japan are unprofitable!
– Gas stations, too?
• Deregulation has overturned the industry!
Peak 13.5 mil
Now < 10 mil
 Historical Development
• Typical LDC Pattern of Industrialization
– Initial domination by foreign producers
– Excess entry by "national" firms and extreme
inefficiency under subsequent protectionism
• Industrial consolidation - the Year 2000
theme!
– Assemblers going or gone
– Now it's the parts sector's turn
 Auto sales
• The Japanese market was for trucks until 1968 -
– businesses were the predominant customer
– many vehicles were 3-wheelers!
• Japan was advanced in the late 1920s and
1930s
– Ford from 1925, GM from 1927
– Military halted construction of a new, state-of-the-
art integrated Ford plant in 1936
– Took 45 years to catch up again!
 Motor Vehicle Production
1950-1968
Truck & 3-Wheeler Era

2,500,000

Turning points
• 1961 cars surpass 3-wheelers
2,000,000
• 1968 cars surpass trucks

1,500,000

Truck
s
1,000,000

Cars
500,000

3-Wheelers
0
1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967
1968
Cars Trucks & Buses 3-
Wheelers
 Distinctive Features
(Fitur Khas)

• Competitiveness
– Success in American market from late
1970s
– But in the 1990s poor profitability on a
global basis, so-so success in the EU
 Management
details for Q&A?!

– Just-in-time kanban methods of production

control
– Rapid product development cycle
– Quality control techniques
– Supplier management / purchasing strategy
– Labor relations patterns distinctive (khusus) from those
of the US. "Lifetime" employment system,
annual wage hikes (kenaikan), biannual bonuses
 US-Japan Topics (I)
Japanese success was due to US!
• Japanese entry rode a small car wave
• We paid Japan off!!
– VER - voluntary export restraint - cum - cartel
• Our subsidies financed
– Japan's mid-sized cars
– Japan's overseas plants
• Absent US policy . . . . no Japan??
 US-Japan Topics (II)
American revitalization was due to Japan
• Until Japanese entry in the 1980s, the Big Three
formed a tight cartel
• Competition forced a reformation the last 15
years
• Japanese inroads are almost exactly matched by GM's
decline
• US firms' superior financial controls helped offset poor
manufacturing
 The "Bubble"
• Japan would rule the world in autos…
• Exports, domestic market boomed in mid-1980s
• Low interest rates fed the boom
• So what do you do? -- add capacity!
– 1.5 million units in a shrinking (penyusutan) market
– Now 15 mil units capacity, 10 mil units output
– Toyota alone has 1 mil units excess (kelebihan) capacity
 The "Bubble"
Denouement (peleraian)
• Plaza Accord of September 1985
– yen appreciated
– exports fell
• Domestic asset bubble broke
– home demand fell
• Foreign producers recovered
– skills improved
– light truck / minivan boom favored them
 Today’s status
• Huge excess capacity within Japan
– 10 years of delay while hoping for recover (cf. GM)
– Little restructuring until 2000, and then only at a
few assemblers
• Aging labor force & population
– costs will rise
– demand won't
• Debt, poor profitability
– can Japanese firms invest abroad profitably??
 Looking Forward
• Improved efficiency in Japan??
– continued exit / restructuring esp. at parts firms
• Maturation in other markets
– international expansion will slow, firms will see occasional
sales downturns
• How to manage a global firm?
– few precedents in Japan
– US firms don't always do well, either! (in 2000, Ford in
EU)
– Firms with high export shares (Honda, Mazda) remain
vulnerable (rentan) to exchange rate swings
 Summary & Lessons
• Many features of Japan reflect its economic
transition from a developing country

• The "bubble" legacy is still present 10 years

later

• Maturation will not proceed smoothly

• How similar are the US? Korea? China?

 Addenda
• GDP growth chart
– GDP
– Unemployment
• Big 3 cartel (oligopoly) era
• Today's structure -- competition galore (kelimpahan) !
• Major parts suppliers
– Sales size
– Nationality (by headquarters location)
 GDP
growth

Mfg
growth

U
Old Vs New: the Old
GM
Ford
Chrysler
AMC
(imports < 10% of
market)
VW (Briefly in
Pennsylvania)
======
Big 3
 Old vs. New: the New
NAFTA Producers

• GM Subaru BMW
• Ford Isuzu VW (Mexico)
• Toyota Mitsubishi Saturn (GM)
• Honda Mazda (Hyundai*)
(AutoAlliance
)

• Chrysler Suzuki (CAMI) (VW - US*)

• Nissan Mercedes-Benz (Volvo*)
• Big 6 plus The Little 9 firms (plus 13% imports!)
 Top Suppliers - A Multinational
Base (1998 OEM sales; *Subsequent M&A)
• Delphi $26 bil Dana $7 bil
• Bosch $18 bil Aisin Seiki $7 bil
• Visteon $18 bil Valeo $7 bil
• Denso $12 bil Yazaki $6 bil
• Lear* $9 bil Magna $6 bil
• JCI $9 bil Mannesmann $6
• TRW* $7 bil LucasVarity* $5
• US German Japanese Other
 Bibliography
• David Halberstam, The Reckoning. 1986.
– A good read, and a good depiction.
• Maryann Keller, Rude awakening : the rise, fall, &
struggle for recovery of General Motors. 1989.
– Another good read. See also her Collision: GM,
Toyota, Volkswagen and the Race for the 21st Century,
1993.
• Japan Automobile Manufacturers
Association: http://www.jama.or.jp
– Includes auto industry overview .pdf file and current
statistics
• Mike Smitka, Competitive Ties. Columbia
University Press, 1989.
– The parts sector in Japan
• Department of Commerce, Office of Automotive
Affairs: http://www.ita.doc.gov/td/auto/
– US data, links, trade data
• Keizai Koho Center Japan: An International
Comparison (Annual, 1998-2000 available online)
www.kkc.or.jp/english/activities/publications/aic2000.pdf
– Handbook of statistics on social / political / economic facets of Japan.
100 pages of downloadable tables & graphs, most with comparative data
for the US and EU.