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 Firms
•
•
•
•
•
•
Toyota
Daihatsu
Nissan
Hino
Honda
Nissan Diesel
Mitsubishi Motors
Suzuki
Mazda
Isuzu
Fuji Heavy Industries (Subaru)
• Defunct: Prince .. Ohta .. Kurogane .. Several others
The
Domestic
Industry's
Geography
• Firm
All Cars
Regular
• Toyota
917,120
917,120
• Daihatsu
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
• Fuji (Subaru)
151,100
64,799
• Isuzu
35,529
35,529
• Cars
3.061
2.043
• Trucks & Buses
0.051 mil
mil
Minicars
286,555
324,059
mil
86,301
1.018 m
Import Brands
•
•
•
•
•
VW
D/C
BMW
GM
Ford
33,078
28,248
20,110
14,217
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
NAFTA
EU
Asian
expansion
"The" Auto Industry
• 888,000 Manufacturing
(1.3% of labor force)
– 262,000 assembly
– 626,000 parts and body
• 1,280,000 Sales & Repair
• 957,000 Materials
• 1,106,000 Ancillary
• 3,033,000 Transport services
(2.0% "
"
")
(Steel, rubber, paint…)
(Gas Stations, Insurance….)
(Truck drivers….)
• 7,260,000 Total -- 11% of Labor Force
• 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-theart integrated Ford plant in 1936
– Took 45 years to catch up again!
Motor Vehicle Production
1950-1968
Truck & 3-Wheeler Era
2,5 00,0 00
Turning points
• 1961 cars surpass 3-wheelers
• 1968 cars surpass trucks
2,0 00,0 00
1,5 00,0 00
Trucks
1,0 00,0 00
Cars
500 ,000
3-Wheelers
0
195 0
195 1
195 2
195 3
195 4
195 5
195 6
Cars
195 7
195 8
195 9
196 0
Trucks & Bus es
196 1
196 2
196 3
3-Wh eele rs
196 4
196 5
196 6
196 7
196 8
Distinctive Features
• 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 from those of
the US. "Lifetime" employment system, annual
wage hikes, 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 market
– Now 15 mil units capacity, 10 mil units output
– Toyota alone has 1 mil units excess capacity
The "Bubble"
Denouement
• 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 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!
• 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
(+ 1-2 little firms)
Old vs. New: the New
NAFTA Producers
• GM
Subaru
BMW
• Ford
Isuzu
VW (Mexico)
• Toyota
Mitsubishi
Saturn (GM)
• Honda
Mazda (AutoAlliance)
• Chrysler
Suzuki (CAMI)
• Nissan
Mercedes-Benz
• Big 6
plus The Little 9 firms
(Hyundai*)
(VW - US*)
(Volvo*)
(plus 13% imports!)
Top Suppliers - A Multinational
Base (1998 OEM sales; *Subsequent M&A)
•
•
•
•
•
•
•
•
Delphi
Bosch
Visteon
Denso
Lear*
JCI
TRW*
US
$26 bil
$18 bil
$18 bil
$12 bil
$9 bil
$9 bil
$7 bil
German
Dana
$7 bil
Aisin Seiki $7 bil
Valeo
$7 bil
Yazaki
$6 bil
Magna
$6 bil
Mannesmann $6
LucasVarity* $5
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.