The recent angry pronouncements about Japan by United States trade representative Mickey Kantor and the lobbyists for the Big Three automakers are nothing short of Orwellian in their misrepresentation of the facts underlying the American failure in this critical Asian market.
On the day Kantor announced the intention of the U.S.to slap unilateral 100 percent tariffs on nearly $6 billion of Japan’s most popular luxury cars, Kantor justified the action by saying that “through high tariffs, allocations of capital and a range of other measures, the government of Japan in essence kicked foreign producers out of the market.” The implication is that the Japanese must redress the situation through an affirmative-action program of “voluntary” (read “forced”) purchase agreements of auto parts, as well as guaranteed expanded access to dealerships in Japan–what Kantor referred to in recent negotiations as a “down payment.”
This is nonsense–no matter where one picks up the story. In the post-war devastation that was Japan, of course, there was no auto industry, and government economic planners were at first sharply divided over whether they should even encourage domestic efforts to rebuild one. Still, in consideration of their huge pre-war presence in Japan, Ford and GM were invited back into the market before the Occupation came to a close in 1952–but only if they agreed to establish local manufacturing.
Both companies declined. An internal memorandum by Arthur J. Wieland, vice president of Ford International, to Henry Ford II, set the tone for many years of neglect. “I presently cannot foresee any major competition from the Japanese automobile industry anywhere in the world outside Japan, with the exception of China, Manchuria and Korea,” Wieland wrote. GM’s assessment was equally bleak.
In fact, as events unfolded, it seemed the Americans were all but determined to remain “kicked out” of the market. In 1960, it was Toyota–not Detroit–that proposed an international alliance. Toyota had tried during the late 1930s to forge a joint venture with Ford and Nissan, and then with Ford alone in the early 1950s, but this time the Japanese firm seriously piqued the American company’s interest. Ford engineers and officials made repeated trips to Japan, and negotiations went on for about a year on a joint production deal that would have given Toyota and Ford each a 40 percent equity stake, with 20 percent to be held by the Japanese distributor. Suddenly, Ford dropped the idea.
In his autobiography, former Toyota chairman Eiji Toyoda complained that “Ford’s method of turning us down left a lot to be desired.” But still, he said, his company gave it one more shot in 1980, shortly before the Reagan administration imposed so-called “voluntary restraint agreements”–quotas–on Japanese car imports. This time, Toyota proposed joint production of their vehicle in the U.S. “We attempted to form ties with Ford on a total of four occasions before and after the war,” Toyoda wrote. “I suppose that we were never meant to become partners.”
There were a lot of other lost opportunities for the Americans–especially during what might be called the “modern era” of U.S.-Japan trade, the years after 1964 when the yen became convertible in international markets and Japan’s restrictions on investment were slowly but gradually liberalized. In 1969, Mitsubishi defied the Japanese government and announced a venture with Chrysler that eventually grew to a 24 percent stake for the American company.
In 1971, Isuzu agreed to sell a 34.2 percent stake to GM. In 1979, Ford took a 25 percent interest in Mazda.
What happened? Did the Americans use these substantial investments to build a strong manufacturing or marketing presence in Japan? Again, the answer is an unfortunate “no.” In 1989, Chrysler’s Lee Iacocca, strapped for cash once again despite the continued protection afforded by Washington, began to sell off his company’s Mitsubishi shares–much to the chagrin of his Japanese counterparts, who had hoped to have a reliable long-term partner in the U.S. The Isuzu-GM connection never grew into a serious Asian play, and Isuzu has even jettisoned its automaking division to concentrate on trucks. Ford continues to hold its original stake in Mazda, but its future prospects are clouded as well.
James Abegglen, the dean of American business consultants based in Japan and the man who prepared an entry strategy for General Motors in the 1970s (which GM chose to ignore), notes that the Big Three’s troubles go well beyond their Japanese market debacle. “Detroit’s failure to deal with Japan’s earlier fast-growing market is being replayed throughout Asia,” Abegglen warns. “The Japanese share is already two-thirds to four-fifths of the world’s fastest growing, highest potential markets. In Singapore–hardly closed to U.S. products–the U.S. auto market share is 0.8 percent.
In moments of candor, the Big Three have conceded the shortcomings of their competitive efforts. In September, Chrysler Chairman Robert Eaton told a group of automotive journalists in Italy, “We expect to be only a niche player . We don’t have any volume goal or penetration goal . . . We’re perfectly willing to walk away from every single one of them .”
But in moments of Kantor, we are told that last year’s $19 billion in Japanese purchases of American parts–a seven-fold increase since 1986– isn’t enough. Japan’s car companies have to commit to specific, verifiable buying targets for the coming years. On the question of low American auto sales in Japan, Kantor and Detroit like to blame what they denigrate as an almost “un-American” system of “exclusive” dealerships. In fact, this is no longer true, as it once was, of Japan or the U.S. But it is still very much the norm in Canada and Europe, where American manufacturers are so strong and where 95 percent of American-branded production is sold in exclusive showrooms.
What the Washington trade hawks don’t tell you is that the highly successful European companies in Japan–Mercedes Benz, BMW, Volkswagen, Opel, Rover and Volvo–have invested heavily to build their own distribution channels. They sold an average of 125 auto per dealer in 1993, compared to the average 10 autos per dealer by the Big Three. European imports have increased dramatically for more than 10 years, even posting a 31.5 percent surge in 1994 when the lingering Japanese recession continued to cut into total domestic sales. Dare we mention that Detroit still only builds two models in the U.S. with right-hand drive for the Japanese market? By contrast, the Europeans offer more than 100 models with the steering wheel on the right. The Europeans also offer 124 models with engines in the two-liter and under category, which represents 80 percent of the Japanese market. The Big Three do not have a single product in this class.
But perhaps the most egregious claim by the Clinton administration is that they are conducting this crusade against Tokyo for the good of the poor, downtrodden Japanese consumer.
Wrong again. American car prices in Japan remain higher than competing Japanese models, despite the cheap dollar and the fact that there are absolutely no tariffs on foreign automobiles (the U.S. imposes tariffs ranging from 2.5 to 25 percent). Even with transportation, customs duties and regulatory costs, there is still a substantial profit margin built into the system for the American supplier. Last year, for example, Ford’s top-of-the-line Taurus (left-hand drive only) sold in Japan for the yen equivalent of $35,330, while the right-hand drive Honda Accord went for $27,383, and the right-hand drive Toyota Camry priced out at $26,943. Similarly, Chrysler’s left-hand drive Jeep Grand Cherokee (only the regular Cherokee comes with right-hand steering) was offered at $46,976; the Toyota Land Cruiser sold for $38,843. With “help” like this, the Japanese consumer could go broke quickly.
In fact, Kantor’s stereotyping of Japan as a “producer” versus a “consumer” society (whatever that means), or as a “closed” and “hostile” market dominated by “cartels,” is extremely wide of the mark–especially in the auto industry. Japan has 11 distinct automotive manufacturers, eight of them producing cars, that compete against each other. Every year, the Japanese firms crank out hundreds of different models, giving consumers a range of choices on price, quality, styling, size, and service that sets a standard for the world.
In practically every sector of this intensely competitive market, thousands of American and other foreign companies compete effectively–in electronics, computers, software semiconductors, pharmaceuticals, aeronautics, medical equipment, telecommunications, consumer products and services. The chronic problems of the Big Three in Japan–a case study of how not to succeed in business by not really trying–should not be recast as yet another version of “America as Victim.”
