Japan Research and Analysis
through Internet Information

by Yasuharu Dando

The Japanese Automobile Industry Does Not Bring the World Happiness
(June 2005) (Japanese edition:April 2005)...Japanese Blog Review 3

The big two in the U.S. automobile field, General Motors (GM) and Ford, are struggling with a business slump. During the period from Jan. to Mar. in 2005, Toyota and Nissan's automobile sales showed growth rates of more than 10%, while the big two's sales decreased by a few percent; it is expected that GM will suffer from serious losses amounting to 850 million dollars and Ford will also see a serious decline in profits. Japanese automobile companies, which are launching offensives in North America and China, produced 10 million cars outside Japan in 2005, comparable to the amount manufactured within Japan. Although the places for manufacturing automobiles are evenly divided between inside Japan and overseas, no remarkable hollowing-out phenomenon has been observed in the automobile field in Japan. This fact represents the astonishing competency of Japanese automobile firms, but I wonder why there is a growing expectation that this competency will not provide any happiness to Japanese society and the world.

U.S. Cars' Catch-up Halfway

In the aftermath of the steep rise of crude oil prices since last year, gasoline prices are no longer negligible even in the United States, which had been consuming gasoline like water. Until recently, Japanese firms had been reticent in selling pickup trucks, which gulp gasoline, in competition with the U.S. big three, but the big two stumbled over these. Essentially, they had lost competency in R&D and quality compared with Japanese firms, primarily Toyota. The rise of gasoline prices was just a trigger, and the above mentioned events would have occurred sooner or later.

In 1999, Nissan, then Japan's second car manufacturer, ran into a financial crisis and became a subsidiary of Renault France, and other automobile companies were also in a slump. I wrote "The Japanese Automobile Industry Has Broken a Taboo" , in which I pointed out that it became impossible to maintain the advantage of Japanese firms by only relying on the Lean Production System combined with the Just-in-time System to drastically streamline businesses. In reality, the big three were about to master the Lean Production System, and it was thought that "the advantage of Japanese automobiles was lost". However, it seems that the U.S. firms' catch-up ended halfway.

The on-site report by Professor Kenichi Kuroda of Meiji University, entitled "GM, UAW, and Lansing―visiting the scenes of factory restructuring", states that the introduction of the Lean Production System induced conflicts between management personnel and United Automobile Workers (UAW) at each factory and generated a broad range of work styles unlike the Japanese unified style. "Upon entering a factory, I see the following words: Kanban, Kaizen, Pokayoke, Seiri-Seiton-Seiketsu, and Andon, and have the illusion that 'This is not GM, but the Motomachi Factory of Toyota!'". While such factories do exist, there are also some factories where the workers' unions openly state "In exchange for accepting such team concepts as team cooperation, mastering a variety of work, and attending team meetings, we have succeeded in winning large wage increases'". Even when QC circles emerge in the U.S., they will be different from Japanese ones.

The Lean Production System was not the only issue I pointed out in 1999. I was worried that European and U.S. makers might do their best to create good designs and improve production capacity. However, by reading "Toyota's managerial strategies in the global era", the lecture of Fujio Cho, the former president of Toyota, at the Research Institute of Japan, we can realize that the companies which emphasized such issues have been Japanese ones.

"The most important thing that may contribute to corporate strategies in this globalizing world seems to be localization"; "As for the Camry model, the head of sales visited Japan from the U.S. and requested that we dilate its fender, and we followed his request. As a result, it sold well. Americans say 'It's macho' and 'It was good to make the Camry's fender well-muscled'. Such a demand would not be understood by Japanese people."; "At present, we determine car designs by holding competitions after inviting design proposals from each region in Europe, the U.S., Tokyo, and Toyota."

Japanese Society Unable to be Wild with Joy

Efforts are yielding fruit certainly. In the comprehensive automobile ranking published in early March by Consumer Reports, an information magazine for U.S. consumers, Japanese automobiles occupied the top rankings of 9 categories among 10. Honda won in 4 categories including family-targeted sedan models, etc.; Toyota won in 3 categories including luxury sedan models, etc.; and Fuji Heavy Industries won in 2 categories including small-size SUV models, etc.

On the other hand, what happened to the U.S. industry? A former reporter of an economic magazine summarized it as follows in "The Wane of the King GM". "GM wanted partners in order to implement cost reduction by utilizing the advantage of scale."; "They did not have a concept of improving each other through friendly rivalry. This can be verified by the fact that there have been no remarkable accomplishments in jointly developed cars." With regard to the purchase of automobile parts, too, "it is obvious which company would succeed in strengthening the corporate structure, Toyota, which is always struggling to reduce costs in units of 0.1 yen by involving part makers, and GM, which forces part makers to discount prices via the power of 'numbers' by resorting to group joint sales."

However, in Japan, salaried workers were shocked to hear the recent news that "the Toyota workers' union refrained from requesting an increase in salaries, although Toyota marked increases in sales and profit in successive 3 terms and achieved a profit amounting to over 1 trillion yen for the first time among Japanese firms. Some lamented that 'a system has been fixed in which the improvement in business performance will not increase workers' salary'", as a certified social insurance labor consultant wrote in "The Merit System and Wage Raises".

In compensation, the average bonus of the members of the workers' union was 2.44 million yen, but there are grave doubts as to whether high-performance employees received sufficient remuneration or the profit was returned to society adequately. After major automobile companies reached agreements on high bonus payments in spring labor offensives like Toyota's, companies in other fields became unable to increase salaries because the most profitable industry did not implement an increase in basic wages. The increased bonuses tend to be deposited rather than consumed; this is contrary to the economic aim in recent years of generating effective domestic demand in Japan and promoting a full-scale economic recovery. The competency of the Japanese automobile industry does not provide employees or Japanese society with any sense of security.

Temporary Assistance to U.S. Automobiles

The costs of employees' health insurance and pensions for GM are more than twice those of Japanese and European makers, which is a factor in weakening the competency of GM. An enormous number of people, including past employees, rely on the mighty oak that is GM. It is impossible to imagine the extent of the impact on U.S. society if a real crisis occurs.

It was April 25 when Hiroshi Okuda, the chairman of Toyota Motor Corporation and the chairman of the Federation of Economic Organizations, mentioned assistance to the U.S. automobile industry, such as GM and Ford, suffering from a business slump. Some objections emerged from the Japanese industry and it was also considered a mere advertising ploy. However, the long-term debt ratings of both GM and Ford descended into so-called junk-rated debts at an unexpected speed, and a meeting between GM and Toyota was scheduled in mid May.

It is thought that the head of Toyota is thinking of short-term aid to offer a respite to the U.S. automobile industry. If Toyota had dispatched personnel to Nissan in its time of crisis, Nissan would have achieved business recovery to a greater degree than that accomplished by Ghosn, who is now renowned as a strong arm. It is obvious to every leader in the automobile field that the structure of Nissan is in the state dubbed "a totally wet rag", squeezable many times if tried. However, if Toyota dispatches its staff and reforms the management of Nissan, two Toyotas will exist. Such a thing will not be done for either GM or Ford.

Although Mr. Okuda hinted at a price rise as well as technical assistance for U.S. automobiles with poor sales due to their bad mileage, there is a problem as pointed out in "Slowdown of Automobile Sales" (Keizai-manekineko): "There is a possibility that criticism will emerge that for U.S. consumers the price raise was not accompanied with reasonable reasons, and that profit was arbitrarily sacrificed, and there may be some risk that a lot of lawsuits will be filed due to objections from U.S. customers".

There exist other kinds of perspectives in the blog world. Representative of these is "Perspectives of Blue Lion", whose discussion quotes from "Toyota's Bid to be No. 1 in Market Share Takes Toll on Earnings and Shareholders" in the Wall Street Journal. "As Toyota aims to drag GM from the world's top position among automobile makers, shareholders are raising questions about it."---"That is absolutely correct. Investors emphasize profit margins rather than expansion."; "That can be recognized as a goofy statement in that Toyota only emphasizes share competition."

In reality, some investors are expressing opposition. Toyota share prices have decreased since their peak last July. Although Toyota announced last November a plan to increase the total quantity of manufacturing to 850 automobiles in 2006 and overtake GM, the real world has excessive production facilities and this plan is not attractive to investors. The pressure to improve profitability extends to Nissan and Honda as well as Toyota. The Japanese system of low profit margins is being questioned.

When considering history, it seems that the automobile industry is one that could flourish with reasonably abundant profits. The Japanese automobile industry is characterized by thin-profit-margin structures, while there are as many as 8 automobile makers inside Japan and their competition is fierce. It has invaded the world and has destroyed the labor cultures endemic to each region in each country with the Lean Production System. If the automobile industry considers that local production systems have progressed and that there will be no more trade conflict, I hope that they will further consider and conclude that now is the time to provide happiness not only for ourselves but also for others.

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