Automotive Industry Overview
11, 01. 2004
The World's Number Two Automotive Powerhouse
"Amlux Tokyo", the standing exhibition pavilion of Toyota Motor at Ikubukuro, Tokyo
Auto manufacturing is a leading industry in Japan, and the nation is the number two automotive powerhouse of the world. The total value of Japanese motor vehicle shipments in 2002 (including two-wheelers) was 43 trillion 163 billion yen. This accounts for 16 percent of the Japanese manufacturing industry's value of shipments, and 35 percent of the mechanical engineering shipment value. Automotives is one of the important and essential industries that support the Japanese economy.
Of especial note is the international expansion made by Japanese auto manufacturers. Toyota Motor Corporation (TMC) and its subsidiaries, Hino Motors, Ltd. and Daihatsu Motor Co., Ltd., combined manufactured 6.82 million vehicles in 2003, surpassing, for the first time, the number of vehicles produced by Ford Motor Company. This made TMC the world's number 2 auto manufacturer following General Motors Corporation (GM) with its output of 8.24 million vehicles. With the popularity of its sports utility vehicles (SUVs) in America, etc., Honda Motor Co., Ltd. leapt into 7th place - following Ford, Volkswagen AG, DaimlerChrysler AG, and PSA Peugeot Citroen of France - by manufacturing 2.96 million vehicles. Nissan Motor Co., Ltd., which was once in financial crisis, succeeded in restructuring the company under the leadership of Carlos Ghosn, formerly of France's Renault S.A. Nissan has recovered its position up to 8th place with 2.97 million vehicles produced.
Comeback Achieved through Globalization and Restructuring
After exploring capital alliances with Daimler-Benz AG and Renault, Nissan chose to tie a global alliance, including capital participation, with Renault. Operating deficits, caused by recall problems and an uphill battle in U.S. sales, surfaced at Mitsubishi Motors Corporation.
Headquarter of Nissan Motor, Ginza, Tokyo
The company, which had become independent of American automaker Chrysler at one point, decided in 2000 to conclude a capital alliance with DaimlerChrysler. Furthermore, as a result of the conclusion of capital alliances with GM by Suzuki Motor Corporation and Fuji Heavy Industries Ltd., what was once an industry consisting of 11 auto manufacturers became one of two major groups: companies without foreign capital affiliations (the Toyota Group, consisting of TMC, Hino and Daihatsu; and Honda) and foreign affiliated companies (Nissan, affiliated with Renault; Mazda Motor Corporation, affiliated with Ford of the U.S.; Mitsubishi Motors, affiliated with DaimlerChrysler; and Isuzu Motors Limited, Suzuki and Fuji Heavy Industries, affiliated with GM).
The reason why Japanese automakers, which were behind, were able to catch up under such circumstances was through their promotion of globalization and restructuring.
Carlos Ghosn, President & CEO of Nissan Motor
TMC further reinforced its local manufacturing in the United States while also embarking on local production in France and Asia. At the same time, TMC has been aggressively launching its hitherto scarce SUVs on the U.S. market. Honda has also reinforced local production in North America, and the company is also enhancing its SUV model lineup, including the Odyssey. Meanwhile, Nissan, which came under Renault's umbrella, advanced the restructuring of the company by reorganizing its domestic production framework (closure of the Murayama Plant, etc.), implementing significant downsizing, reconsidering its parts manufacturing affiliations, and so on. At the same time, Nissan is actively constructing new plants in the U.S. and launching pickup trucks.
Tenfold-plus Growth Achieved in 10 Years through the Family Car Boom
Kiichiro Toyota(right) , the founder of Toyota Motor and Sakichi Toyota(left), the inventor of an automatic loom and his father
In only 30 years after the end of World War II, Japan's automotive industry achieved what can be said to be miraculously high growth. In 1983, Japan surpassed the United States to become the biggest automotive powerhouse of the world. The engine for growth was the blossoming of motorization in Japan and the growth of exports.
When motorization first began, the market primarily consisted of corporate demand for vehicles such as trucks. Passenger cars, too, were often utilized as hired limousines, taxis, etc. However, after the launch of the Nissan Sunny and Toyota Corolla, an all-out family car boom erupted in Japan from the latter part of the 1960s. In 1968, domestic sales of passenger and commercial cars combined exceeded 4 million vehicles. And in 1969, the number of passenger cars sold surpassed, for the first time, the sales volume of commercial vehicles. With the expansion of domestic demand, the number of automobiles manufactured in Japan, which was only 480 thousand in 1960, exceeded 5 million in 1970. Tenfold-plus high growth was achieved in only 10 years.
Domestic Manufacturing Hits 10 Million Vehicles through Increased Exports
Exports grew at a rapid pace from the latter part of the 1960s through the 1970s and became a driving force for the expansion of domestic production. Especially large expansion was seen in the export of passenger cars such as the Corolla and Sunny. In 1965, the Japanese export of automobiles came to a halt at 190 thousand vehicles. However, once core automotive exports switched to passenger cars, it expanded at a rapid pace, hitting 1 million vehicles in 1970 and the 2 million in 1973. The momentum of exports showed no sign of slowing down, and exports were close to 3.71 million vehicles in 1976, and 6 million in 1980.
Toyopet CROWN RS ,the first full-scale mass-production passenger car in Toyota, announced in January of 1955
With such expansion of exports in the background, domestic production expanded from 5.28 million vehicles in 1970 to 11.04 million in 1980. Japan became an automotive producer second only to the United States. The status of automobiles manufactured in Japan also rose as domestic production expanded.
This was a result of active measures such as dealing with high-mix low volume production through the introduction of numerical control machine tools, industrial robots, etc.; responding to energy-saving needs through cost reduction and quality improvement brought about by in-house suggestions systems, improving engines and fuel consumption as well as rational design of the car body; and dealing with auto emission regulations.
The Escalation of Trade Friction Leads to the Age of Local Production
The 1980s was the golden age of the Japanese automotive industry. The global share of Japanese automobiles expanded, and Japanese manufacturing systems, as represented by the Toyota Production Method attracted American and European attention.
Nissan Motor Zama commemoration garage that accommodates many historic or racing cars
Trade friction became an issue from the latter part of the 1970s when Japanese automakers greatly increased their share of the U.S. market. Trade friction escalated further in 1980, when the Big Three (GM, Ford and Chrysler) posted massive deficits. Voluntary export restrictions (VER) were brought about in May 1981. As a ceiling was placed on the U.S. export of Japanese automobiles through the VER, Japanese manufacturers maintained their profit margins, on the one hand, by switching from popularly-priced automobiles to mid- to high-end cars, while also successively launching local production in the U.S.
This began in 1982 when Honda started manufacturing its Accord model in Ohio. This was followed in 1983 by Nissan's opening of a plant in Smyrna, Tennessee. In 1984, TMC began local production in California through a joint venture with GM. In the latter part of the 1980s, Mazda launched local production in Michigan, Mitsubishi Motors advanced to Illinois through an alliance with Chrysler, and Fuji Heavy Industries and Isuzu began jointly managed local production in Indiana. Meanwhile, although there had been concern that the domestic market was heading towards maturation, it showed growth through the spread of multiple car ownership.
In the bubble economy of the latter part of the 1980s, sales of even more luxurious cars expanded rapidly. It included the record luxury-class car sales marked by the Nissan Cima, released in January 1988. With the progress of the appreciation of the yen triggered by the Plaza Accord, exports peaked at 7.63 million vehicles in 1985, and fell greatly thereafter. Domestic sales, however, grew from 5.02 million vehicles in 1980 to 7.78 million in 1990. Domestic production also expanded, with a record 13.49 million vehicles produced in 1990.
Supply Glut after the Collapse of the Bubble Economy
While the automotive industry had been a symbol of "Japan as No.1," the 10 years following the collapse of the bubble economy became a challenging time for the industry, and a period in which it bided its time toward the coming 21st century. Domestic production, which had hit 7.78 million vehicles in 1990, fell to 6.47 million by 1993. Meanwhile, American automakers had implemented, from the latter part of the 1980s, thorough restructuring, shortening of the development period through the adoption of Japanese systems from the development stage, and revitalization of car designs. Cars emphasizing quality, such as the GM Saturn and Ford Taurus, were launched on the market. In 1993, Chrysler began sales of the Neon, a car that was priced less expensively than Japanese cars, and the company caught up in the American market. In 1994, Japan's export fell below the 5-million-vehicle mark. Domestic production declined heavily due to a slump in domestic demand and exports, and production fell from 13.49 million vehicles in 1990 to 10.55 million in 1994, a drop of more nearly 3 million vehicles.
Global Reorganization Advances; The 11-company Framework in Japan Collapses
Although Nissan's business performance picked up temporarily, poor sales in the United States became evident in the latter part of the 1990s. As seismic events, such as the financial system unrest of 1997 and the 1998 merger of Germany's Daimler-Benz and America's Chrysler, took place in Japan and abroad, Nissan announced its capital alliance with France's Renault in 1999.
Used cars for sale
Mitsubishi Motors, which had closed in on Nissan at one point through the popularity of its SUV, experienced a slump in U.S. sales, while domestic sales stagnated due to recall issues. As a result, business performance rapidly deteriorated, and Mitsubishi Motors made a decision to come under the umbrella of DaimlerChrysler in 2000. Furthermore, GM lowered its investment ratio in Isuzu and Suzuki, and a capital alliance was formed between GM and Fuji Heavy Industries. As a result of a spate of reorganizations, the map of the industry was transformed.
Since Nissan merged Prince Motors, Ltd. in 1966, the automotive industry in Japan had been a framework led by two major companies. However, the 11-company framework that had continued since then - TMC, Hino, and Daihatsu (the Toyota Group); Nissan, Nissan Diesel Motor Co., Ltd., and Fuji Heavy Industries (the Nissan Group); independents: Honda, Mitsubishi Motors, and Suzuki; and foreign affiliates: Mazda (Ford) and Isuzu (GM) - collapsed. (Note: Mazda came under Ford's umbrella in 1979, and Mitsubishi Motors became independent of Chrysler in 1993)
Metamorphosis into a Global Company through the Expansion and Reinforcement of Local Production
As the value of the yen appreciated to a level below 90 yen to the dollar at one point, the Japan-U.S. auto talks broke down in 1995, and Japanese automakers were driven into a situation wherein the U.S. announced a list of sanctions on Japan (i.e. imposition of a tariff duty of 100 percent on 13 Japanese luxury-car models). The sanctions on Japan were circumvented by the Global Plan, which were voluntary business plans established by TMC, Nissan, Honda, Mazda and Mitsubishi.
In the beginning, it was thought that the enhancement of production capacities in North America and the expansion of the sourcing of foreign-made parts that were contained in the voluntary plan would place a burden on Japanese manufacturers. But, in reality, it provided a favorable opportunity for Japanese automakers to metamorphose into global companies. In addition to enhancing the production capacities of existing plants, TMC and other Japanese manufacturers not only reinforced local production but also began strengthening local production of important parts such as engines. TMC's advance to Indiana and Honda's advance to Alabama are two examples.
Three Key Points towards the Future