Detroit's Road to Japan
BERGER, MICHAEL
THE MYTH OF EXCLUSION Detroit's Road to Japan by michael berger Tokyo When President Bill Clinton recently told an audience in Silicon Valley that the $49 billion U.S. trade deficit with Japan...
...Virtually every analyst agrees that 75 percent of the U.S.-Japan trade deficit is linked to automotive products—if not cars themselves, then the hundreds of component parts that go into each unit...
...they want something reliable, fuel efficient and reasonably compact...
...During the '80s, at the same time that lacocca was shaking his fist at the Japanese for keeping Chrysler out of their market, he was steadily increasing its share in Mitsubishi Motors—and earning handsome profits from the U.S...
...To compete abroad U.S...
...No one brought up the fact that TRW owns a portion of a parts factory in Nagoya, near one of its major customers, Toyota...
...Thus, even in the midst of the present prolonged economic slump, Japan is a rewarding market for the Germans...
...Ford is the only American automaker with an extensive dealer network in Japan, the others having chosen not to make a similar invest ment...
...Its success will depend more on a readiness to risk substantial resources across the Pacific than on the Clinton Administration pressuring Tokyo to reduce trade restrictions...
...And especially not in the case of cars...
...Guess who supplies small cars to the Big Three today...
...The common wisdom in Washington, encouraged by executives at Detroit's Big Three car manufacturers, is that Japanese import barriers are to blame for the imbalance...
...Stockholders will doubtless be pleased...
...trade deficit with Japan was "structural," he was correct...
...Poling dismisses the impressive figure by noting that Japan's vehicle imports total less than 3 per cent of the domestic market, while its automakers have a 30 per cent share in the United States...
...But not, one suspects, in the way he presumed...
...autos have regained respect among domestic buyers...
...One reason is that the mass media tend to perpetuate the "Us vs...
...Instead they concentrated on their strength, luxury cars, which also happen to return the highest profit margin...
...A huge share of that $210 million resulted not from "Made in USA" parts, but from those manufactured at GM plants in Korea, Taiwan, Singapore and elsewhere in Asia...
...Detroit will have to compete as well, rather than complain, if it wants to become a factor on the playing field...
...But again, what Poling did not say is more revealing—namely that the overwhelm-ing de mand in Japan is for the minicars, subcompacts and compacts Detroit stopped making years ago...
...Of greater import, though, is an announcement made earlier this year in Tokyo...
...Articles in the Wall Street Journal, the New York Times and elsewhere have lately demonstrated convincingly that Honda, Toyota, Nissan, et al...
...To be sure, the Big Three have been pumping money into Japan for some time, but much of it, ironically, has been invested in their local rivals' operations...
...Through careful strategy and financial commitment the Europeans have won a strong position here...
...After experiencing financial difficulties in 1989, lacocca reaped close to $600 million more by selling part of that equity in Mitsubishi...
...By contrast, the three major German car producers have long had independent distribution systems here, and within the last 24 months the Swedes, French, British, and Italians have followed suit...
...Nor did Gorman volunteer that his company sold some $500 million worth of automotive components in Japan last year?0 per cent of its world total...
...In the latest instance of a joint venture, General Motors is to produce 20,000 subcompacts in the U.S...
...have lost their price advantage in the American market, and that U.S...
...When Chrysler announced the shipment of its first right-hand-drive Jeep Cherokees to Japan earlier this year, it stressed that all Japanese consumer requirements were now being met...
...Although correct, the Chairman neglected to mention that Ford—which has owned 25 per cent of Mazda Motor Company for 15 years—has its own nationwide network of dealers in Japan...
...While American automakers congratulate themselves on catching up with the Japanese at home, a much bleaker reality endures in the international marketplace...
...Not surprisingly, the Ambassador's protest was soon blunted by Harold A. Poling, Chairman and Chief Executive Officer of Ford Motor Company...
...The outlets are stocked with right-hand-drive Ford label cars that come off the Mazda production line near Hiroshima every day...
...Furthermore, when Germany's manufacturers decided to seriously pursue Japanese buyers in the early '80s, they made a calculated decision to ignore the mass market...
...American manufacturers continue to make profits by buying into existing Japanese companies, while protesting that they are being shut out...
...Michael Berger contributes frequently to The New Leader from Japan...
...Japanese Ambassador Takakazu Kuriyama, speaking in Detroit not long ago, attacked a proposed tariff hike on imported minivans as "a tax on the American middle class...
...Therein lies the real structural problem the Administration must grapple with...
...for sale under Toyota's name in Japan...
...Chrysler is a dramatic example...
...they simply fatten the conglomerate's bottom line...
...There most consumers are not looking for pickups and recreational vehicles (the hottest selling items in America...
...Despite its renewed success in the U.S., Detroit has so far lagged in winning the confidence of foreign buyers...
...Another is that the Japanese, fearful of making waves in a market crucial to their long-term well-being, are inclined to use code language rather than hard facts in countering criticism...
...Why aren't significant details of that sort better known in the States...
...A generation ago, the presumption that competitive in America meant competitive in the world was valid for most U.S...
...Them" line that former Chrysler Chairman Lee A. Iacocca peddled so skillfully for many years...
...manufacturers must be able to adapt their products to local demands, whether in France, Britain, Germany, or Japan...
...But Kuriyama's remarks would have carried more weight had he thrown in some numbers, or perhaps even a bit of U.S.-Japan auto trade history...
...Actually, though, it is structured around quite different causes, many of them embarrassing to American business...
...products...
...Conveniently, this became known on the day Prime Minister Klichi Miyazawa met with President Clinton in Washington...
...No doubt he was taking the advice of some high-priced Washington lobbyist, who taught him an old tune that usually plays well in the provinces...
...Not today...
...Poling, who seems to have replaced lacocca as Detroit's premier smoke-and-mirrors specialist, made the more pointed observation that "only 1 per cent of [dealer] outlets in Japan offer a foreign brand nameplate...
...By giving the impression that this was a novel achievement it masked an unflattering truth: The company's action was a faint echo of what European and Japanese rivals have been doing for the better part of a decade...
...He might have asked why, if his country's market is "closed," there are literally hundreds of thousands of Japanese driving foreign cars...
...Ford's arrangement brings into focus an often hidden fact of the new global marketplace: Investing in overseas production and distribution has in many respects become more important than boosting exports...
...A month or so ago, TRW Chairman Joseph Gorman spoke in Tokyo about closed markets, and could count on reporters not to ask awkward questions...
...Since they are produced and sold here, however, these popular Fords do nothing to offset the trade imbalance...
...Yet once more a relevant detail was left out of the story...
...sale of hundreds of thousands of Mitsubishi compact cars...
...But the turnaround can be deceptive...
...GM happily reported that an auto parts distribution division it opened here had sales of $210 million in 1992...
...That is hardly cheerful news for American workers, but international managers maintain that major competitors must be challenged on their home turf...
...Most also point to a resurgence of quality in Detroit...
...Then he might have noted that those cars are overwhelmingly European makes...
...As a result, European brands account for over 85 per cent of the foreign auto sales in Japan...
Vol. 76 • May 1993 • No. 5
