From: ellisk@ucsu.Colorado.EDU (Michael K. Ellis)
Subject: Re: Strike at Saturn?
Reply-To: ellisk@fido.Colorado.EDU
Organization: University of Colorado, Boulder
Distribution: na
Date: Mon, 31 Aug 1992 05:30:49 GMT


I think it's perhaps time someone else stepped into this with some
background information on the history of car production in Japan.  It
might help clarify some things, calm some people down, and possibly
clear the air.  Oh, and one note before I begin, specifically to Mr.
Joe.  I think much of what you've been posting lately has been, if not
totally accurate, then at least in the ballpark, which is more than a
lot of people can say.  Having said that, I also find your attitude and
your ad hominem attacks about as attractive as Tim Maroney in top form:
that is not very.  If you wish to gain any respect for your arguments,
then have some respect for others.  There are people on the other side
of that computer screen.  Act like it, not like this is a kindergarden
sandbox.

Now then, a little history, and some observations.  If you're wondering,
most of this information I picked up as an undergraduate at Cal Berkeley
in Japanese Political Science, in which I have my BA.  If you disagree,
or find erroneous information, please inform me, and I'll be happy to
correct any details.  I do, however, believe myself to be generally
accurate, or I wouldn't be writing this down.  I also think any reader
should have a general idea of where I'm coming from so they can judge my
arguments on their merits.

Prior to World War II, the car industry in Japan was overwhelmingly
dominated by the U.S.  Ford, in particular, had a strong presence.  That
changed in the 30's when the Japanese Government was taken over by the
military, and in the interests of 'national security' and furthering the
Japanese Empire, they essentially nationalized all foreign auto
manufacturing facilities and turned them over to Japanese companies,
most of which had no experience in automobile production.  Toyota got
its start this way.  Before then it was mainly concerned with production
of textile-related machinery, including sewing machines.  Nissan also
got its big start at this time.  It should be noted that prior to WWII,
Japan was primarily an agricultural nation, and what industry there was
(much much less than Great Britain or the US) was primarily devoted to
making Japan into a colonial empire to match the empires of the west.

During the war, Toyota, Nissan, and the other smaller companies produced
most of their goods for the use of the government and the military.

After the war there was some debate whether Japan should
re-industrialize at all (most of their industry having been destroyed).
When it was finally decided that Japan should, the automobile companies
were considered rather less important than steel or other heavy
industries.  Autos were considered somewhat superfluous.  However,
foreign automakers were essentially barred from Japan because the
Japanese government wanted to give all of its industries the best
opportunity possible to regrow.  The US supported this decision, which
affected *all* areas of the economy, not just autos, because it allowed
Japan to grow into a strong economic partner.  The US also kept its
markets comparatively open while allowing closed Japanese markets for
the same reason: to grow a strong economic partner against the Communist
threat.  This happened quite a bit in Europe as well.  Given the
strength of the US at the time, and the perceived threat from the
Eastern Bloc, the policy can probably be taken as more or less rational,
although today it is no longer acceptable. To the extent that Japan and
Germany, both almost levelled by the war, have caught up, it can also be
treated as a success.

The Big Three never really tried to get back into Japan after the war.
It was at first regarded as both too poor to be a potential market, and
by the time the Japanese became a real threat, they were too weak to
force their way back in on economic might.  They didn't even see the
threat of Japan selling cars in the US, much less imagine selling cars
over there.  This was a telling mistake, and underlines how bloated and
overconfident US automakers had become by the mid to late 70's.

Japanese importing into the US was shaky at first.  The first cars
Toyota imported were of such poor quality that they were laughed out of
the country.  They went back, improved, and when the oil shock hit they
were in a perfect position to capitalize with cheap, fuel efficient
cars.  Quality was still below US standards.  (Ask owners of the first
imported Toyotas about rust, then duck.)  But they were able to sell
enough so that they improved quality, eventually surpassing the US by
the mid to late 70's, and reigning supreme in the early to mid 80's.  It
was also about this time that the European automakers began to lose big
in the US as automakers.  The British in particular couldn't deal with
the new pollution laws and most of the British manufacturers bowed out
of the US.  (For good reason.  Jags look nice, but mechanics? Ick.  Now
all the Brit car fans will undoubtedly have me for lunch.)

At home, things were going well for the Japanese, but it should be
understood that while Japan's home market is well protected by just
about any standard you care to name from the outside, inside it's
extremely competitive, possibly moreso than the US.  Japan has,
currently, two 'major' manufacturers and quite a few minor ones.
Originally the government tried to more or less merge all the minor ones
with the big two: Toyota and Nissan.  They failed, in great part due to
Honda, which refused to bow to the government's wishes and continued to
make cars.  Other smaller manufacturers also stayed in, although lately
they've been subject to much the same shakeout as the minor American
carmakers went through during the rise of the Big Three.  (Isuzu may
well go the way of the Studebaker due to slow sales both here and in
Japan.  Ditto for Daihatsu, which has stopped selling passenger cars in
the US, and some of the other minors.  Toyota and Nissan have even
'adopted' some of the minors, much like Chrysler adopted Jeep.  Separate
nameplate, but if Toyota wanted to get rid of (I think Subaru is the
closest affiliate) they could.  Honda is shakey in Japan, stronger in
the US.  Mazda is shakey both places.  Toyota and Nissan are just fine,
as usual. Anyone else, like Isuzu and Subaru, is just above the
waterline.)  The point is, Japan provided the necessary market to allow
car manufacturers to grow, but also enough competition to prod them from
one technical innovation to another.  They didn't get lazy, Detroit did.
You can see where this is going.

The Japanese probably got as dominant as they're going to get (assuming
Chrysler doesn't blow it completely) in the early and mid-80s.  The
Japanese government was still able to keep foreign cars almost
completely out of their market, and Japanese cars were becoming
acknowledged as the best in the world in the 'production car'
department.  Since Germans and Swedes held the luxury market, this left
the Big Three in a real bind.  Chrysler had to be bailed out starting
about '79, Ford almost went bankrupt in the early 80's.  GM, more's the
pity, just sank lower instead of having a real crisis. If they had we'd
probably be in a better position.  (They did, however, produce Saturn,
so they're not totally hopeless.)  The Big Three, particularly Ford,
realized that they were in deep trouble and had to do something.

Ford found out how badly the US was lagging when they had their crisis.
Ford happened to own a fairly large stake in Mazda, bought about the
time Mazda had a major financial crisis of its own in the early 70's.
(Sumitomo essentially went in, axed the whole upper management, and
remade Mazda in the image of Toyota, which was and continues to be the
leader in production quality, if not cutting edge mechanics.  Nissan is
generally considered to be a small cut behind Toyota in quality, and
Honda the leader in innovation.)  In desperation, several high-level
Ford execs went to a Mazda plant in Japan, and found out to their utter
shock that a compartively minor Japanese automaker was over 25% more
efficient than the best of Ford's factories.  The direct result of this
discovery was the Taurus, which was the first of the 'new breed' of US
cars: still behind the Japanese in bottom line quality, but a lot better
than what the US had been producing before in styling, quality, and
performance.  US automakers also began working with Japanese automakers
to 'catch up'.  The results are fairly impressive: the Diamond Star
vehicles (Talon, Laser, Eclipse), the Nissan Quest/Mercury Villager, and
my forthcoming Probe GT (2nd generation).  US car quality has also
steadily increased since the mid 80's in purely domestic ventures, such
as Saturn, although there are still quite a few real dogs left. (Someone
kill off Oldsmobile, please.)

The Japanese Domestic market, however, has still remained uncracked by
the US, and other automakers in general.  There are some very good
reasons for this.  The first, as Mr. Joe will be happy to tell you, is
the historical discrimination against foreign products, particularly
manufactured goods.  While still a problem, it is a lot *less* of a
problem than it used to be.  For instance, I believe they have finally
dropped the requirement that all foreign cars be *individually
inspected* at the import point.  This regulation, ostensibly for safety,
had a rather large side effect of driving car prices through the roof.
Another real disincentive to buy foreign has been the 2-year inspection
that all cars in Japan must undergo.  At this inspection, which is
typically quite expensive no matter what you drive, your car must be
brought up to standard for all safety and pollution regulations.
Foreign cars have generally fared very poorly here.  In Japan it becomes
very expensive to own a car older than 5 years or so, because of these
inspections.  The result is that Japanese cars have historically been
designed to run flawlessly for about 5-7 years.  After that they've
tended to fall apart fairly quickly, although this has been changing
with Japanese manufacturer realization that people in the US keep their
cars a lot longer.  US cars, by comparison, tend to deteriorate fairly
quickly, but even the worst can be kept on the road for indefinite
amounts of time.  (And are, judging buy some of the 70's vintage
clunkers you see wheezing around town in massive disrepair.)

Given the gradual dropping of the 'formal trade barriers' in Japan, many
of the European luxury car makers were able to get at least a toehold in
Japan for a while.  When BMW succeeded while GM and Chrysler were almost
non-existent in Japan, the Big Three were (justly) accused of not
putting the time and effort into cracking the Japanese market.  It is
very true that getting the land to set up showrooms, and getting the
people to staff them and the service centers, is extremely expensive in
Japan.  Howver the Germans seemed to be doing a good job of it.  Another
reason given for German success and American failure was that
historically the one major consumer market in Japan for big american
cars was the Yakuza, or Japanese Mafia.  People didn't want their
neighbors thinking they were affiliated.

That was until the stock market bust which started in 1989 or so, and
which continues through today.  Japan is, by its standards, in a
recession, and the buying of luxury import cars has fallen WAY off.
The reason, according to my professors, is a historical tendency in
Japan, particularly in the post-war era, to consider foreign goods, all
foreign goods other than raw materials, as 'luxury goods', to be bought
only in times of plenty.  When buying the basics, the Japanese tend to
buy Japanese.  This is particularly true in corporate Japan, where using
a foreign supplier for critical manufactured parts is practically
unheard of.  It is also the reason why the Koreans are going to have a
hard time cracking the Japanese market.  While they can compete on
price, there is both a general regard of Korean goods as being
'inferior' and something of a pressure to buy Japanese when the chips
are down, trade barriers or no.  For the US (or anyone else) to crack
the passenger car market in Japan, they'd have to spend literally
decades persuading the Japanese that American cars are both equal in
quality, and also okay for them to buy.  This doesn't mean it can't be
done.

The first step, naturally, is STICKING A RIGHT HAND DRIVE WHEEL ON YOUR
DAMN CARS.  <ahem>  Sorry.  Example: Ford bought Jaguar for
approximately $2 billion.  For that much money it could have engineered
a right-hand-drive version of almost its entire model line, particularly
for its larger cars which have no real equivalent in the Japanese
market.  With a strong enough sales push they could counter their
'gangster image' in Japan and begin to sell full-sized american cars,
fitted to the Japanese market, at a price that most Japanese could
afford.  This is key since Japanese manufacturing costs have been rising
considerably, to the point where they've actually exceeded US costs (not
including health insurance or pension costs).  This is why a Chevy
Corsica is so much cheaper than a Toyota Camry.  Both cars are
essentially the same size, but the Camry has much newer, more expensive
technology under the hood.  Given that the Japanese consumer has a lot
of expenses in his or her life already, there might well be a market for
the now less expensive US built cars in Japan.  Saturn, in particular,
is well poised to enter the Japanese market and go toe-to-toe with the
Japanese in the compact car market, Japan's most competitive segment.
The problem is GM won't give Saturn the money to put right hand drives
on their cars. (That and demand is so great here at home that they can
make all the money they can here and still not satisfy demand.)  

I will say this for Ford: I saw more Fords there than any other foreign
models, and they mostly seemed to be derived from cars built for the
British market, which is to say non-luxury.  That doesn't mean Ford is
doing great, but they seem to have a presence on a level other than the
fickle luxury market.

The only solution to 'cracking' the Japanese market is to commit to a
long term market presence in Japan.  That costs money, lots of it.
Contrary to Mr. Joe's assertions, Japan is currently one of the most
open countries in the world from a free trade aspect.  There are few
*formal* trade barriers left, and those are falling quickly.  What is
left, however, are many *informal* trade barriers, such as a
distribution system which hugely favors domestic producers.  The only
real cure for that is a commitment to sell in Japan, and to spend the
money necessary to acquire market share.  It won't be easy, by any
means, but it is possible.  

From a patriotic standpoint, things are rather murky.  Given the
globalization of the auto manufacturing business, it's often difficult,
if not impossible, to tell where the majority of a car comes from.  Even
when assembled in the US, its parts may come mostly from overseas.
Mazda's new 626 and MX-6, as well as the Nissan Quest, are classified as
'domestic' models, even if they have Japanese nameplates, while the new
Chrysler LH cars are built in Canada, although with a lot of US parts.
The best thing for the consumer to do, in my opinion, is buy the best
car you can find for the money you're willing to spend.  That may be,
for instance, a Chevy Corsica, which is not the greatest in quality, but
does a fairly good job of basic transportation.  (It's also rock solid
at 90 mph, which surprised me.  While I'm not the biggest fan of the
Corsica, I would say it's probably a better car than it gets credit for.
The instrument gague in particular, and the dash in general, are among
the best in any car I've sever seen.  This is a 1992 Corsica LT with the
'competition gauges', including tach, oil, and temp.)  It may also be a
Saturn SL2, which I almost bought, a Ford Probe GT, which I did buy, and
which is a mechanical twin to the new Mazda MX-6, or a Lexus SC300 or
SC400, which I consider to be the best looking car on the road.

Demand quality and service, no matter who provides it, and if the auto
makers want to stay in business, they'll provide it, or they'll go out
of business.  Try to make every automaker into a 'Saturn', no matter who
they are.  It's better for the country in the long term, and better for
the people who make the cars.  (I will *guaranatee* you that you'd rather
be a line worker in the Saturn plant, or a US 'transplant' factory owned
by a Japanese company, than a factory worker in Japan, and you'd rather
be that factory worker in Japan than some schlep working in an Olds
factory in the US.)  It will also force, for example, both the
short-sighted and hidebound management at GM and the short-sighted and
hidebound management at the UAW to get on the stick and improve
relations to the benefit of both their workers and the car-buying
public.  If the Japanese do the same, then we'll all win.

I'll be happy to debate any or all of this post with anyone, so long as
the argument remains rational.  And, as I stated before, if you can
convince me that my information is wrong, or non-factual, I'll be happy
to change it.

--
Michael K. Ellis
ellisk@fido.colorado.edu