Business Administration

Lecture No. 5: History of Product and Production
System: With Focus on Automobile (2)1.Characteristics of Automobile Industry
2.Automobile and Production System in Early Phase
3.Japanese Automobile Industry in Incunabula
4.Hypothesis on Product/Process Lifecycle
Takahiro Fujimoto
Department of Economics, University of Tokyo
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1.Characteristics of Automobile Industry
Characteristics of Automobile as ProductHigh-priced durable consumption good (passenger car)Requires multiple functions:transportation means of individual control; means of self-expression;“toy” function; function of alternative housing
Social good: traffic accident, fuel consumption, exhaust emission, noise,disposed car issue
Complicated mechanical product: number of parts at 20-to-30 thousand;Having an enormous ancillary base
Iron steel remaining major material as yet
Closed integrated architecture: requires parts of interrelated optimum-design
works
Gasoline internal-combustion engine as base for passenger cars:
Few electricity-powered cars yetCharacteristics of Automobile Industry

One huge industry to represent the 20th century.
20-30 auto makers flourishing in the world, being stable in recentyears:Oligopoly-ish, but severely competitive, especially in terms of“capabilitybuilding competition”
Industry of national pride: Feature of “state capital” when it comes tothe push.
Running complex games of competition, collaboration, and conflict.
No big revolution to overturn existing companies in recent years, and acumulative evolution as base.
Down-to-earth “industrial marathon” continuing on.

Positions of Automobile Industry in Japan’s Economy

Item.

Location.

Number of employed people.

10 percent of number of employed people.

Amount of production of major manufactures.

10 percent of amount of production.

It is sales amount during the year of the retail trade.

10 percent of amount of retail.

It is exports during year.

10 percent of exports (four-wheeled vehicle).

Amount of capital investment of major manufactures.

20 percent of amount of capital investment.

Research and development spending of manufacturing.

10 percent of research and development spending.

Tax revenue.

C ar implication various taxes are 10 percent of the tax revenue.

Domestic traveler transportation allotment rate.

2/3 of domestic traveler.

Domestic freight transportation allotment rate.

50 percent of domestic freight.

Share of World-wide Automobile Production: Europe→ USA→USA/Europe/JapanOthers

JapanEuropeUSA

2.Automobile and Production System in Early Phase

Cars of gasoline-driven engine were borne in Germany (Daimler/Benz in1886)“Big automobile country” in the 19th century was France.

Competitions from electricity-powered cars and steam-powered cars (nochange in mainstream)

Auto makers in the era of small-lot production: Benz, P & L, Peugeot

Automobile Production, 1891-1895

1891

1892

1893

1894

1895

Benz

(7)(12)(45)

67

135

P&L

6

1637

3972

Peugeot

429244072

Sources：Benz--Siebertz, Karl Benz, pp. 170-72, and the author’s estimates in parentheses;
P&L--company archives; Peugeot--company archives.
Bardou, Chanaron, Fridenson & Laux “The Automobile Revolution”

Making Automobiles in Early Phase
Big parts makers, and small assembly makers
Collecting multipurpose parts and assembling a small quantity: Primitive
open architecture
Assembling at fixed position, not using a conveyer assembly line:
car fixed at a spot, and parts being carried over(some testing this system even now, including Volvo)
Flexible, but a work site of low productivity
Many minor makers made entries in USA, but were shaken out afterward.

From the Fixed-Position Assembly to the “Assembly Conveyer System”:
Ford Production System

1886
History of Daimler Cars: First gasoline-driven car in 1886

1894
History of Daimler Cars: Era of “horseless buggy”

1902

History of Daimler Cars: P&L system (engine at the front)

SIMPLEX1910
History of Daimler Cars: Era of Ford’s Model T

1929
History of Daimler Cars: Toward a sealed steel body

1955
History of Daimler Cars: Toward contemporary cars

Automobile Technologies in Early Phase
Competition from electricity-/steam- powered cars (no change inmainstream)
Technological effects from bicycles/horse carts (called “horseless buggy”)
P&L (Panhard et Levassor) system, a turning point for automobile
evolution
Victory of gasoline-powered cars (year 1900 or thereabout)Innovation of automobile technologies concentrated in the first 30 years
Rise of many minor car makers in USA
Emergence of Ford’s Model T (Ford production system)
GM’s flexible mass production system

American Automobile in the Cradle (Duryea)

Sudden rise of many minor makers

Stanley Steamer 1897 ・・・Steam-powered cars being active thenFord’s Model T
15 million cars over 20 years
Little design change in undercarriages(but significant changers in the body)‡
Toshiro Seki 'Basic Plan and Design of Car' SANKAIDO PUBLISHING Co.,Ltd

Ford and Chevrolet

In the end, the onethat took the top position
from Model T was
GM/Chevrolet
equipped with “flexible massproduction”
and sealed bodies of steel.
(1927)

Japan Automobile Manufacturers Association, Inc.

Comparison of Ford System in Early Phase and GM System(flexible mass production)
Ford System in Infancy(era of Ford’s Model T)

GM's Sloan Method(flexible mass production system)

Response capability
to minor changes

Fit (renewed Model T’s body andparts technology without alteringundercarriage)

Fit (model change every yearwithoutaltering undercarriage)

Response capability
to major changes

Low (took about one year toswitch Model T to Model A

Rather high (2 weeks to switch
enginefrom 4 cylinders to 6 cylinders

Machine tool
Process layout

Vertical integration

ProductdevelopmentcapabilityExclusive use (exclusive to Tshape cars)
By product (machines laid out withextreme density)
Vertical integration in extreme
degree(Rouge Plant)
Rather weak. Too muchdependence on past data;
confusion in start-off production
due to skipping pilot production

Versatile
By product (basically same withFord’s)
Relatively high share of outsourcedparts
Relatively strong. Reinforced
design function.
Structure aligned for productimprovements resulting fromplanned model changes

3.Japanese Automobile Industry in Incunabula
1910s: Car was no more than a trial product by “mechanic in town”.
1923:Great Kanto Earthquake brought about a formation of the car market.

1925-35: Ford and GM dominated Japan’s market having local assembly factories.
1936: Foreign makers were kicked out by “Automated Manufacturing Business Law”.→
Time for Toyota, Nissan, etc.
Three-wheelers were popular as “low cost vehicles” (from the pre-War period to1960s)
1950: Annual production at 50,000 cars. Labor dispute(s) with Toyota
1950s: Period of “reinforcing competitiveness without mass production”
1960s: Domestic market led the industry to drive building of mass production factories.
1970s: Exports expanded.
1980s: Overseas productions expanded.
1990: Annual production reached to 13,500,000 cars, resulting from the continued growth
to date, which was the peak.
1990s: Production fluctuated around 10 million cars; to strengthen competitiveness in costs
without relying on a quantity increaseIncunabula: Cars were no more than a hobby of rich people.

1920s ---GM Oosaka Factory
Ford Yokohama Factory

Reign of Japanese market
by the foreign capitals

Ford Yokohama Factory
Assembly line, albeit small

Toyota Automated Loom (→ Toyota Automobile)
made its entry with trucks. (mid ‘30s)

Nearly copies and jumbles of Ford’s and GM’s cars when started

Meanwhile, the three-wheeled cars were popular as “low costvehicles”.

Digression: Japan’s Car Race in Incunabula

Jorge Fujimoto and Hudson (1920s)

4.Hypothesis on Product/Operation Lifecycle
Hypothesis by Professor Abernathy of Harvard University(1)The beginning is the period of “product innovation”.
(2) “Dominant design” (entry of a star performer--- e.g., Ford’s Model T)(3) This leads into the period of “process evolution”(e.g., Ford production system)(4) In due course, product/process technologies become standardized.
Cost goes down, and so does flexibility --- “dilemma of productivity”
Subsequently --Period of “flexible mass production” (many models in large quantity): e.g.,
GM
After the War, “Toyota’s production formula” became conspicuous as an evenmore flexible system.

Product/Process Lifecycle

product innovation
process innovation

First, waves of product innovation → Next, waves of process innovation

Related to Product Process Matrix --- descending on diagonal line?
Article kind

Many variety.

Small kind.

Article kind.

A smallamount.

In large
quantities.

In large
quantities.

ProjectJob Shop

Agreement area
Patch flowLine flow

Continuous flow？

Dematurity

Limitation of “hypothesis on product/process lifecycle” indicating theshift to just one direction.
Everything gets standardized in the end? ---- Not necessarily.

Rather, there is a possibility for a reversal or restart of lifecycle. ・・・
dematurity(Abernathy, Clark and Kantrow, “Industrial Renaissance”)

Will the Automobile Attain “Dematurity”?
(Fujimoto, Capability Building Competition, Chuko Shinsho)

Dematurity: “Restart” of product/process lifecycle(another product evolution period)
A trigger will be an epoch-making innovation to turn over existing technologies
and industrial structure.
Will the automobile attain “dematurity”?
“Automobile reinvention theory” in/around 1980 was, in effect, an air shot.
(American type of misconception)
The era for gasoline-powered cars made of steel has continued. --The champion is tenacious.
Will a new propulsion technology be established in the next 20 years, taking
advantage of the environment/energy issues?
Hybrid car? Electrifiable battery car? Fuel battery car?
However, high production costs (material cost, in particular) are the bottleneck:No easy job.