ARTICLES

The Prewar Japanese Automobile Industry and American Manufacturers

By Masaru Udagawa Hosei University

Introduction

The use of automobiles in began to grow during the economic boom that followed World War I.The growth continued in the aftermath of the great earthquake of September1923,which destroyed South Kanto,including Tokyo and Yokohama.In the reconstruction following the earthquake,automobiles played an especially important role trans porting goods and people in the city.The usefulness of automobiles was thus widely recognized by the early1920s.1) Against this background,there emerged not only entrepreneurs who began producing automobiles,but also well-established companies that expanded their business into automotive manufacturing.The industry seemed to enjoy an auspicious beginning,yet most early auto makers failed to grow.Ironically,in the midst of plentiful opportunities for market expansion,many either went bankrupt or withdrew from the in dustry.The only firms that survived were Tokyo Ishikawajima Zosensho Jidoshabu(Automobile Division of Tokyo Ishikawajima Shipyards), Tokyo Gasu Denki Kogyo Jidoshabu(Automobile Division of Tokyo Gas and Electric),and DAT Jidosha Seizo(DAT Automobile Manufac turing). The failure of the early Japanese auto industry is attributable to the Big Three•hAmerican manufacturers,who quickly recognized •gthe increasing demand for automobiles in the1920s and lost no time in making inroads into the Japanese market.Ford founded Japan Ford in Yokohama in1925,with4million yen in capital,which was increased to

8million yen in1929. founded Japan GM in Osaka in 1927,investing8million yen. was represented by Kyoritsu Jidosha Seisakusho(Kyoritsu Automobile Works),a concern in Yoko hama established in1928with capital of200,000yen.When the Big

81 Three commenced production using the•gknock-down•hassembly meth od,the Japanese makers,as yet lacking mass production and marketing

techniques,could not compete.Table1shows how swiftly the U .S. manufacturers infiltrated Japanese markets. This article has two purposes.The first is to review Japanese govern ment policies which sought to foster the domestic industry in the face of a market monopoly by the American corporations.The second is to examine,from the vantage point of business history,the choices Ford and GM made in response to those policies,and the consequences of their choices.2)

The Japanese Government's Automotive Policies Before World War II,the Japanese government implemented three major policies to build the automotive industry.The first was the Gunyo

Table1Motor Vehicles Supplied in Japan:1916-1935 (unit:vehicles)YearDomestic ImportsKnock-Down Kits (KD) Made KD Japan Japan Kyoritsu Imports Ford GM Automobile 1916 - 218 - - - _ 1917 - 860 - - - -1918 - 1,653 - - - -1919 - 1,579 - -- -1920 - 1,745 - - - -1921 - 1,074 - - - -1922 - 752 - - - -1923 - 1,938 - - - -1924 - 4,603 - - - -1925 376 1,765 3,437 3,437 - -1926 245 2,381 8,677 8,677 - -1927 302 3,895 12,668 7,033 5,635 -1928 347 7,883 24,341 8,850 15,491 . -1929 437 5,018 29,338 10,674 15,745 1,251 1930 458 2,591 19,678 10,620 8,049 1,015 1931 436 (2) 1,887 20,199 11,505 7,478 1,201 1932 880 (184) 997 14,087 7,448 5,893 760 1933 1,681 (626) 491 15,082 8,166 5,942 998 1934 2,247 (1,170) 896 33,458 17,244 12,322 2,574 1935 5,094 (3,913) 934 30,787 14,965 12,492 3,612

Sources: Jidosha Kabushiki Kaisha ,ed.,Nissan Jidosha Sanju Nenshi(A 30-Year History of Nissan Motor),Nissan Jidosha Kabushiki Kaisha , 1965.p.16.Notes:1.Figures in parentheses are numbers of small .2.Total number of KD imports and total of breakdown for KD imports differ but follow the statistics on record.

82 Jidosha Hojo Ho(Military Automobile Subsidies Law)of1915.This was enacted at the request of the Army,which was impressed by the the military's use of automobiles during World War I.It consisted of the following points: 1)identify auto makers capable of producing100units per year and, by giving them subsidies,facilitate their production of large trucks to be designated for the military as•gprotected vehicles; 2)subsidize the procurement and maintenance of •hthese trucks;and 3)in an emergency,requisition the trucks for military use with com pensation paid at a fixed rate.3) Although the Military Automobile Subsidies Law was applied only to large trucks,it boosted the industries that began automobile produc tion amid the wartime economic boom.Moreover,it helped defend domestic automobiles against the intrusion of U.S.manufacturers in the early1920s since Tokyo Ishikawajima Shipyards,Tokyo Gas and Electric,and DAT Automobile Manufacturing were the only companies licensed in accordance with the new law. The second policy was initiated by the Ministry of Commerce and Industry.After World War I,due to an unfavorable balance of trade, Japan suffered a large deficit in international payments.The domestic companies'slump and increased imports of automotive products from U.S.manufacturers became serious problems,and in September1929the Ministry of Commerce and Industry referred the matter,•gJidosha kogyo o kakuritsu suru hosaku ikan•h(What is the right method to establish an automobile industry?),to its consultative organ,the Com mittee to Promote Domestic Industry.This action was in line with the Ministry's campaign to promote the home industry through buying domestic goods.On the committee's recommendation,the Ministry created in May1931the Committee to Establish an Automobile In dustry,consisting of scholars,the bureau chiefs of government ministries charged with automotive manufacturing,and the presidents of the three Japanese automobile companies mentioned above.The new committee's deliberations resulted in a ministerial policy containing the following three points: 1)design a standard model for mid-size trucks and buses,weighing from1.5to2tons,and pay a premium to produce such vehicles; such vehicles; 2)attempt a merger of the three domestic auto makers to strengthen production of standard models;and 3)raise tariffs on automotive imports.4) In March1932.the first standard model vehicle was built on a trial

83 basis(the model was named the Fuji in1933and renamed the the following year).Thereafter,the Ministry of Commerce and Industry requested that the three Japanese auto makers merge to form a new company.As a result,in March1933,Jidosha Kogyo(Automobile In dustries),with capital of3.2million yen,was created through the merger of DAT Automobile Manufacturing and Ishikawajima Jidosha Seisakusho (Ishikawajima Automobile Works,formerly Automobile Division of Ishi kawajima Shipyards,which had become independent in1929).Four years later,in1937,the Automobile Division of Tokyo Gas and Electric merged with the new company. Concurrently,in June1932,the government changed tariff rates for automotive imports,raising the ad valorem duty for parts from30 percent to40percent and converting the specific duty of100kin(1kin =600grams)levied on into a35percent ad valorem duty. In the Franco-Japanese tariff agreements of that year,the old rates of 35percent for automobiles and25percent for parts were unified into a flat rate of35percent.5) But Automobile Industries failed to take a primary place in the sub sequent history of Japanese auto manufacturing.Nor did the Isuzu model become the strategic vehicle to preclude imports.The Isuzu could not achieve its goal partly because it was a mid-size vehicle designed to avoid outright competition with inexpensive Fords and Chevrolets sold in the mass market at the time.6)Furthermore,after the outbreak of the Manchurian Conflict in September1931,the Ministry of the Army gradually replaced the Ministry of Commerce and Industry as the de cision maker in automotive industry policies.7) In the wake of the Manchurian Incident,the Ministry of the Army requisitioned trucks throughout Japan and discovered that,unlike the Fords and Chevrolets,the domestic vehicles performed poorly and broke down easily.Anticipating a military operation on the Chinese mainland, which might threaten the import of foreign cars into Japan,the Army began to demand a new strategy for building the automobile industry. The purpose was to boycott foreign auto makers and take steps to pro duce trucks comparable to the Fords and Chevrolets for mass markets.8) In January1934,negotiations began between the Ministry of Com merce and Industry and the Ministry of the Army,but the former, which had planned to mass produce the Isuzu model,declined the requests made by the Army.Its high-ranking officials,moreover,voiced support for the continuation of the U.S.-Japan Treaty of Commerce and Navigation as well as for the plan for the first Nissan-GMjoint venture (discussed below).The Foreign and Finance Ministrieswere also opposed

84 to the radical position of the Ministry of the Army.The Consulta tive Council of the Ministries Charged with the Automobile Industry, created by the Ministry of Commerce and Industry in August1934, also failed to reach a consensus,and the activities of the council were suspended in December of the same year.9) It was impossible,however,to resist the Army,whose power was growing daily.Personnel changes within the Ministry of Commerce and Industry carried out in October1935brought the so-called reformist bureaucrats to key positions of policy making.Since these officials supported government control of the economy and a more sophisticated industrial structure,the Ministry of Commerce and Industry under their leadership discontinued its opposition to the automotive policies of the Army.The two ministries began discussing the third and last of the three prewar automotive policies which this article examines,the Jidosha Seizo Jigyo Ho(Automobile Manufacturing Business Law).10) On August9,1935,the Cabinet approved the Army's position,con tained in•gJidosha Kogyo Ho Yoko•h(Outline for an Automobile Manu facturing Business Law).The law enacted,in accordance with this outline,had seven points: 1)Companies which produce more than3,000automobiles with an capacity of more than750cc and companies which produce parts for these automobiles must get a license from the government. 2)More than half of the shares of licensed companies must be owned by Japanese,or by Japanese companies which are governed by Japanese law and in which votes must be held by Japanese. 3)Licensed companies are exempted for five years from income taxes,business revenue taxes,local taxes,and import taxes for machinery,equipment,and materials which are necessary for the production of automobiles. 4)In order to make it easier to raise capital,a special exemption from the Commerce Law is given to licensed companies in the case of capital increase and issuance of bonds. 5)In order to protect Japanese automobile and parts manufacturers from foreign competitors,it is possible to restrict imports of those products and to impose a dumping tax. 6)The Japanese government has authority to order and control the following matters:proposals of business plans,closing of busi nesses,mergers,dissolution,and the production of military auto mobiles and parts. 7)Companies which were operating before August9,1935,are

85 permitted to continue but cannot freely expand their production capacity beyond the level of the above date.11) It is clear from the above that the Automobile Manufacturing Business Law had two purposes.One was to foster the domestic auto industry under the supervision and with the assistance of the government.The other was to protect Japanese markets from the two major foreign auto manufacturers,Japan Ford and Japan GM,which represented the greatest obstacles to the growth of the domestic auto industry.

The Response of Ford and GM

After the Manchurian Incident,when various operations to create a strong auto industry in Japan began at the Army's behest,both Ford and GM,which virtually monopolized the Japanese market,had to adapt to the changed situation.Due to their different business objectives and management styles,the American corporations manifested two contrast ing modes of behavior. Table2shows Japan GM's profits between1927and1934.Com parable information for Ford during the same period is not available, but its profits were probably as high as GM's.12)

General Motors GM's Annual Report for1929states its overseas operating objectives as follows:

The policy which the Corporation is following in the development of its overseas business...consists of making General Motors a local institution in each country in which it is operating,rather than a foreign concern doing business in that country.This is

Table2 Japan GM's Profits

Yo8r Capital{Yon} Profits l Y●n} Profit/Capital R8tio l%}

1927 8,000,000 664 ,700 8.3 1928 " 3 ,278,500 41.0 1929 " 3」25 ,900 39.1 1930 " 1 ,789,000 22.4 1931 " 1 ,094,900 13.7 1932 " 1 ,352,700 16.9 1933 " 2 ,117,500 26.5 1934 仰 2,629,300 32 .9

Source:•gNissan-GM Dai-lchiji Kosho Kankei•h(The First Nissan-GM Negotiation) in the Akikawa Family Archives.

86 accomplished by recognizing the customs of the country,and harmonizing the Corporation's procedures and policies with such customs.So far as possible,native personnel is employed.The Corporation's products are adapted in the fullest possible measure to the local taste.Experience has shown that in that way the most effective result can be obtained[sic].13)

Accordingly,GM allowed considerable managerial independence to its subsidiaries abroad.When,moreover,its assembly manufacturing system was challenged in foreign countries through market restriction,dis criminatory tariffs,and preferential treatment of domestic products, GM is reported either to have purchased native automobile companies or to have become their affiliate in order to continue operations.In fact, GM adopted these policies in Japan. GM believed in those days that Japan GM faced the most difficult business environment of all its overseas subsidiaries.14)Its two choices were either to•gcontinue to import components from American source[s] and assemble cars and trucks in Osaka in a constantly diminishing volume until a shut-down of the plant became inevitable;or...seek affiliation with Japanese interests to the end of establishing a sufficiently•enational ized' activity.•hOf the two,•gthe latter...seemed to offer the better

prospect of continuing returns,on a diminishing scale,and of postponing the ultimate day of total exclusion.•h15) In1932,therefore,in view of the possible merger of the three Japa nese auto manufacturers,R.M.May,the executive director of Japan GM,unofficially notified the Ministry of Commerce and Industry that he was prepared to participate in such a merger.16)Although nothing came of May's proposal at this time,it was noticed by the Nissan combine, which was planning to take a decisive step into the automobile business.17)Yoshisuke Aikawa,the founder of the Nissan combine, believed that the auto industry could become truly•gnational•hby creat ing a mass production system aimed at building cars for the masses.As a shortcut to this end,Aikawa thought•gthe fundamental strategy•h lay in•gtying up with one of the American Big Three•hand importing its technology.18)In February1933,therefore,after ascertaining that May's position reflected that of GM itself,Nippon Sangyo(Japan Industries, hereafter Nissan),which was the Nissan combine's holding company, issued a proposal to GM for cooperation.On April26of the following year,an agreement was reached between the two that each would own 49percent of the shares in the other's subsidiaries,namely,Japan GM and Jidosha Seizo(Automobile Manufacturing)which was founded in

87 1933and renamed Nissan Motor the following year. Immediately after the agreement was reached,Nissan obtained a state ment from the Factory Bureau Chief of the Ministry of Commerce and Industry that cooperation between it and GM was•gmost welcome.•hIt further obtained from the Chief of the Foreign Exchange Bureau of the Ministry of Finance unofficial permission to forward a remittance to GM for the purchase of Japan GM's shares.The authorities within the Ministry of the Army,however,did not agree to the proposed Nissan-GM cooperation since they were pressing for automotive industry policies under their auspices. Nissan thereupon requested a GM concession,explaining that the terms of cooperation agreed upon between them would not be supported by the Ministry of the Army and that the government would not approve an agreement without the Army's support.Consequently,on October 4,1934,GM accepted the following proposals made by Nissan: 1)Nissan would own51percent of Japan GM's stocks; 2)as to the shares of Nissan Motor,if GM so desires,Japan GM,under Nissan's control,could own them independently of General Motors in the . Despite these concessions on GM's part,however,the Ministry of the Army refused to support the revised proposal,forcing the dissolution of the first Nissan-GM cooperation plan.Aikawa gave up negotiations with GM and the first round of negotiations was broken off on December 31,1934.19) The second series of negotiations between Nissan and GM began in June1935,this time at GM's initiative,a step taken after it became clear that the government would approve the Army's policies toward the automotive industry in the form of the previously mentioned Out line for an Automobile Business Law.GM first proposed cooperation under the conditions agreed upon in the first plan,namely,that it trans fer51percent of Japan GM's shares to Nissan to realize joint GM-Nissan management.Nissan asserted that the times had greatly changed since the first negotiations and that GM,if it truly wanted to cooperate with Nissan,should go beyond the transfer of shares and accept a merger of Japan GM and Nissan Motor to create a new company.20) GM realized that once the Automobile Manufacturing Business Law was enacted.Japan GM's future would be jeopardized.At GM's sugges tion.H.B.Phillips of the General Motors Export Company,who headed the negotiations in Japan,conferred with the Vice Minister of Commerce and Industry on October1,1935.GM accepted Nissan's position after securing through Phillips the following promise from the Vice Minister:

88 Phillips:According to the proposed law,either one company or several companies may be licensed.In determining the number of licensees,what criteria will the Japanese government apply? Vice-Minister:In the automobile industry,there is naturally a certain index of efficiency to be a profitable business.I do not have a clear notion as to the capability of the facilities of such a business in terms of the number of vehicles it can produce.Nonetheless,it seems to me that such an index does exist.Therefore,in my opinion,if you divide the total number of vehicles needed in Japan,say25,000,by this index you get an answer such as two companies or three.Thinking in this vein,more or less,we are planning now to license,for the time being,two companies,one an exclusively Japanese company and the other a joint Japanese and foreign enterprise. Phillips:Will GM's cooperation with Nissan be agreeable to the Japanese government as a whole and receive support in the future as well?

Vice-Minister:As you may perhaps already know,within the Army, the desire to create an automobile industry by the Japanese in a purely Japanese way has been extremely intense.For myself,if I were asked whether or not an auto industry can be built by the Japanese,I would answer it can.For Nissan Motor has already succeeded in manufacturing automobiles,though small ones. But,according to Mr.Aikawa,while the Japanese c make automobiles by themselves,they can do it•gbetan ter,smoother,and quicker•hif they tie up with GM.I agree with this view completely.Personally I am of the opinion that credit should be given to either Ford or GM or both for having contributed much to Japan regarding automobiles.I don't find it amusing to kick out GM and Ford right away now that Japan has today become capable of walking on her own feet.Besides, the Ministry of Commerce and Industry does not favor doing everything excessively nationalistically.It wishes instead to keep some threads of international coopera tion.You may understand,if you desire,that these sentiments found an expression in the writing of•gThe

89 Outline for an Automobile Manufacturing Business Law.•h Phillips:Will a joint Nissan-GM enterprise be treated completely the same,without discrimination,as a purely Japanese company? Vice-Minister:Yes.21) To anticipate the conclusion,the second Nissan-GMcooperation plan ended in a deadlock.In November1935,upon commencement of the writing of the plan to establish a new company through the merger of Nissan Motor and Japan GM,GM expressed discontent over five points: 1)evaluation of Nissan Motor's assets at the time of merger;2)Nissan Motor's past financial policy;3)its management of inventory;4)selec tion of board members for the new company;and5)the investment plan of the new company.Moreover,GM suspended Phillips'authority to conclude a merger contract with Nissan.Nissan emphasized that the most important thing was to establish a new company and obtain a license in compliance with the Automobile Manufacturing BusinessLaw. Regarding the attitude of the Ministry of Commerce and Industry,in Nissan's judgment,this step was possible only then,not later. GM declined to respond immediately.Instead,it proposed to use GM's headquarters in New York for the final negotiations,which started in January1936.According to Genshichi Asahara,a Nissan director who represented the company,the outcome of the negotiations was as follows:

General Motors in the end abandoned the idea of a joint company because,in addition to uncertainty about the investment,it was worried about the Japanese military's strong desire for domestic automobiles.Besides,after Hitler's seizure of the Opel factories in Germany,it feared that a joint company in Japan might be doomed to the same fate.In New York,we became convinced that it was impossible to found a joint company.This was why in New York we issued a memorandum with GM,announcing that creation of a joint company in Japan was postponed because the times were not appropriate.22) In short,GM concluded that a joint venture in Japan at that time would have to be undertaken on a grand scale as well as on terms un favorable to it in order to get permission under the Automobile Manu facturing Business Law.Furthermore,judging from the stance of the military authorities,GM was uncertain about the safety of a joint com pany.The second series of negotiations for a Nissan-GM cooperation

90 thus was fruitless,leaving the four year attempt at a joint venture as

no more than•gwishing for the impossible.•h

Ford Unlike GM,Ford insisted on its own automobile manufacturing capac ity in Japan.Useful in•@understanding Japan Ford's view of the state of the industry after the Manchurian Incident is the following report dated March28,1935,and submitted by Benjamin Kopf,the general manager of Japan Ford.In the last two or three years,he wrote,•gwhen the country seriously felt that it might become embroiled in warfare with one or more of the largest Western powers...desperate efforts[were]made to bring forth a complete,self-sufficient motor industry,almost re

gardless of cost;but it.is intended that this industry shall be in the hands of the Japanese exclusively.•hIn the future,Kopf continued, restrictive measures of diverse kinds will be enforced against •g foreign

(imported)vehicles,and the only way for us to retain this important market is to take timely steps to manufacture locally before we are shut out of the market.•h23) Ford's main office in Dearborn,Michigan,was of the same opinion.24) To build pioduction facilities for manufacturing steel,engines,and other components,as well as for assembly,Ford planned to•@purchase82 acres of reclaimed land owned by the city of Yokohama.When the plan became known to the Army in April1934,the military demanded that the Yokohama city government call off the sale.The Army argued:

Presently,the government and various ministries are designing auto industry policies.To sell the city's reclaimed land to Ford and assist a foreign country at this time is to sabotage domestic manu facturing of automobiles indispensable in war.Japan will then have no auto industry of its own.This is a serious problem,which will affect the future of the country.25)

Nonetheless,Ford did not abandon its plan to build new production facilities in Japan.On July24,1935,despite the Army's persistent obstruction,Ford succeeded in purchasing90acres of land also in the reclaimed area of Yokohama but owned by Tokyo Wan Umetate(Tokyo Bay Reclamation),a ubsidiary of the Asano .The sale was carried out despite the Army's opposition because Tokyo Bay Reclamation acted on its own judgement that•gFord will build factories and provide tech nology.Even if a war breaks out,they cannot take the factories back to

America.•h26)

91 Having purchased land,Ford began implementing the plan to build new facilities.The idea was to execute the corporation's business policies before the Automobile Manufacturing Business Law was announced. Ford's bullish behavior appears to have been based on the following grounds.Although the Japanese machine industry had grown,it still fell far short of a mass production system for automobiles.To meet demand,then,the continuation of foreign business in Japan seemed unavoidable. In this case,it was strategic to build a large factory before the Automobile Manufacturing Business Law was promulgated,insuring favorable business conditions in the future. In fact,while the Outline for an Automobile Manufacturing Busi ness Law was being written,the government unofficially asked Auto mobile Industries,Tokyo Gas and Electric,and big zaibatsu such as Mitsui,,and Sumitomo,whether they intended to apply for a license.All of them said they did not.27)As for Nissan and Toyoda, which later became licensees,it seemed that it would be several years before their automobile output would reach the mass production level. Presumably bluffing,Japan Ford's Kopf is reported to have remarked that the would be happy to•gmeet this wonderful which owes its existence to a legal measure.•h28) Ford also acted bullishly because it had acquired information that the Ministry of Foreign Affairs and the Cabinet's Bureau of Legislation were reluctant to support the proposed Automobile•@ Manufacturing Business Law because it conflicted with the U.S.-Japan Treaty of Com merce and Navigation.29)Moreover,Navy authorities regarded Japan Ford as a semi-domestic company. Having thus analyzed the situation,Ford announced in November 1935the following plan for a new plant: 1)to double the capital of Japan Ford(to16million yen)and trans fer new shares en toto to the Ford dealers in Japan;and 2)to found a Ford manufacturing plant in Yokohama and produce bona fide•gJapanese Ford•hvehicles a few years later.30) Ford probably conceded share ownership to the dealers because op

position was expected from various quarters against Ford-owned capital. Management control was to remain with Ford until genuinely•gJapanese Fords•hwere produced. The situation developed contrary to Ford's expectations and to its disadvantage.On May23,1936,the Automobile Manufacturing Busi ness Law passed the69th session of the Imperial Diet without revision. Ford therefore was forced to extensively revise the plan for its produc tion system.Besides announcing the policy to use Japanese parts,it

92 instructed Japan Ford to apply to the Kanagawa prefectural government for a permit to build a new plant capable of producing three times as much as the assembly plant in existence.The reason given for the ap plication,submitted on June9,1936,was as follows:

The automobile industry is still infant-like.The small number of vehicles presently made in Japan is markedly inferior to our com

pany's products in efficiency,durability,and fuel consumption. The expansion of our company,therefore,should contribute

greatly to the expansion of the Japanese auto industry.Moreover, the several tens of factories that currently produce parts for Ford vehicles will have more business along with an expanded Ford. Furthermore,if in the future Japan should enter into war with a third country,practical and inexpensive Ford vehicles will be to Japan's advantage.From all points of view,the expansion of our company will be in Japan's best interest.Besides,our company is called•gJapan Ford Automobile Company,Inc.•hand the parts the company uses are all made in Japan.The only thing foreign about us is the capital.We think that our company on the whole does not conflict with the Automobile Manufacturing Business Law.31)

The Kanagawa authorities believed there was•gnot only no precedent for rejecting this type of application,but also the laws relevant to this application contained provisions favorable to it.•h32)Except for the heads of the automotive bureaus and sections of the Ministry of Commerce and Industry and the Army,many officials believed that Ford's plan to build a new factory should be approved.33)Yet,the national government and military officials contended that since the Automobile Manufacturing Business Law had been enacted,foreign automobile companies could not be permitted to expand.Citing Article I,•gThe purpose of this law is to foster the automobile manufacturing industry in the Empire in order to complete national defense and develop industry,•hthey overruled the opinions supporting Ford's plan and upheld the view that•gforeign coun tries cannot complain but will accept Japan's position,•hwhich was that the Automobile Manufacturing Business Law was enacted for the sake of national security.34)They requested the Kanagawa authorities to postpone issuing the license to Ford,and pressed for enforcing both the Automobile Manufacturing Business Law and supplementary rules and regulations.On July11,1936,they succeeded in having an Imperial edict issued to bring the law into effect.In consequence,Ford's application for a permit to build a plant was rejected,costing Ford an opportunity

93 to implement local production.

Epilogue

As soon as the Automobile Manufacturing Business Law was enacted, Toyoda Jidoshokki Seisakusho (Toyoda Automatic Loom Works)and Nissan Motor applied and were granted licenses.35)In contrast,Japan Ford and Japan GM were ordered by a•gbulletin•hfrom the Ministry of Commerce and Industry,dated September22,1936,to keep production under12,360and9,470vehicles,respectively.36)Their business was further restricted when the Japanese government raised import tariffs, changed the Foreign Exchange Control Law,and enacted the Law Regarding Temporary Measures for Import and Export Goods,all in preparation for a wartime economy.To continue doing business and ensure the security of their assets in these difficult circumstances,both Ford and GM were compelled to develop a new business strategy. After the miscarriage of the cooperation plan with Nissan,GM began negotiations for a joint venture with Toyoda and Sumitomo.This effort failed,however,owing to GM's insistence on using its own components for major parts and its refusal to export the vehicles jointly produced by GM and a Japanese enterprise.37)Consequently,GM,sooner than Ford,decided to withdraw from Japan completely.38) In contrast,when its plan for a new factory failed,Ford changed its strategy and sought either cooperation or a joint venture with a Japanese company.39)It approached Mitsubishi,Furukawa,Nissan,and Toyoda.Among these,Nissan signed a contract with Ford in August 1937,agreeing that the components imported by Nissan Motor be assembled at Japan Ford's plant.40)This contract benefited both Japan Ford,whose production was restricted by the Japanese government, and Nissan Motor,which was under pressure to increase production in response to the outbreak of the Sino-Japanese War(1937).On the basis of this contract and an assumed future merger,Japan Ford's manager, Benjamin Kopf,and Nissan's Yoshisuke Aikawa planned a joint venture in Manchukuo.41) Kopf repeatedly advised Ford's main office that the proposed joint venture was not only a•@profitable investment for Japan Ford but also the last resort if Ford was to continue to do business in Japan.The main office concluded,however,that in view of U.S.public opinion after the Panay Incident of December12,1937,it was inappropriate to bring business into Manchukuo in this manner.42)Inside Nissan Motor,too,the opinion opposing a joint venture with Ford prevailed on the grounds that

94 it was doomed to the same fate as the plan to cooperate with GM .43)De spite the impassioned efforts of Kopf and Aikawa ,the Nissan-Ford cooperation plan was abandoned. In1939,another attempt was made to merge Nissan Motor, Motor,and Japan Ford.This would have created a company with cap ital of60million yen,but it also failed because the parties concerned could not muster enough support within the Army.44)In the meantime , the business environment of both Japan Ford and Japan GM continued to deteriorate,and in1940these companies terminated their operations . This article has focused on the Japanese government's automotive industry policies,especially on the Automobile Manufacturing Business Law and the response of U.S.auto manufacturers in Japan.Worthy of note is that the law facilitated the exclusion of Ford and GM,which had monopolized the Japanese automobile market.The law also afforded a basis of development for Toyota and Nissan Motor by giving them the status of licensed companies.In this sense,the enactment of the Auto mobile Manufacturing Business Law was an extremely significant event in the history of automotive manufacturing in Japan.

Notes 1)Nippon Jidosha Kogyokai,ed.,Nippon Jidosha Kogyo Shiko2

(Outline of the History of the Japanese Automobile Industry,Vol. 2)(Nippon Jidosha Kogyokai),1967,p.8ff. 2)Kyoritsu Automobile Works was Chrysler's assembly facility.It was founded with capital invested jointly by Chrysler's four importing agents.I chose not to examine this company in this study because it was much smaller than both Japan Ford and Japan GM,and Chrysler left its management to the discretion of these licensed agents instead of bringing in company officers to implement the

parent company's policies. 3)Nippon Jidosha Kogyokai,ed.,Nippon Jidosha2,pp.173-174.

4)Shokosho Komukyoku,ed.,•gHonpo Jidosha Kogyo Seisaku no Ryakushi•h(A Short History of the•@ Japanese Government's Auto mobile Industry Policies)in•gJidosha Kogyo•h(Unpublished papers held in the Archives of Tsusho Sangyo-sho[MITI].) 5)Nissan Jidosha Kabushiki Kaisha,ed.,Nissan Jidosha Sanju Nenshi

(A30Year History of Nissan Motor )(Nissan Jidosha Kabushiki Kaisha),1965,p.26. 6)Shokosho Komukyoku,ed.,Jidosha Kogyo Kakuritsu Chosa Iinkai Keika Gaiyo(Outline of the History of the Investigation Committee

95 to Establish an Automobile Industry)(Shokosho Komukyoku), 1932,p.17. 7)Toyota Jidosha Hanbai Kabushiki Kaisha,ed.,Motarizeishon to Tomo ni(Along with Motorization)(Toyota Jidosha Hanbai Kabu shiki Kaisha),1970,p.11. 8)Masaru Udagawa,•gHistorical Development of the Japanese Auto mobile Industry,1917-1971:Business and Development,•hKeiei

Shirin(The Hosei Journal of Business),Vol.19,no.4(January 1983),p.35.

9)Matsuyoshi Iwasaki,Jidosha Kogyo no Kakuritsu(Establishment of the Automobile Industry)(Ito Shoten),1941,p.168.See also

Honpo Jidosha Kogyo.•h •g 10)Jidosha Kogyo Shinkokai,ed.,Nippon Jidosha Kogyoshi Gyosei Kirokushu(The Sources of Japanese Automobile Industry Policies),

(Jidosha Kogyo Shikokai),1979,p.17;Masaru Udagawa and Seishi Nakamura,•gJapanese Business and Government in the Interwar Period:Heavy Industrialization and the Industrial Rationalization Movement•hin Keiichiro Nakagawa,ed.,Government and Business

(University of Tokyo Press),1976,pp.96-97. 11)Tsusho Sangyo-sho,ed.,Shoko Seisakushi 18:Kikai Kogyo1(The History of Commercial and Industrial Policies,Vol.18:The Ma chinery Industry,No1),(Shoko Seisakushi Kanko Enkai,1976, p.465. 12)For reference,it may be noted that Japan Ford's profits in1939and 1940were\4,616,725and\1,045,880,respectively.See Okurasho, ed.Dai-Niji Taisen ni okeru Rengokoku Zaisan Shori1(Confiscated Assets of the Allied Powers During World War II,Vol.1)(Okurasho), 1966,p.119. 13)Frederic G.Donner,The World-Wide Industrial Enterprise:Its Challengeand Promise(New York:McGraw-Hill),1967,pp.19-20. 14)General Motors OverseasOperations,The WarEffort of the Overseas Division(New York:General Motors Overseas Operation),1944, p.88. 15)Ibid.,p.18. 16)Masahisa Ozaki Jidosha Nihonshi1(The History of Japanese Auto mobiles,Vol.1)(Jikensha),1955,p.331. 17)Nissan is one of the new zaibatsu that expanded very rapidly after the Manchurian Incident.By1937,it had developed into a busines combine ranking just below the Mitsui and Mitsubishi zaibatsu. For more information on Nissan,see Masaru Udagawa,Shinko Zaibatsu(The New Zaibatsu)(Nihon Keizai Shinbunsha),1984,

96 Chapter1. 18)Jidosha Kogyo Shinkokai,ed.,Nippon Jidosha Kogyoshi Kojutsu Kirokushu(Recordings of Oral Interviews on the History of the Japanese Automobile Industry)(Jidosha Kogyo Shinkokai),1975,

p.112. 19)For the foregoing discussion on the first Nissan-GM negotiations, I used•gNissan GM Dai-Ichiji Kosho Kankei•h(The First Nissan- GM Negotiations)and•gZeneraru Motasu to no Teikei Keikaku

(The Plan for Cooperation with General Motors),both •hfrom the Aikawa Family Archives.For more information,see Masaru Uda-

gawa,•gNissan Zaibatsu no Jidosha Sangyo Shinshutsu ni tsuite: Nissan to GM to no Teikei Kosho o Chushin nil,2•h(The Develop

ment of the Automobile Industry of the Nissan Zaibatsu with Emphasis on the Nissan-GM Negotiations for Cooperation1,2), Keiei Shirin(The Hosei Journal of Business),Vol.13,no.4and Vol.14,no.1(January and April),1977. 20)Iwasaki,Jidosha Kogyo,p.170. 21)For the history of the second series of negotiations for Nissan- GM cooperation,I consulted•gGM-Nissan Gappei Mondai•h(The Problems of a GM-Nissan Merger)in the Aikawa Family Archives.

22)Jidosha Kogyo Shinkokai,ed.,Nippon Jidosha Kogyoshi Zadankai Kirokushu(Symposium on the History of the Japanese Automobile Industry)(Jidosha Kogyo Shinkokai),1973,p.62. 23)Mira Wilkins,•gThe Role of U.S.Business,•hin Dorothy Borg and Shumpei Okamoto,eds.,Pearl Harbor as History:Japanese American Relations,1931-1941(New York:Columbia University Press), 1973,p.361. 24)Mira Wilkins and Frank E.Hill,American Business Abroad:Ford on Six Continents(Detroit:Wayne State University Press),1964,p. 253. 25)Nippon Jidosha Kogyokai,ed.,Nippon Jidosha Kogyo Shiko3

(Outline of the History of the Japanese Automobile Industry,Vol. 3)(Nippon Jidosha Kogyokai),1969,p.37.

26)Ibid.,p.38. 27)Ibid.,p.32. 28)Ryozo Yanagida,Jidosha Sanju Nenshi(A 30 Year History of Auto- mobiles)(Sansuisha),1944,p.354. 29)Nippon Jidosha Kogyokai,ed.,Nippon Jidosha 3,p.32. 30)Ozaki,Jidosha Nihonshi1,pp.383-384. 31)The Ford-related sources in•gJidosha Kogyo•hin the Tsusho Sangyo sho Archives.

97 32)Ibid. 33)Ozaki,Jidosha Nihonshi1,p.386.See also C.S.Chang,The Japa nese Auto Industry and the U.S.Market(New York:Praeger Pub lishers),1981,p.24. 34)Jidosha Kogyo Shinkokai,ed.,Gyosei Kirokushu,p.23. 35)In August1937,the Toyoda Automatic Loom Works separated its automobile division and created an independent company,Toyota Motor.Note that the original company name,•gToyoda,•hwas modified to•gToyota•hfor the independent automobile company.In April1941,Tokyo Jidosha Kogyo(Tokyo Automobile Industries) was also issued a license.This was formerly known as Automobile Industries,and is the predecessor of Isuzu Jidosha(Isuzu Motors) and Hino Jidosha(). 36)Tusho Sangyo-sho,ed.,Shoko Seisakushi18,p.422. 37)Shotaro Kamiya,My Life with Toyota(Toyota Motors Sales Com

pany),1967,p.71. 38)Incidentally,the labor problems that arose within Japan GM also contributed to GM's decision to withdraw.See Ozaki,Jidosha Nihonshi1,p.386. 39)Wilkins and Hill,American Business,p.255. 40)Nissan Jidosha,ed.,Nissan Jidosha,p.77-78. 41)Nippon Sangyo,which was the Nissan combine's holding company, moved to Shinkyo,the capital of Manchukuo,in November1937.

At the same time,it adopted a new name,Manshu Jukogyo Kaihatsu

(Manchuria Heavy Industry Development)and acquired monopoly rights for industrial development in Manchuria.Aikawa,the presi dent of the company,tried to bring in American capital to develop Manchuria.For details,see Udagawa,Shinko Zaibatsu,pp.65-80 and Yukio Cho,•gInquiry into the Problem of Importing American Capital into Manchuria:A Note on Japanese-American Relations, 1931-1941•hin Borg and Okamoto,eds.,Pearl Harbor as History,

pp.388-391. 42)Chihiro Hosoya,Makoto Saito,Seiichi Imai,and Michio Royama, eds.,Nichi-Bei Kankeishi-Kaisen ni itaru Junen3:Gikai Seito to Minkan Dantai(The History of Japanese-American Relations:The Ten Years Before the War,vol.3:The Diet,Political Parties,and Private Groups)(University of Tokyo Press),1971,p.249.This is one of four volumes of the proceedings of the conference on Japa nese-American Relations,1931-1941,which was held at Lake Kawa

guchi,Japan,in July1969.The English edition of the Kawaguchi

papers was published under the title Pearl Harbor as History,but did

98 not contain the discussion on the papers presented at the conference that I cite here.The American gunboat Panay was sunk by the Japanese naval air force while it was patrolling the Yangtze River. 43)Jidosha Kogyo Shinkokai,ed.,Kojitsu Kirokushu,p.113. 44)Kamiya,My Life with Toyota,pp.71-72.

Translated by Atsuko Hirai,Wellesley College

99