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ARTICLES the Prewar Japanese Automobile Industry and American Manufacturers Against This Background,There Emerged Not Only Entre ARTICLES The Prewar Japanese Automobile Industry and American Manufacturers By Masaru Udagawa Hosei University Introduction The use of automobiles in Japan 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.General Motors founded Japan GM in Osaka in 1927,investing8million yen.Chrysler 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:Nissan 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 cars.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 Isuzu 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 engines 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 engine capacity of more than750cc and companies which produce parts for these automobiles must get a license from the government.
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