INFORMATION T O USERS

This material was produced from a microfilm copy of the original document. While the most advanced t e c h means to p H o to g ra p h and reproduce this document have been used, the quai**y is heavily dependent upon the quality of the original submitted.

The following explanation1 of techniques is provided to help you understand markings or patterns whic^* may appear on t h i s reproduction.

1. The sign or "targ et" for pages apparently lacking from the document photographed i s "Missing Page(s)"- If it was possible to obtain the missing Page(s) or se c tio n , they are spliced i n to the film along with adjacent pages. This may have necessitated cutting Thru an image and duplicating adjacent Pagesto insure V o u complete c o n tin u ity .

2. When an image on the film is obliterated with a large round black mark, it is an indication That the photographer suspected that the copy may have moved during e x p o su re and thus cau se a blurred image. You will find a good image of -c n e page in the a d ja c e n t frame.

3. When a map, drawing or chart, etc., was part of the material being Photographed the photographer- followed a definite method in "sectioning" t h e material. It is custom ary to begin photoing at the upper •eft hand corr»®r of a lar9e sheet an d to continue photoing from left to fight in equal sections with a s m a l l overlap. If necessary, sectioning is continued again — beginning b elo w the first row and continuing on until complete,

4- The majority o f users indicate th a t The textual content is of greatest value, however, a som ew hat higher q u a lity reproduction could be made from "Photographs" essential to the understanding of the dissertation. Silver prints of "photographs" may be ordered at additional charge by writing the Order DeF»artment' giving tf te catalog number, title, author and specific pages youwish reproduced -

5.PLEASE NOTE-’ Some pages m a y have indistinct print. Filmed as received.

Xerox University Microfilms 300 North Zeeb Road Ann Arbor, Michigan 48106 74- 21,688

CHANG, Chan Sup, 1933- THE JAPANESE MOTOR VEHICLE INDUSTRY: A STUDY OF THE HISTORY OF THE JAPANESE MOTOR VEHICLE INDUSTRY AND THE IMPACT OF THE JAPANESE MOTOR VEHICLES ON THE U.S. MARKET.

The American University, Ph.D., 1974 Business Administration

University Microfilms, A XEROX Company, Ann Arbor, Michigan THE JAPANESE MOTOR VEHICLE INDUS THY: A STUDY OF

THE HISTORY OF THE JAPANESE MOTOR VEHICLE

INDUSTRY AND THE IMPACT OF TEE JAPANESE

MOTOR VEHICLES OH THE U .S. MARKET

ty

Chan Sup Chang

Submitted to the

Faculty of the School of Business Administration

of the American University

in Partial Fulfillment of

the Requirements for the Degree

o f

Doctor of Philosophy

i n

Business Administration

D is s e r ta tio n A dvisory Commit1;e

h im njhima# o f th e D o q to ral Comm ittee: Chairman jChairm

(197U) The American University Washington, D.C.

aas W ism-is imivEisiTY liebaby ABSTRACT

The objective of this dissertation is to identify the reasons behind the success of the Japanese motor vehicle industry and the impact of Japanese motor vehicles on the U.S. market.

The growth of the Japanese motor vehicle industry is a very impressive one. The w riter tries to find the reasons which can explain such accomplish­ ment. He identifies three major reasons: l) the positive and consistent policy of the Japanese government for the motor vehicle industry, 2) the aggressive entrepreneurship of motor vehicle manufacturing companies in Japan, and 3) the encouraging role of the Americans, both in supplying technology and in providing procurements as an accessible market. The Japanese government has given higher priority m its policies to the motor vehicle industry in most times for the national defense until the end of World War II, and for economic progress for the post-war period. Although there were days of ambiguity in the government policies for the motor vehicle industry, the policy to stimulate the growth of the motor vehicle industry has been consistently implemented. The entrepreneurs in the motor vehicle industry have also contributed to the develop­ ment of the industry through the profit motive along with the pride of their contribution to the growth of their nation. However, the w riter has also identified some unique events in Japan which had a great impact on the develop­ ment of the industry. They were political, military, and natural events; such as, l) the Kanto Earthquake of 1923, 2) World War II, and 3) the Korean War.

Except for the unfavorable impact of the final stage of World War II, most of these events had a favorable impact on the development of the Japanese motor vehicle industry. The Japanese had an opportunity of access to the

assembly plants of GM and Ford after the Kanto Earthquake. They also

founded a strong base for the motor vehicle industry during those years of

militarism for their national defense. The Korean War gave a springboard

to the Japanese through which the industry could accomplish a remarkable

development in the future.

As a third major reason for Japanese accomplishment, the writer

believes that the United States has played a great role in the development

of the Japanese motor vehicle industry in two aspects: l) American

technology transfer to the Japanese motor vehicle industry, under both

commercial contracts and American m ilitary procurements and 2) American

permissiveness toward Japanese motor vehicles in the U.S. market. The

Japanese motor vehicle industry utilized American technology from the

beginning by modeling after American motor vehicles. After General Motors

and Ford established assembly plants, Japanese learned American technology.

When Toyota built its factory, it modeled it after the Detroit system, and

Graham-Paige provided a "turnkey plant" to Nissan. When Japan was under the

control of the United States after World War II, American technology transfer

was actively implemented to the Japanese mainly through the "Roll-up Operation

Commercial transfers have continued since that time. This technology transfer

made a sound foundation for the development of the Japanese motor vehicle

industry. Americans have been very permissive toward Japanese motor vehicles

exported to the American market in the sense that, under American trade policy

no restrictions were imposed upon them, while American passenger cars were

restricted in the Japanese market. The second part of the dissertation concentrates on the impact of

Japanese motor vehicles on the U.S. market. The w riter adopted a comparative

approach because it is almost impossible to predict the permanent position of

Japanese motor vehicles in the U.S. market. He tries to assess the impact by-

comparing market penetration of the Volkswagen and Japanese motor vehicles.

He proved that Japanese motor vehicles were as important as the Volkswagen in

the U.S. market.

The w riter also discusses the impact of Japanese motor vehicles on

the U.S. market by reviewing the possibility of establishing assembly plants

of Japanese motor vehicles in the United States. Although it is very hard

to predict such a possibility because it is based on both economic and non­

economic (cultural) factors, he has forecasted this event in the future. ACKNOWLEDGMENT

The w riter is deeply indebted to Prof. Howe Martyn, Director of the

International Business Program and Chairman of the Dissertation Committee,

for his guidance, understanding, and encouragement during those years when

the w riter studied at the American University. The writer is also indebted

to Drs. Daniel L. Spencer and Kirk L. Bums for their advice and encourage­ ment. In particular, Dr. Daniel Spencer has been heavily involved in

encouraging the w riter from the beginning of this dissertation until it was

f in is h e d .

The w riter wishes to express his sincere thanks to Dr. Herbert

Glazer for his excellent advice at the initial stage of this dissertation,

and to Mr. Joseph Caulfield for his final editing of the dissertation into

readable English.

Dr. George Allen, Chairman of the Doctoral Committee of the School of

Business Administration, The American University, has been most helpful in

assisting with administrative processes.

v TABLE OP CONTENTS

PAGE

INTRODUCTION 1

PART I . A REVIEW OP THE HISTORY OP THE JAPANESE MOTOR VEHICLE INDUSTRY

CHAPTER

I . BACKGROUND AND BEGINNINGS 8

A Niief History of World Motor Vehicles Japanese Economic Development, 1868-1971 Origins of the Japanese Motor Vehicle Industry General Motors and Pord Assembly in Japan

I I . THE PERIOD OP JAPANESE MILITARISM 32

Restriction on Foreign Manufacturers by Japanese Militarists Grovth of Toyota, Nissan, and Other Motor Tehicle Manufacturers The Japanese Motor Vehicle Industry During Vo rid War II

I I I . THE TOST-WAR RECOVERY AND U .S . INFLUENCE 53

The American Occupation of Japan The Korean War and the Japanese Motor tehicle Industry Government Policies and Regulations on the Japanese Motor Vehicle Industry

IV. THE DEVELOPMENT OP THE INDUSTRY, 1 9 5 5 - 1 9 7 1 ...... 76

Physical Expansion of Motor Vehicle Manufacturing Companies Efficiency of Motor Vehicle Manufacturing Companies Merger Movement of the Japanese Motor Vehicle In d u stry

vi CHAPTER PAGE

V. THE MOTOR VEHICLE PARTS INDUSTRY...... 93

Characteristics of the Japanese Motor Vehicle Parts Industry The Government Policy on the Motor Vehicle Parts In d u s try R & D in the Motor Vehicle Parts Industry

PART I I . THE U .S. MARKET ADD THE JAPADESE MOTOR VEHICLE INDUSTRY

V I. INTERNATIONAL TRADE POLICIES ON MOTOR VEHICLES...... 10$

Trade Policy Before the Surrender of Japan Trade Policy After World War II The Post-War Trade Policy for Motor Vehicles

V II. STRATEGIES OP JAPANESE MOTOR VEHICLE MANUFACTURERS VIS-A-VIS THE U.S. MARKET...... 127

Product Line P ric e Prom otion P lace Management

V III. REACTION WITHIN THE UNITED STATES TO JAPANESE MOTOR VEHICLES...... ll*7

American Policy Toward Imports from Japan American Reaction Toward Japanese Motor Vehicles

IX. THE IMPACT OP THE NEW ECONOMIC POLICY ON THE JAPANESE MOTOR VEHICLES IN THE U .S. „ ...... o ... 167

The New Economic Policy of the United States The Strategy for the Future by Both the Japanese Government and the Japanese Motor Vehicle In d u s try Assembly of Japanese Motor Vehicles in the United States

CONCLUSION...... 191

BIBLIOGRAPHY...... 205

APPENDIX ...... 220

vii LIST OP TABLES

TABLE PAGE

1. Imported Motor Vehicles and Japanese-made Motor V ehicles ...... 26

2. Foreign Motor Vehicles in Japan (1930) ...... 106

3. Promotional Expenses of Nissan Motor Corporation in U.S.A ...... 133

1|. Toyota D eale rs in th e U n ite d S t a t e s ...... 138

5. Imports of Motor Vehicles to the U.S ...... 1^0

6. Imports of Major Foreign Motor Vehicles to the United S tates ...... 150

7. Manufacturer's Suggested Retail Prices of Selected Models of Imported and American Subcompact Passenger Cars ...... 170

viii LIST OP ILLUSTRATIONS

FIGURE PAGE

1. Organization of Companies Selling Japanese Motor Vehicles in the U.S ...... llj.1

ix INTRODUCTION

Purpose of the Study

Since October, 1967, Japan has been the second largest producer of motor vehicles in the world. During the eleven years from 1961 to 1971 inclusive, Japanese motor vehicle production increased by 6l5 percent, while U.S. production increased by 60 percent, Germany by 85 percent,

Great Britain by 50 percent, and Prance by 12+2 percent.^ In 1971» Japan 2 produced 5»8lO,77l+ motor vehicles while the U.S. production was 10,671,651+.

Toyota Motor Co., Ltd., and Nissan Motor Co., Ltd., the two leading companies in Japan, advanced to third and fifth place, respectively, in the world ranking of motor vehicle manufacturers in 1971.^ Toyota was just behind the American giants, General Motors and Ford, while Nissan outranked Chrysler and Fiat.^

In its volume of motor vehicle exports, Japan advanced more rapidly than any other country in the world in 1971 and climbed to the second place, next to Germany. Japan's ratio of exports to total production was 31 percent in that year. This ratio is relatively low compared with the European motor vehicle producing countries. For example, other export production ratios in 1971 were: Germany, 58 percent; France, 51+ percent;

Great B ritain, 1+2 percent; and Sweden, 75 p e r c e n t . 5

The expansion in the export of Japanese motor vehicles is an impressive one. Beginning in 1967, they have consistently occupied

1 c third place in the total amount of Japanese exports. Motor vehicle manufacturing companies have played a vital role in Japan's export ac­

complishment. Toyota, for example, ranked first among all Japanese

exporters in 1968 and 19&9> climbing from tenth place in 1965. At the

same time, Nissan showed remarkable progress by reaching second place

in 1969 from ninth place in 1967. Thus, these two companies occupied first

and second plane in the amount of Japanese exports in 19&9* Also, the

export of motor vehicles increased by 61* percent in 1971 over the previous y e a r. 7

The export of Japanese motor vehicles increased in 1970 and 1971 > partly because of an aggressive effort by both Toyota and Nissan to

increase their share of the U.S. market. Toyota exported 395»788 motor vehicles to the United States in 1971» an increase of 89 percent over

1970. Toyota1 s exports to the U.S. accounted for £0 percent of its total

exports in 1971. Nissan, producer of the Datsun, exported 29^,200 motor vehicles to the U.S. in 1971> an increase of 69 percent over 1970. Nissan's Q exports to the U.S. accounted for 1*7 percent of its total 1971 exports.

Even so, in 1970, Toyota and Nissan accounted for merely 2 and 1 percent, reapectively, of the total U.S. motor vehicle registrations. In

1971 the figures were only 3 and 2, respectively.^ Nevertheless, some anxious Americans se e t h i s phenomenon as an "Economic P e a rl Harbor""*"^ o r an "Invasion from the Orient."'*"'*'

The objective of this paper is to identify the reasons for the success of the Japanese motor vehicle industry and, secondarily, the reasons why some manufacturers have survived and prospered while others have faded away. This study w ill also examine the impact of Japanese motor vehicles on the U.S. market. The hypotheses elicited by the 3

research and subjected to examination in this study can be summarized, as

fo llo w s :

1. M ilitary, political, and natural events of major historical importance have shaped the development of the Japanese motor vehicle industry as much as economic factors. Those events are:

The Kanto Earthquake of 1923 World War II and the Allied Occupation The Korean War (1950-1953)

2. Toyota and Nissan together have about equaled Volkswagen's market penetration in the U.S.

3. Japan may be able to utilize large foreign, ex­ change reserves ($12.5 billion in August, 197l) to establish local assembly capability in the U .S .12

This study w ill also help to expand existing knowledge in the

U.S. about the Japanese motor vehicle industry in two important ways.

F irst, it is a comprehensive review of the Japanese motor vehicle

industry, the first such in English. Second, this study of the Japanese

share of the U.S. market provides a comprehensive picture of the extent

of Japanese penetration.

Sub.iect Area and Limitations

There are many ways of approaching the Japanese motor vehicle

industry. This study focuses on the concept of management: that is,

the decision-making process in the industry as well as that process in

the individual companies.

Both external and internal factors affect the management of

companies and also the industry as a whole. One of the most important

of these external factors is government policy. This is especially true

in Japan where the government's role is very influential. From the very

beginning of Japan's modernization and industrialization, the government has undertaken to identify objectives and priorities for the Japanese economy.

It has also sought to facilitate the achievement of these goals. However,

Japanese business is allowed considerable initiative and independence even when subject to administrative guidance. This initiative is facilitated by a variety of governmental aids and incentives.

Internal factors also have significant impact on the success of individual manufacturers. Internal factors include management philosophy, company policies and strategies, and the guidelines of individual com­ panies. One important internal factor is the successful concentration on how to grasp, interpret, and make use of external factors and uncon­ trollable events in the decision-making processes of individual companies in order to attain their objectives. Events such as the Kanto earth­ quake of 1923 and the Korean War (1950-1953) had very important effects on the decisions of managers in this industry.

This study w ill review the impact of such external and internal factors on the Japanese motor vehicle industry and its individual manu­ facturers. It provides a history and analysis of the industry up to

August 15, 1971» when President Nixon announced his new economic policy.

The subsequent development of the industry and its impact on the IJ. S. market after the Nixon statement cannot be examined here in detail, but will be treated briefly in the final chapter of this paper.

Method. Data Used, and Definitions

Both the descriptive and the analytical method w ill be used in this paper. The first method will be employed to review the historical development of the Japanese motor vehicle industry. Since the major 5 concern of this study is the decision-making' processes of management, de­ scriptive review w ill be used in this part of the paper.

In addition, the impact of Japanese motor vehicles on the U.S. mar­ ket will be analyzed. Since our major concern in this section is to deter­ mine whether Toyota and Nissan together have about equaled Volkswagen's penetration of the U.S. market, analytic tools such as forecasting will be used to reveal trends.

As for data, primary and secondary sources in both English and

Japanese w ill be utilized. Interviews also will be used to supplement published information.

The term "motor vehicle" is used here as a comprehensive term which includes passenger cars, buses, trucks, and other four-wheeled vehicles for special purposes, as well as various kinds of three-wheeled motor vehicles. Those vehicles with more than four wheels are also in­ cluded. Motorcycles, on the other hand, are excluded.^

The industry consists primarily of establishments engaged in manufacturing or assembling complete passenger cars, trucks, buses, commercial and special purpose motor vehicles. But it also includes companies prim arily engaged in manufacturing chassis or passenger car bodies.1^ The parts industry—all those establishments primarily engaged in manufacturing motor vehicle parts and accessories—is also counted here. ^ 1 *5

The Japanese motor vehicle industry, therefore, is defined broadly in this study to include both motor vehicles and their parts and accesso­ r i e s . Footnotes

1. World Motor Vehicle Data. 1971. ed. by Jacques J. Evers (Detroit: Motor Vehicle Manufacturers Association of the United States, Inc., 1972), p. 1*. (The data has been rearranged.)

2. Ibid.. pp. 18 and 111;.

3. The third-place ranking of Toyota is based on production in Japan only. If we include all assembled motor vehicles, the world-wide production for Volkswagen in 1971 was 2,160,092 units, while that of Toyota was 1,961,979* This world-wide production also excludes those units produced in communist countries. See Evers, Motor Vehicle Data, pp. 19 and 1+0.

1+. Both Toyota and Nissan have firmly established themselves as large companies in Japan. As far as net income is concerned, Toyota kept third place in. Japanese enterprises for five consecutive years, 1969 through 1969» and second and fourth place in 1961+ and 1970, respect­ ively. Although Nissan is not as prominent as Toyota, it has kept its position within the top ten of Japanese enterprises in terms of net in­ come. See the Yomiuri Nenkan ("Annual") 1972 (Tokyo: Yomiuri Shimbunsha, 1972), p. 939*

9. Evers, Motor Vehicle Data, pp. 1+-9 and 7* (The data has been rearranged.)

6. Yomiuri Nenkan. 1972, p. 927 > and Toyota News. 2 (1970), p. 91. This is also true for the first half of 1971*

7. Evers, Motor Vehicle Data, p. 21.

8. Nihon Jidosha Kaigisho and Nihon Jidosha Shimbunsha eds., Jidosha Nenkan 1972 ("Motor Vehicle Yearbook 1972") (Tokyo: Nihon Jidosha Shimbunsha, 1972), p. 113.

9* Calculated from data in Automotive News 1972 Almanac (Detroit: Automotive News, April ll+, 1972), pp. 10 and 68.

10. "How the Japanese Blitzed the California Auto Market," Forbes. September 19, 1971» P* 29.

11. Keizai Hyoronsha ed., Jidosha Sangyo 1971 ("The Motor Vehicle Industry 1971") (Tokyo: Keizai Hyoronsha, 19715> P* 30.

12. The Japan Economic Review. December 7» 1971» P* 19*

6 7

13. This definition of motor vehicles is more consistent with that of the Standard Industrial Classification than with the (Japanese) Statis­ tical Classification of Commodities for Foreign Trade (Ministry of Finance N otification No. 344 of 196l). The latter is "based on the United Nations Standard International Trade Classification, Revisea, and includes motor­ cycles in the category of motor vehicles.

ll+. See Industry Nos. 3711 and 3713 of SIC.

15. See Industry No. 3714 of SIC. PART I. A REVIEW OF THE HISTORY OF THE JAPANESE MOTOR VEHICLE INDUSTRY CHAPTER I

BACKGROUND AND BEGINNINGS

A. A Brief History of World Motor Vehicles

The history of the motor vehicle can be traced back to the times of Leonardo da Vinci or even as far back as the discovery of the wheel.

But historians usually set 17 69 as the year of its first invention—a

cumbersome steam artillery tractor built by Nicolas Cugnot, a French

army captain, who is remembered as the father of motor vehicles. The mechanical evolution of the modem motor vehicle really began to take

form about one hundred years ago, when European inventors such as Eugene

Langen and Nikolaus August Otto developed the internal combustion engine.

By 1885, Gottlieb Daimler and Karl Benz, working independently, had constructed gasoline powered motor vehicles.

More gasoline motor vehicles were manufactured for trial in Europe

than in the United States, and European motor vehicles were much more

advanced technically during those early years of development. French

Panhard passenger cars were not, for example, greatly different from present-day motor vehicles mechanically. European countries, and France

particularly, were the leaders in the production of motor vehicles until

the early years of the twentieth century.

America's first successful gasoline engine motor vehicle, a single­

cylinder horseless carriage developed by J. Frank Duryea, was in operation

8 9 in 1893* Duryea Motor Wagon Company, organized by Charles E. and

J. Prank Duryea in 189$, was the first American company to make them.

At the beginning of this century, many manufacturers appeared in both Europe and the United States, and motor vehicles came to be mer­ chandised like other goods. The Model T Pord made its first appearance in 1908, and the mass production system was adopted by Henry Pord in

1913, Also, in 1908, William C. Durant organized the General Motors

Corporation of New Jersey. Within a year he had bought out twenty-three manufacturers or associated companies. Motor vehicle production in the

U.S. had an average annual increase of 1+6 percent from 1906 to 1917

Prom World War I to the Depression

Motor vehicles were employed during World War I and their usefulness was recognized. Both passenger cars and trucks became a popular means of transportation during the years from the outbreak of the war to the

Great Panic. Walter P. Chrysler, formerly of Buick and Willys, acquired the Maxwell-Chalmers Company in 1923» and the first passenger car to bear his name was something of a sensation with its 1+-wheel contracting hydraulic brakes and 70 mph p erfo rm an ce.

A gap between the American and the European motor vehicle industry began to open widely, and the United States firmly established itself as the world's center of production. The United States held an average 90 percent of world production during the years from 191b to 1929*^ American manufacturers produced more than five m illion motor vehicles in a year for the first time in 1929» a figure never reached again until 19l|8. All the world was led by the Model T Pord in the period 1915-1930. Inexpensive motor vehicles of good quality were produced from Pord's plants through the mass production system. In the twenties, Pord and General Motors began to 10

invest their capital in various companies in the United Kingdom, Germany,

and Prance.

The European industry had also entered into the mass production

stage in this period. The United Kingdom produced approximately 2lj.0,000

motor vehicles in 1929 > and three manufacturers, Austin Motor Co., Ltd.,

Morris Motor Ltd., and Singer & Co., Ltd. accounted for 75 percent of

the English market. Although Germany had been one of the earliest coun­

tries to develop motor vehicles, it was not until the end of World War I

that the German industry began to develop rapidly. The Daimler-Benz Com­

pany was organized in 1926, and the Mercedes-Benz was designed by Ferdinand

Porsche, who had been active in the field. Production in Germany increased

to 156,000 units in 1929* Italy produced 57,000 units in the peak year

o f 1928, and approximately 50 percent of those produced during the years

from 1922 to 1929 were exported.^-

The Pre-World War II Period

The period from 1930 to 19^+5 may be called the period of competi­

tive selling. A policy of planned obsolescence was adopted by General

Motors, and the styling of motor vehicles became important. The pros­

perous years of the Model T Pord came to an end, and General Motors out­

paced Pord through styling-oriented Chevrolets in 1936 and thereafter.

The United Kingdom became the second largest manufacturing country

after 1930» surpassing Prance. Three French companies, Citroen, Peugeot,

and Renault competed with one another. The German motor vehicle industry grew rapidly after 1933 when H itler took over Germany. During the thirties

Adman Opel AG ranked first in European motor vehicle production. Three companies, Adman Opel AG, Auto Union, and Firma Daimler-Benz AG, accounted for 73*8 percent of the German passenger car market in 1936.^ However, 11

it is important to note that Volkswagen was in a trial stage during this period (until the end of World War II).

Fiat is a combine which began to produce motor vehicles in 1903

and absorbed several other manufacturers. The company produced the 5>00

Topolino which became the typical model passenger car in the Italian m a rk e t.^

The Post-War Period

During World War II, plants in most countries were converted to m ilitary needs and turned out products for m ilitary use. Motor vehicles for civilian use were greatly restricted. When the war was over, priority was given to the reconstruction of motor vehicle industries in European countries to speed overall economic recovery. As a result, in 1950 units were produced beyond the pre-war peak. American manufacturers were re­ converted to fu lfill domestic demand, which had been restricted during th e w ar.

Germany outpaced the United Kingdom and France a,fter World War II, and became the second largest motor vehicle manufacturing country, behind the United States. Rapid development of the Volkswagen was a leading factor in this growth.

One of the notable events in this period (l9i|5-1959) was the merger movement among manufacturers both in European countries and in the United

States. As a result of these mergers, the top three or four manufacturers accounted for 80 to 90 percent of the motor vehicle production in these 7 c o u n trie s .

European manufacturers tried to expand their overseas markets by exporting mn.r.v motor vehicles. Their export ratio to total production 12 was much higher than that of the United States. But American manufac­ turers also expanded their overseas markets through capital participation, and accounted for 60 percent of the world's motor vehicle production in this period.

The Sixties and Thereafter

The period from i 960 to 1971 may be called the period of the new emergence. By 1967 > relatively unnoticed Japan outpaced Germany in pro­ duction and became the second largest motor vehicle producing country in the world, after the United States.

Less developed countries, such as Brazil, have also shown their interest in motor vehicles. They have restricted the import of completed motor vehicles to their countries. Instead, they are trying to assemble motor vehicles *and_ to produce them by themselves.

Although the United States is still holding the lion's share in g the world market ( 31. 7% in 197l)> she is being challenged vigorously both by Japan and by the joint efforts of the European Economic Community, par­ ticularly in the small passenger car market. It is the first of these two challenges that we w ill examine here. But before examining the history of the Japanese motor vehicle industry, it is first necessary to understand the special economic situation of modem Japan (that is, Japan subsequent to the Meiji Restoration of 1868).

B. Japanese Economic Development. 1868-1971

Economic growth as the national objective and a dual economy: these have been the two major features setting apart the Japanese economy from that of Western countries since 1868. 13

Japan was a fairly typical underdeveloped country at the time of the Meiji Restoration. The economy was dominated hy rice agriculture, and industries were largely of the handicraft type catering to local needs. The typical enterprise was small and worked by domestic methods using little wage labor.

From 1868 to World War I

Economic growth became the national objective as a result of the

Meiji Restoration of 1868. The past hundred years have seen the utmost efforts to attain this. The Japanese government and the private sector have played their respective roles in attaining this objective; the govern­ ment has set up economic plans and has guided the private sector, while the private sector has concentrated on a profit-oriented entrepreneurship in cooperation with the Japanese government.

However, Japan has not had a controlled or planned economy like the

U.S.S.R. Governmental targets have to be achieved, therefore, by means of an economic, rather than an outright political mechanism (except during the war period). As a result, implementation required a variety of economic measures, such as monetary and fiscal policies.

The term "dual economy" means the coexistence of a pre-modem or traditional economy and a modem economy in the same country. By a pre­ modem or traditional economy we refer to those sectors which have largely preserved pre-modem techniques and indigenous production methods. On the other hand, the modem economy is largely represented by imported techni­ ques and forms of organization from Western countries.

The Japanese economy may be considered a typical dual economy, since it has more small and medium enterprises than other industrial countries, while at the same time it has developed modem industries comparable to those in advanced countries. (This dual economy was one of the direct causes of Japanese militari..m, which we w ill discuss s h o r t l y . )

The in itia l stage of economic growth (l886-1905>) was prim arily achieved by the accelerated growth of the traditional sector, which also supported the growth of a modem economy. Industrialization made consi­ derable progress in this in itial stage. The modem economy became more independent and capable of growing on its own.

There was an accelerated growth of this modem economy beginning about 1906 and continuing for about a quarter of a century ( 1906- 1930).

Two wars, the Russo-Japanese (l90l±-1905>) and World War I (I91i4-19l8)» contributed to this accelerated economic growth. The former war directly stimulated the development of all modem industry in any way connected with the war effort. Heavy industry began in the real sense during these days, though it was small in scale and mostly confined to the production o f arm s.

The Japanese economy was, however, plagued by a balance of payments problem, because Japan needed to import raw m aterials and machinery for economic growth, especially after its modem industry found an export market abroad. This chronic economic weakness was wiped out by World

War I. Exports expanded even more rapidly than the growing import re­ quirements, and this favorable condition continued for six years, from

1911+ to 1919 inclusive.

Japanese M ilitarism

After World War I, the Japanese found themselves in a situation where the international market was a highly competitive one. Business 15

leaders saw clearly that they would have to he more efficient in order to

survive. Japan realized that I'he should maintain a high level of invest­

ment, and that improved technology should be adopted. The zaibatsu played

a significant role in implementing these tasks, and the power of the

zaibatsu greatly increased.

The zaibatsu are Japan's great business combines which are controlled

by a few families. They keep tightly controlled relationships among the

affiliated firms by means of holding companies, interlocking directorships,

and mutual stockholdings. They also have large financial power in the form

of commercial bank credit.

All the methods of rationalization for the increase of efficiency were

concentrated on modem industry. The traditional economy was neglected by

policy makers after World War I. This neglect widened the gap between the

modem and the traditional sectors, perpetuating a deep cleavage in Japanese

economic life. This had a crucial influence on the subsequent history of Japan.

Beginning about 1931 > the Japanese economy became a field for political

action, a result of the antagonism between the traditional and the modem

economy in Japan. More specifically, Japan in the pre-World War II era was

characterized by an antagonism between the m ilitarists who were more sympathetic

to the traditional economy, and the zaibatsu which represented the modem

economy.

Japan had decided to follow a policy of m ilitary expansion under the

influence of the Japanese m ilitarists, who played a significant role in

Japanese politics by the late twenties. Once the decision was made,

the growth of the economy was stepped up, while the standard of living

of the mass of the Japanese people did not maintain the pace. M ilitary

expenditures became gigantic in order to fight in Manchuria, Inner

Mongolia, China, and to prepare for World War II. The armament industry 16 and associated heavy industries were the leading sectors in this growth.

The newly established zaibatsu (shinko zaibatsu) were encouraged to emerge during this period of wartime system simply because the Japanese m ilitarists did not like the old zaibatsu. Nippon Sangyo Kabushiki Kaisha (Nissan) is an example of a shinko zaibatsu which emerged in this period.

The militarism which controlled Japan from the early thirties ended between lS$2-l^Sk‘ Japan recovered her independence, and most of the abnormal influences of war and occupation disappeared. The Japanese economy has expanded at an average annual rate of more than nine percent since the m id-fifties.

Post-Vorld War II Japan

It is, of course, true that there are many factors behind the high rate of growth in the postwar Japanese e c o n o m y9 . However, private in­ vestment has been a very important contributing force. The main incentive to heavy investment is profit maximization, and profits were very high in the postwar stage because both domestic and foreign demand was strong, productivity was rising, and wages were lagging behind productivity. The heavy investment may also be explained by the Japanese effort to catch up with advanced technology. Japanese industry, due to the war, had been isolated for more than a decade, and great opportunities existed to reduce rapidly a technological gap. Japanese enterprises invested a great amount of money to raise their technological level. The postwar period (l9£i+-1969) may be described as a period of great expansion under favorable conditions.

Prom 1970 on, Japan has been a welfare oriented state. By this we mean that the welfare of the individual Japanese is as important as the collective objective of either the nation as a whole or a particular corporation. This is the beginning of the second industrial revolution 17

for Japan. The main task of this revolution is to transform Japan into

a developed country in the true sense. Per capita income is scheduled

to go up to the level of the most advanced countries, such as the United

States; the consumption of consumer goods is scheduled to be as high as 10 that in the high mass-consumption stage of W. Eostow's definition. At

the same time, investment in social overhead w ill be given more urgent priority for the welfare of the individual Japanese. Increasingly large

sums are to be channelled into private and public housing for this most

shabbily housed of all the great industrial nations, and into roads, 11 bridges, schools, hospitals, and other needed facilities. It is within

this economic context that the Japanese motor vehicle industry developed,

and only in relation to it can its history be understood.

C. Origins of the Japanese Motor Vehicle Industry

Since the first motor vehicle arrived in 1899 > the Japanese have attempted to manufacture them in Japan. Such attempts were made by indi­ viduals, established firms, shipyards, and by m ilitary authorities for various objectives.

Those individuals who were daring enough to construct motor vehicles manufactured them with meager tools and mainly because they received orders to do so. The first, an omnibus, was manufactured by Torao Yamaba in 1901+.

It was ordered by two Japanese who were interested in opening a bus route

in t h e i r home town.

Most of the individual pioneers put together one or two motor vehicles and then gave up because they realized that it was almost impossible

for them to manufacture motor vehicles by individual efforts without suffi­ cient capital and to produce enough earnings to continue their work. 18

Some Japanese established firms to manufacture motor vehicles as a business enterprise. The first passenger car was ordered in 1905 from

Komanosuke Uchiyama, who was an engineer of Tokyo Motor Works (Tokyo

Jidosha Seisakujo), by a member of the royal family in Japan; it was completed in two years. About seventeen Takuris (see Appendix I) were made by the works. Shintaro Yoshida was the sole proprietor of the works.

In 1911, Tokyo Motor Works, Ltd. (Kabushiki Kaisha Tokyo Jidosha

Seisakujo) brought out Tokyo-Car in cooperation with Mr. Kunisue and eight other Japanese. The Tokyo-Car was one of the first Japanese passenger cars of record to be powered by a four-cylinder engine.

Masujiro Hashimoto, with three other partners, formed Kaishinsha

Motor Co., Ltd. (Kaishinsha) in 1911 and began to produce BAT (see

Appendix i) passenger cars.

Hakuyosha Motor Co., Ltd. (Hakuyosha) was established by Junya

Toyokawa in 1921 to manufacture small passenger cars of Otomo. His business was a promising one because he had the financial backing of his father, one of the top executives of the Mitsui zaibatsu, and because he established a sound business policy (see Appendix i). He manufactured 250 motor vehicles between 1921 and the 1923 Kanto Earthquake, and even exported two Otomos to Hong Kong and Shanghai, China, respectively, in 1923*

A few businessmen who became m illionaires during World War I established Jitsuyo Motor Co., Ltd. (Jitsuyo Jidosha Kabushiki Kaisha) to manufacture Gorham's three-wheeled passenger c a r s ,-*-3 and they established a production strategy to produce 50 motor vehicles monthly.

None of those companies which manufactured motor vehicles could keep producing them because of financial difficulties; that is, they failed to produce enough profits to continue their business. J. Toyokawa was 19 also unfortunate because the catastrophe of the Kanto Earthquake of 1923

(see Section D) forced him to close his business.

The shipbuilding business was the most advanced in the machinery industry in Japan around World War I. The companies realized great earnings during the war and tried to diversify their business after the war to overcome the recession which ensued. The motor vehicle manufacturing business was considered the most desirable one for them because shipbuilders produced motors and machine tools for their shipbuilding business which could be used for motor vehicle manufacturing.

Some shipyards such as the Kobe Shipyard of Mitsubishi Shipbuilding, the Tokyo Ishikawajima Shipyard, and the Kawasaki Shipyard began to manu­ facture passenger cars and trucks in 1916. The Tokyo Ishikawajima Ship­ yard instituted a policy of technical cooperation with foreign manufacturers because the company had no previous experience in manufacturing motor vehicles. Thus, the shipyard had a contract with Wolseley Motors of the

United Kingdom.

Like the previous motor vehicle manufacturing firms, these shipyards too failed to earn profits because their unit production cost was too high.

While imported American Buicks and Hudsons were sold at 6,000 to 7,000 yen each ($2,700 to $3»200 in 1917 dollars) the production cost of Japanese- made Wolseleys was more than 10,000 yen (ftl+^OO).1^ One of the reasons for this high production cost was that the number of units produced was very sm a ll.

The Japanese Imperial Army began their study of motor vehicles in

1907* After investigating various European trucks, both Osaka and Tokyo

M ilitary Arsenals began to produce trucks after the German model. The Army decided that the quality of these home-made trucks was not inferior to foreign trucks. 20

In 1912, the Army Technical Evaluation Section decided to use motor vehicles as a supplementary means of transportation for the field army, and the M ilitary Motor Vehicle Evaluation Committee was formed.

The Committee recommended to the Army that it was not a wise policy to keep many motor vehicles in time of peace because of the expense, de­ preciation, and the complexity of manufacturing motor vehicles. As a result, the policy of developing civilian motor vehicle manufacturers was adopted with the stipulation that the Army could requisition the needed motor vehicles in times of war or national emergency. The policy was formulated in the M ilitary Motor Vehicle Subsidy Act of 1918 (see

Append ix I I ).

The Japanese Imperial Army influenced the development of the industry by encouraging manufacturers to produce more trucks than passenger cars.

Tokyo Gas & E lectric Co., Ltd. (Tokyo Gas Denki Kogyo Kaisha) became the first company to produce m ilitary subsidy T.G.E. trucks, in

1918, and established itself firmly as a m ilitary subsidy motor vehicle manufacturer from 1918 to 1931 > when the Subsidy Act was suspended by the Japanese government's desire to achieve industry independence.

The Motor Vehicle Division of the Ishikawajima Shipyard was sold to Masao Shibusawa because the Division incurred losses. It became an independent business entity in 1929 as Ishikawajima Motor Works, Ltd.

(Kabushiki Kaisha Ishikawajima Jidosha Seisakujo). The company became the first manufacturer to have a comprehensive business policy of manage­ ment. For example:

1. Large amounts of capital should be provided.

2. Technical know-how should be utilized from advanced countries rather than developed from within. 21

3. A subcontract system should be developed to get satisfactory parts.

Capital financing was provided through the banks of Daiichi and

Mitsui. With the technical cooperation of Wolseley of Great Britian,

the company manufactured motor vehicles both for m ilitary and civilian use. The company also had contracts with subcontractors. Due to the

expansion of its business it became the first to form a capitalistic

business enterprise in this industry.

This two-decade period (1901+-1923) of the emerging Japanese motor

vehicle industry was characterized by the following factors:

1. Manufacturers during this period were mostly inventors and did not expect the manufacture of motor vehicles to be their lifelong business enterprise. They closed their shops after producing just one or two at best, with a small amount of capital. After recognizing the fact that huge capital was required even for the manu­ facture of test vehicles, and that their handicraft­ like skills could not cope with the technical know-how required to produce them, most dropped out of the b u s in e s s .

2. Many inventor-manufacturers did not want to, or could not, obtain more advanced technology from Western c o u n trie s .

3. The small passenger cars manufactured in Japan could not compete effectively with more luxurious foreign passenger cars with chauffeurs. Since passenger cars were considered as a symbol of pres­ tige, many wealthy Japanese did not want to buy small passenger cars.

4. The parts industry and related industries were in an infant stage or not developed enough to satisfy the motor vehicle industry.

5>. Some companies had succeeded in manufacturing a relatively large number of units for a given period. They could do it because they arranged for capital from either the commercial capitalists who became m illionaires during World War I, or key persons in the financial world. Some succeeded because they 22

acquired the knowledge of running a modem factory system, or produced retained earnings by running repair shops.

The role of importers in the Japanese motor vehicle industry was very significant in the sense that they introduced motor vehicles and promoted them to the Japanese people. Both Japanese and Western business­ men engaged in the business of imports. These were handled on a con­ signment basis. Later, Japanese importers began to have direct contracts with manufacturers in Western countries. At the end of the Meiji era

(1912), there were 23 importers of motor vehicles; 13 Japanese companies and 10 foreign ones. They operated in Tokyo (11+), Yokohama ( 7), Osaka (l), and Kobe (l).1^ In 1921, there were approximately 20 Japanese companies 16 which imported motor vehicles directly from Western manufacturers.

Imports from the United States increased rapidly during World War I and outnumbered imports from Europe to a great extent . ^ Although imports from European countries increased after World War I, the United States recaptured the dominant position in the Japanese market after the Kanto

Earthquake of 1923 when General Motors and Ford established assembly plants in Japan.

D. General Motors and Ford Assembly in Japan

The Great Earthquake of 1923

The Kanto Earthquake of September 1, 1923» greatly damaged Tokyo,

Yokohama, and neighboring areas. More than one hundred thousand persons were killed or declared missing. More than fifty thousand houses were destroyed, and three hundred thousand houses burned. All telegram, telephone, electricity, and railroad service in the area was destroyed.

However, railroad service was partially restored only three weeks after the earthquake. 23

The earthquake had two effects on the emergent industry: all three

plants, Ishikawajima, Tokyo Gas & Electric, and Kaishinsha, were destroyed;

and one thousand Ford Model T truck chassis^ were ordered to improve the

transportation problem of Tokyo. This opened an opportunity for motor

vehicle manufacturers of the United States to exploit the Japanese market.

As the railway between Tokyo and Yokohama was destroyed by the

earthquake, ships were sent to Shibusawa and cargoes were collected and un­

loaded there. For this purpose trucks were utilized. Several thousand

trucks passed through Shibusawa to load cargo every day. The effective­

ness of transportation through motor vehicles (trucks in this case) was

soon widely recognized by the Japanese. As a result, the development of

motor vehicle transportation exceeded expectations. There was an increased

registration in Japan, with 12,76^ units in 1923* and 22+,333 units in the

next year. In Tokyo, the units of motor vehicles more than tripled

in 1926 from the approximately Ij.,000 motor vehicles in 1921. ^

One of the most important influences of the Great Earthquake was

that European motor vehicles were replaced almost entirely by American

makes. The French Citroen was the only survivor among European motor

v e h ic le s .

General Motors and Ford in Japan

Henry Ford, Sr. paid little attention to Japan as a foothold

for the Asian market. Rather, he considered China as the main target

m ark et.

Up to 1923, the Sale Frazer Company had handled Ford vehicles in

Japan, while the Yanase Shop (Yanase Shokai) had a contract with General

Motors. Heither of the American companies had their staff visit Japan.

However, Henry Ford changed his Asian policy after he reviewed the report 2k of his staff members who were then sent to Japan to investigate the Japanese market. Ford Motor Co. of Japan was established in Yokohama^ in December,

1921+ to assemble trucks and passenger cars with a capital of four million yen ($1.68 m illion). The capital was increased to eight million yen

($3*68 m illion) in 1929 to compete with General Motors Japan.

General Motors, on the other hand, set up General Motors Japan

Limited in Osaka in December, 1929 > with a capital of eight m illion yen

($3.2 m illion).^ General Motors Japan began its assembly work of Chevro­ let trucks and passenger cars on April 19, 1926. The policy of General

Motors Japan was expressed by Mr. Van Wallace, the Executive Director, at the opening ceremony of the company as follows:

General Motors established General Motors Japan Limited to spread motor vehicles in Japan. Nobody can argue the convenience of motor vehicles. Today, we are opening our company with the blessings of the officials of the Japa­ nese government as well as the general citizens. Tomorrow, the Japanese people w ill, I am sure, thank us. However, General Motors is merely playing a role to open a road for Japanese businessmen. Our business has permission to continue for four years. During these years, there w ill be many motor vehicles in Japan, and there will also be some Japanese businessmen who plan to manufac­ ture meter vehicles. When that day comes, we will trans­ fer our business to them gladly.^3

These two companies were 100 percent American-owned business con­ cerns. One of the important advantages for the establishment of their assembly plants in Japan was the low tariff rates in those days. Duties on motor vehicles were levied at an ad valorem tariff rate of 90 p e rc e n t, and on motor vehicle parts at 30 percent. It is estimated that approxi­ mately 290,000 units were assembled by both Ford and General Motors from the time they launched their business until they were forced to close out their plants in 1939- ^ 25

The two giants also competed against each other in Japan. General

Motors called its products the Popular-Car, while Ford named its products the Economy-Car. Hence these were called the Popular-Economy cars. When

Ford discontinued production of the Model T and instead produced the Model

A, Ford Japan was forced to suspend its business for one year. Grasping this chance, General Motors disrupted the distribution networks of Ford

Japan. As a result, many Ford dealers switched to General Motors Japan.

This event gave General Motors an opportunity to establish its base firmly in Japan.

Ford Japan and General Motors Japan shared approximately 90 percent of the Japanese market until 193b, but they dropped to 75*6 percent in 1936 after the enactment of the Motor Vehicle Business Act of 1936.

Reaction of the Japanese

Japan, in general, welcomed the two American giants operating in

Japan. They welcomed them on the grounds that under the free trade system, it was not a wise policy to manufacture expensive motor vehicles at home. Rather, Japan would benefit if she bought inexpensive motor vehicles through the competition of foreign manufacturers.

Many Japanese recognized the benefits which they reaped from both

Ford and General Motors. Japanese workers became more skillful through working in these assembly plants. In other words, they were taught modern factory methods and the details of the mass production system.

General Motors Japan also established a school to train those Japanese workers who desired to become mechanics (urgently needed in those days in J a p a n ).

Apart from technical know-how, the Japanese people also appreciated the material benefits which both companies brought. Many parts were bought locally: tires, batteries, upholstery, glass, rubber equipment, and other materials produced in Japan. In the case of General Motors, 6,318,533 yen

($3,120,000) was paid out in Japan in 1930 for various materials and supplies, transport and communication services, wages, custom duties and taxes. More­ over, General Motors added approximately 10 million yen ($5 m illion) worth of products to the Japanese export market in other Asian countries.^

However, the Japanese, including the Ministry of Commerce and

Industry, felt uneasy and surprised at the fact that the amount of imports for the related goods of the industry increased tremendously every year and led to an unfavorable balance of trade, and that Eord and General Motors eventually dominated the Japanese industry. As Table 1 shows, the Japanese- made units had never been more than six percent of the total Japanese mar­ ket during six years from 1929 to 1934, except in 1933*

TABLE 1

IMPORTED MOTOR VEHICLES AND JAPANESE-MADE MOTOR VEHICLES

Imported motor vehicles (A) Japanese-made Year Completed motor Assembled motor motor vehicles B/A v e h ic le s v e h ic le s (B)

1929 5,018 29,338 437 .012 1930 2,591 19,678 458 .020 1931 1,887 20,109 436 .020 1932 997 lLj.,082 880 .058 1933 431 15,082 1,681 .108 1934 896 33,i+58 2,247 .007

Source: Katsumi Kodaira, Jidosha ("Motor Vehicles") (Tokyo: Aki Shobo, 1968) , p . 8.

As a result of this situation, the "Produce and Buy Japanese

Movement" arose to correct the unfavorable balance of trade. This move­ ment was, of course, closely related to the Japanese politics and militarism 27 of those days. Mir. J. Inouye, the Finance M inister of the Hamaguchi

Cabinet urged the lowering of m ilitary and naval expenditure to keep balanced budgets, which he had long advocated. The proposal met with bitter opposition from the m ilitary groups. At the same time, the de­ flationary measures of the Minseito Government made the peasantry uneasy.

This unrest of the peasantry was communicated to the army, largely recruited from that source, and the m ilitary made plans to reassert the authority they had lost during the twenties. Those Japanese politicians who were more sympathetic to the army and Japanese militarism raised the question of the unfavorable balance of trade which had to be solved.

The Japanese government established the Japanese Industry Promotion

Committee and the M inister of Commerce and Industry ordered a study^0 on the "Policy of Establishment of the Motor Vehicle Industry" on September 25,

1929. The Study Committee^? was formed in June, 1931 > a*1*! finally the

Cabinet Statement was announced on August 9> 1935. A summary of the statement is as follows:

The Japanese motor vehicle industry is still in a position inferior to Western countries. It is dangerous to depend on other countries for the supply of motor vehicles which are extremely important for national defense and our economy. As a result, it is urgent to establish the Japanese industry in the shortest period.

This statement became the preliminary arrangement for the Motor

Vehicle Manufacturing Business Act of May 29, 193& which was intended to restrict foreign manufacturing in Japan and to develop the Japanese in d u s try .

The first step in this development was to urge the merger of existing companies. The total capital of the three existing companies was 5>965»000 yen ($2.9 m illion) and s till this amount was smaller than 28 either Ford or General Motors in Japan. It was irrational, the Japanese argued, to have too little capital and poor facilities for producing motor vehicles in Japan, as anywhere else. As a result, there was a movement

to merge the three companies, Tokyo Gas & E lectric, DAT, and Ishikawajima.

In 1932, these three companies established, as a first measure, the

Japanese-made Motor Vehicle Cooperative which was to act as a coordinator

for manufacturing orders and subsidies. However, the cooperative did not

function well, as not one of the companies showed any enthusiasm for

cooperation.

After the Manchurian Incident of September, 1931» a new movement

for the promulgation of Japanese-made motor vehicles was started afresh.

Three zaibatsu, M itsubishi, M itsui, and Sumitomo were urged by the Japanese government to participate more positively to produce units in Japan, in addition to the already existing companies.

At a decisive meeting held on September 21, 1932, at the official residence of the M inister of Commerce and Industry, Mitsui and Sumitomo made

it clear that they had no intention of participating in the motor vehicle business. These zaibatsu firms did not wish to manufacture them for two reaso n s s

1. They did not want to risk the huge capital required for motor vehicle manufacture.

2. There were already giant assembly plants of General Motors and Ford in Japan.

Only Mitsubishi agreed to produce heavy motor vehicles within a limited

time period.

In the next chapter, we w ill discuss the impact of Japanese Militarism on the growth of the Japanese motor vehicle industry. Footnotes

1. Evers, Motor Vehicle Data, p. 3.

2 . Loc. c i t .

3. George Maxcy, "The Motor Industry," in The Effects of Mergers, ed. by P. Lesley Cook (London: George Allen & Unwin, Ltd., 1908), p. 365*

Ij.. Hiroshi Okumura, Junichi Hosikawa, and Kazuo Matsui, Jidosha Kogyoron ("The Motor Vehicle Industry") (Tokyo: Toyo Keizai Shimbunsha, 1967), p. 51.

5. I b id . . p . kS-

6. The Complete Encyclopedia of Motorcars 1883-1968 (New York: George Rainbird, Ltd., 1968), p. 221.

7. Evers, Motor Vehicle Data, pp. 26-III 4., p assim .

8. I b id . . p . I4., and c a lc u la te d .

9. Miyohei Shinohara, Structural Changes in Japan's Economic Development (Tokyo: Kinokuniya Bookstore Co., Ltd., 1970), pp. 8-33.

10. W. ¥. Rostow, The Stages of Economic Growth. (2nd ed.; Cambridge: Cambridge University Press, 1971)> pp. 10-11.

11. The Washington Post. November 1, 1972, p. CIO.

12. In 1900 an electric passenger car was donated by the Japanese residents of San Francisco for the celebration of the royal marriage of the Prince who later became the Emperor Taisho. However, the Progress, an electric three-wheeled U.S. passenger car appeared in Japan in October, 1899* This should be considered the first because three-wheeled motor vehicles are classified as motor vehicles according to the amendment of the Motor Vehicle Regulation Law of the M inistry of Home Affairs in 1933*

13. William R. Gorham, an American residing in Yokohama, produced a three-wheeled passenger test car in 1917 * It was well received by the Japanese in those days.

II4. Isuzu Jidosha KK., Isuzu Jidoshashi ("History of Isuzu Motors") (Tokyo: The Editorial Committee of the History of Isuzu Motors, 1997)» p. 26.

15. Masahisa Ozaki, Jidosha Nihonshi ("History of Japanese Motor Vehicles"), (2 vols.; Tokyo: Jikensha, 1955)» I» P» 65.

29 30

16. Ibid., p. 100.

17. U.S. Department of Commerce, Bureau of Foreign and Domestic Commerce, Japan as an Automotive Market, by William I. Irvin. Special Agents Series-No, 217 (Washington, D.C.: Government Printing Office, 1922), p . 40.

18. Prank Lloyd Wright, The Imperial Hotel, by Cary James (Rutland, Vt. and Tokyo: Charles E. Tuttle Company, 1968), p. 1+5, and Kihuo Honda, Dai Toshi Hokai no Toki ("When a Great City is Destroyed") (Tokyo: Looksha, 1 9 6 9 ). p p . 159-69. pass'im. and p . 173.

19. There were definite reasons why the City of Tokyo ordered trucks from Ford. American motor vehicles could be brought into Japan within three months regardless of the number of units ordered, while European motor vehicles took at least six months. Another reason was price. The price of American motor vehicles was JO to 1*0 percent lower than the European motor vehicles, and of all U.S. truck chassis Ford was the least expensive.

20. Katsumi Kodaira, Jidosha ("Motor Vehicles") (Tokyo: Aki Shobo, 1968), pp. 57-38.

21. Ford Motor Company Japan set up an assembly plant in Yokohama because it was one of the most convenient areas from the United States and close to the City of Tokyo, the largest market in Japan. Four months after the company was established, its assembly plant started operating with a conveyor system. The first assembly plant was set up in the warehouse of the Yokohama Dock Company. It had a work area of 39,050 square feet on two acres of land. After Ford Japan was established, the import right of the Sale Frazer Co. was absorbed by it. Major equipment and facilities of the assembly plant were as follows: a chassis assembly line; a parts room; a body factory; a transformer room; a body drier; an electric welding machine; a grease washer; a grease burner; a material stock warehouse; a gasoline and lubricant supply facility; a conveyance system of assembled motor vehicles to dealers; showrooms; and a repair school.

22. When a plan for the establishment of General Motors Japan was being considered, the City of Osaka offered General Motors the best terms for establishing an assembly plant in Japan. Citizens of Osaka planned to have a Detroit in their city. General Motors Japan was exempted from paying city taxes for four years, and many other benefits in obtaining a plant site and other facilities were provided by the city.

23. Ozaki, Jidosha Nihonshi. I., p. 132 (my t r a n s l a t i o n ) .

2i+. According to the data of Nihon Jidosha Kaigisho, 21+2,987 units were assembled in Japan from 1929 to 1938. General Motors assembled l+,300 in 1939. It is not known how many Ford motor vehicles were assembled in 1939 or before 1929*

25. The Japanese Empire. 1932 (Tokyo: The Japan Times, 193l)> P* 178. 31

26. The recommendations of the Committee are as follows:

1. Trucks and buses should be produced. 2. Five thousand units should be produced annually. 3. Manufacturing methods should depend on the division of labor principle, standardization should be established, and manufacturing factories and related plants should be under systematic control. I4. Existing facilities and experiences should be effectively utilized. £. Government should set up a protective policy for the development of the Japanese industry and special con­ sideration should be given to encouraging the use of Japanese-made motor vehicles.

27. The Committee was composed of eighteen regular members and one temporary member, with eight secretariats. Regular members were: two university professors, thirteen government officials of the m inistries of: Home Affairs ( 2) , F in an ce ( 2 ) , Army ( 3) , Commerce and In d u s try ( l ) , Railway (I*), and other (l), and three from the industry.

28. Ozaki, Jidosha Nihonshi. I, pp. 333~38. CHAPTER II

THE PERIOD OP JAPANESE MILITARISM

A. Restriction on Foreign Manufacturers by Japanese .Militarists

Motor Vehicle Manufacturing Business Act

The Ministry of Commerce and Industry began to prepare a secret

draft for a Motor Vehicle Manufacturing Business Act around the time

of the Cabinet Statement of August 9> 1935 • Mr* Nobusuke Kishi, who became the Prime Minister of Japan after World War II, was responsible

for this draft on the part of the Ministry of Commerce and Industry.

One of the ultimate objectives of the Act was to restrict severely the

assembly of Fords and Chevrolets in Japan. This was expressed in the

law implicitly (see Appendix III).

In the winter of 1935 > the officials of the Ministry of Commerce

and Industry discussed the draft with the army authorities, and they

tried to establish licensed motor vehicle manufacturing companies.

They invited Jidosha Kogyo KK. (KK. is an abbreviation of Kabushiki Kaisha

& Co. Ltd.) and the Tokyo Gas & Electric Co., Ltd. to investigate the possibility of producing 6,000 to 8,000 units annually, but both companies rejected the idea. Disappointed by this refusal, they discussed the pro­ blem with Yoshisuke Aikawa of Nissan and they were refused again by him.'*'

Finally, they invited the two great zaibatsu of Mitsui and Mitsubishi, both of whom had a contentious relationship with the army authorities,

32 33 and they were flatly refused as might have been anticipated.

Reaction of Ford and General Motors

Both General Motors and Ford were keenly aware of the national­ istic movement in Japan. Whan the three company merger took place in

1932, R. A. May, the Executive Director of General Motors Japan suggested unofficially that General Motors wished to join the merger. Mr. Aikawa of Nissan grasped this chance and proposed the purchase of General Motors

Japan. Negotiations went smoothly. However, General Motors Japan stipulated an ownership of $1 percent of the concern. Finally, it conceded to Nissan 01 percent ownership, and a provisional signature was given on April 18, 193h> However, the final settlement was suspended because General Motors Japan could not send the payment to the United

States under the Exchange Control Order of Japan. In the meantime,

General Motors Japan became a licensed company in September, 1936, under the Motor Vehicle Manufacturing Business Act. The company again proposed a technical tie-in with Toyoda Automatic Loom Works, but was rejected by

Kiichiro Toyoda, the founder of Toyota Motor Company.

The strategy of General Motors in those hazardous years (from the Manchurian Incident of 1931 to 1938) was carefully established as fo llo w s :

Thus a war history of the Japanese plant must go back to its inception; no General Motors plant overseas has experienced a longer period of operation under wartime conditions than the one at Osaka. In the realization that anything could happen under the conditions prevailing, General Motors activities in Japan were always conducted with the deliberate objective of developing the market to the maximum on an a b s o lu te minimum o f f ix e d in v e stm e n t and w ith the greatest possible liquidity of working capital. Recogni­ tion of hazards existing led, at the very outset, to the con­ version and use of leased buildings on leased property to 3k

suit the local assembly program. The entire organiza­ tion expense was absorbed in the first year's operation, and extraordinary write-offs against early profits soon put the plant in a position to close down and withdraw from the market on short notice without substantial l o s s . 2

General Motors tried every measure to postpone the ultimate day of total e x c lu sio n .

On the other hand, Ford Japan insisted that it would assemble motor vehicles by itself alone. However, anticipating the Motor Vehicle

Manufacturing Business Act, the company proposed the following plan to the Japanese government in November, 1933>:

a. The capital of Ford Motor Co. of Japan would be increased to 16 million yen ($1+,572,000). All the increased capital should come from Japanese Ford d e a le r s .

b. A Ford manufacturing plant would be established in Yokohama and completely Japanese Fords would be pro­ duced within a few years. However, Ford would exer­ cise management until they were produced completely in Ja p a n .

The purchase of 32 acres of land for a Ford plant was unsuccessful because the Japanese army authorities were against it. However, both the Ministry of Commerce and Industry and the M inistry of the Army agreed to transfer another lot to Ford Japan in 1936 because they could not stop a legal purchase and the establishment of a factory. Meanwhile, Ford

Japan hastened to get the vested right, and the company became a licensed company. But the Japanese authorities continually postponed giving per­ mission to establish a Ford plant. At this point, the American Embassy in Japan intervened.

The Motor Vehicle Manufacturing Business Act was proclaimed a day before the Japanese authorities expected the permit for Ford Japan 35

to purchase a factory site. After the Act was passed, Ford Japan was restricted in its assembly to 12,360 units annually.

It was a difficult task to keep out of Japan those Fords and

Chevrolets which had dominated the market. Import duties were raised to 70 percent from 50 percent for motor vehicles, and higher specific

duties were imposed for parts, as a restrictive m e a s u r e .^ As a result of this, plus complete exchange control, assembled units of both

Ford and General Motors decreased gradually until they were forced to suspend all assembly in 1939*

In summary, the policy of the expulsion of Ford and General

Motors from Japan was based on m ilitaristic nationalism. However, some

Japanese raised the question of whether this policy was good for Japan.

And some of them even argued that the establishment of the Japanese motor vehicle industry would have been accomplished faster and more firmly if they had permitted Ford Japan to have a manufacturing plant and had utilized the technical know-how of the company. It was one of the most urgent needs for the Japanese to obtain rapid and complete experience in making motor vehicles, even if Ford exercised management.

They argued again that the fundamental objective of the Motor Vehicle

Manufacturing Business Act was to manufacture motor vehicles in Japan by the Japanese, and this could not be done unless they acquired the necessary skills from more advanced countries such as the United States. However, all these arguments and rationale could not have any merit under the sword of the Japanese m ilitarists.

B. Growth of Toyota. Nissan, and Other Motor Vehicle Manufacturers

Growth of Toyota Motor Co.. Ltd.

Sakichi Toyoda was an inventor and entrepreneur in the Japanese 36 automatic loom and textile business. He received 81+ patents and 33 new design registrations in Japan, and 33 patents from more than ten countries around the world. ^ He devoted almost forty-five years to the improvement of the automatic loom, and around the mid-twenties his products were thought to be among the best in the world.

In 1929 Toyoda transferred one of his patents to Platt Brothers of Oldham, Great B ritain, for which he received one m illion yen ($1^60,000) as a royalty. He gave the money to his son, Kiichiro, to put in a research fund for motor vehicle manufacturing. And his w ill to his son read like this: "I have contributed to my country through the loom, and you should contribute to her through motor vehicles. This was in 1930*

In 1931 Kiichiro Toyoda manufactured a four-horsepower test engine modeled after a Smith motor. This was the start of his lifelong activity with motor vehicles. During the fact-finding period, he raised some basic questions about motor vehicles in Japan. After he met Prof. £ Kazuo Kumabe, a temporary member of the Study Committee for the Estab­ lishment of the Motor Vehicle Industry, his classmate and joint-w riter of their graduation thesis, both developed fundamental questions for the

Japanese motor vehicle industry.

After consulting some more persons, Kiichiro Toyoda developed a tentative solution for the manufacture of motor vehicles:

1. Engines should be fuel-economized. Prom this point of view, Chevrolet engines fitted Japanese motor vehicles b e s t.

2. Chassis and bodies should be strong. As there were many unpaved roads in Japan, motor vehicles should be strong rather than elegant. Fords were good examples of this. 37

3. Prices should be low. Both General Motors and Ford sold their motor vehicles at comparatively low prices.

The executives of the Toyoda Automatic Loom Works met in

September, 1933, passed a resolution to manufacture motor vehicles as a new business line in accordance with the w ill of Sakichi Toyoda.

At that meeting, many executives were against the proposal to enter this new business. They insisted that even the great giants, Mitsui and

Sumitomo, refused to produce them. However, this problem was settled by one sentences "This is the w ill of Sakichi Toyoda." A factory was set up on a site of the Toyoda Automatic Loom Works, Ltd. in the City of Kariya in March, 193^+* Kiichiro Toyoda began to produce test motor v e h ic le s .

In manufacturing three test units, Toyoda spent 1+.8 million yen

($1,1+16,000). This was well over one m illion yen ($295,000 in 1934), the amount of the gift royalty. To make things worse, the test motor vehicles had an unfavorable reception. The executives of the Toyoda

Automatic Loom Works sank into deep depression. And many of them insisted, "We cannot destroy our company because of motor vehicles."7

The problem was settled by a meeting of top executives which has been described as follows:

Automatic Loom has had dividends of 100 percent. We are still capable of maintaining a high rate of dividends. We can not betray the w ill of Mir. Sakichi Toyoda. Dividends should be decreased, and the undistributed dividends should be invested in motor v e h i c l e s . ^

In those days the army authorities were upset by the refusal of the existing companies and the two zaibatsu firms to manufacture motor vehicles. As a last resort, they planned to establish a publicly-owned 38 national company. Just at that time, they learned that the Toyoda

Automatic Loom Works, Ltd. had a plan to establish a company. Without hesitation, the army authorities approached Kiichiro Toyoda; they were pleased with his plan.

Toyota and Nissan Motor Co., Ltd. became the first licensed

Japanese motor vehicle manufacturing companies on September 22, 1936.

At the end of 1935 j Toyota purchased approximately i +89 a c re s in Koromo

City, near Nagoya, to build a plant. It was finished in November, 1938.^

The Motor Vehicle Division of Toyoda Automatic Loom Works, Ltd. became an independent entity and was named Toyota Motor Co., Ltd. on August 22,

1937, with a capital of 12 million yen ($3,5-56,000).

After both Toyota and Nissan were appointed as licensed companies, both zaibatsu of Mitsui and Mitsubishi tried to participate directly in the program of manufacturing. However, the army authorities turned down their proposals, in turn, and recommended instead that Mitsui participate in Toyota by investing 20 million yen ($5.76 m illion).

The units produced by Toyota Motor increased year by year, except during the latter period of World War II, and in the peak year of 1914-2 the company produced 16,302 units.-*-® During World War II, Toyota Motor was mobilized to produce aircraft engines.

Growth of Nissan Motor Co.. Ltd.

The Motor Vehicle Division of the Tobata Casting Company became an independent entity, and was incorporated as the Motor Vehicle Manu­ facturing Co., Ltd. (Jidosha Seizo Kabushiki Kaisha) with a capital of five million yen ($1.11 million) on December 28, 1933° In June, 1931+* the company changed its name to Nissan Motor Co., Ltd. (Nissan Jidosha 39

Kabushiki Kaisha) with an increased capital of ten million yen ($2.95

million in 193h) j and began to produce the Datsun,a small passenger

c a r .

The rise of the Nippon Industries, Ltd. (Nippon Sangyo Kabushiki

Kaisha), which was the holding company of Nissan Motor Co., Ltd., was

controlled by Yoshisuke Aikawa. He was tied closely with the Japanese m ilitary establishment and the quasi-war economy (junsenji keizai) of

Japan. The m ilitary could not dispense with the help of big business

in the development of the strategic industries and the resources of ■] p Manchukuo which was established after the Manchurian Incident.

Since the Japanese m ilitary were hostile to the zaibatsu, they had to look elsewhere to the new zaibatsu (shinko zaibatsu) for the capital and business experience that were needed. The Nippon Sangyo KK. was the most important among the new business groups that grew in strength because of this policy.

The capital structure of the Nippon Sangyo KK. was very different from that of the old zaibatsu undertaking since its shares were fairly widely distributed instead of being concentrated in a few small families.

The Shin Koyasu factory of Nissan at Yokohama, the mass production plant for passenger cars, used a conveyor system. After Nissan became a licensed company, it began to manufacture trucks. According to the Order of the M inistry of Commerce and Industry of August, 193^, production of the Datsun was suspended in 1939 > and the production line was shifted fully to the production of ordinary motor vehicles as defined in the Motor

Vehicle Manufacturing Business Act. In the peak year of 191+1, N issan produced 19,688 u n i t s . ^3 During World War II, Nissan was partially engaged in the production of training airplanes, and in September, 1 QJ|)|, the company was changed to the Nissan Heavy Industries, Ltd. (Nissan Jukogyo KK.).

Nissan produced approximately 2,000 engines for training airplanes.

Prom May, 19^5> Nissan could not produce even a single truck until the end of the war in August, 19^-5>« There was little expansion of plant facilities between 191+1 and the commencement of the dispersion program in the spring of 19U5» ^

Contrast between Toyota and Nissan

The management philosophy of a company is often formed largely by the philosophy of the founder of that company. The management philo­ sophies of both Toyota and Nissan have been most influenced by K. Toyoda and Y. Aikawa, the founders of Toyota and Nissan.

Both of them graduated from Tokyo Imperial University in mechanical engineering. They worked hard; K. Toyoda worked and studied at his laboratory while Y. Aikawa worked as a laborer at a casting company in the United States, disguising his status. Both of them were great visionaries in the field of motor vehicles. K. Toyoda had already made an engine and a test car even before his motor company was formed.

Y. Aikawa had, on the other hand, the so-called "Aikawa Idea on Motor

V e h ic le s " :

1. The motor vehicle industry uses more than 3>000 parts from almost every industry.

2. Motor vehicles are consumer goods of high unit price.

3. Internal combustion is the basis for the motor vehicle e n g in e .

I4. Motor vehicles have a close relationship with every­ day life, culture, industry, and transportation, and they are indispensable for the modem state. U1

5. The motor vehicle industry has a bright future.

6. The motor vehicle w ill play an important role in national defense.

Y. Aikawa gave a lecture on the "Mission of Nissan" for the Economic

Club. He stressed that units should be produced at a rate of 10,000 to 15,000 annually. If they produced less than 500 to 1,000 units per year, then the operation could not function as a business enterprise because they could not expect any profit, although it might be helpful for research.

However, differences also existed between K. Toyoda and Y. Aikawa.

The former was a family-oriented businessman with motor vehicles his sole concern; the latter was more profit-oriented, and an ambitious business­ man. Two great decisions of Toyota Motor in its early stage (see page 37) were made from the point of view of family ties and love. "Should Toyoda

Automatic Loom Works have a motor vehicle business?" This was solved by a single sentence: "This is the w ill of Sakichi Toyoda." Many objectors became silent. The second question was: "Should Toyoda continue to have a seemingly unprofitable motor vehicle business?" The decision to go on stemmed simply from the love for K. Toyoda of Risaburo Toyoda, his brother- in-law and the decision-maker of the Toyoda entity. Through these family ties, Toyota Motor was able to seek a more consistent business policy.

Y. Aikawa, on the other hand, was too ambitious to confine him­ self to the motor vehicle business alone. He dreamt of having a combine^ consisting of motor vehicles, mining, electricity, steel, and petroleum.

There were no family ties in Nissan, and presidents of the company changed several times without any family tie. Whenever financial powers influencing Nissan changed, the philosophy of management also experienced some changes. Nissan as a "business enterprise had no persistent philosophy of management and business policy. However, Nissan considered that its business policy derived from a stable management. Its decisions were based upon much discussion and agreement and management avoided instant d e c is io n s .

Management in the technical field also shows great differences.

Toyota Motor had a firm policy relative to this subject: "Even though we have examples from foreign countries, we do not have to introduce foreign technical cooperation or tie-ins. Instead, we do it by our- selves." 1 fi This led K. Toyoda to gather topnotch scientists around him, and he formed a research laboratory in his plant. Above all, he himself was a great scientist-engineer.

Y. Aikawa and Nissan Motor had a policy of overall tie-in with

American motor companies, as well as other motor companies, if possible.

He proposed a %1 percent owned joint venture with General Motors Japan

Limited, although his attempt was not successful. The production system of Nissan was based on the American system through the Graham-Paige

Corporation in Detroit. Graham-Paige made a "turnkey plant" sale to

Nissan in the thirties.

The marketing practice of both Ford and General Motors in Japan established an example for both Toyota and Nissan. Mass production was the basis of the marketing practice for Ford and General Motors. In using this, both companies could maintain a low price policy. Strong sales networks in every city also characterized their marketing policy, k3 including excellent sales techniques and an installment payment plan which provided great encouragement for the purchase of motor vehicles.

The problem was not how to create a marketing practice but rather how to apply that of Ford and General Motors to both Toyota and

Nissan. The two Japanese companies simply adopted the practice of Pord and General Motors. As a result, we cannot identify clear differences between the marketing practices of the two companies except that Nissan had a sales company from 1937 to 19^2 while Toyota did not have one until the end of World War II.

However, there are some differences between the financial back­ ing of Toyota Motor and Nissan Motor. The relationship between the

Mitsui zaibatsu and the Toyoda family goes back to the Meiji era.

Sakichi Toyoda established his Toyoda Loom Works in 1906 with the finan­ cial backing of the Mitsui zaibatsu. When the plan of K. Toyoda to pro­ duce motor vehicles was approved by the Japanese authorities, and when the Division of Motor Vehicles of Toyoda Automatic Loom Works, Ltd. be­ came a licensed company under the Motor Vehicle Manufacturing Business

Act, the Army authorities recommended that the Mitsui zaibatsu invest in Toyota the amount of 20 million yen. They recommended the tie-in between the two simply because of the old relationship which had existed between them, although the relationship in the first generation was not a happy one.

Mr. Risaburo Toyoda, brother-in-law of K. Toyoda and the most powerful man in the Toyoda enterprise, was the brother of the branch head of Mitsui Bussan (the Mitsui Trading Company). A major reason for the success of Toyoda Automatic Loom Works was these links of both kb

marriage and finance between them. When Toyota Motor reformed its

organization in 19i|l, K. Toyoda became the president of the company

and Hisayoshi Akai of the Mitsui Trading Company became the vice

p r e s id e n t.

The financial backing of Nissan was the Nissan combine, with

Nippon Sangyo KK. as the holding company. Nissan Motor, therefore,

had no financial backup from zaibatsu^ The stockholders of Nissan

Motor in March, ISkSt were just three persons, including Y. Aikawa.

Other Motor Vehicle Manufacturers

There had been a movement to make Central Japan into a Detroit

from 1917, even though it did not materialize because no one had a

clear idea how to do it. The movement rose again in 1929 and 1930 with the influence of members of the Nagoya Chamber of Commerce. It was initiated by E. Okumura, president of Okumura Iron Works, with the

full support of the mayor of Nagoya City. Five companies parti­

cipated in this movement. They jointly made a motor vehicle design modeled after a 1930 U.S. Nash, and two test passenger cars were manufactured in 1932. However, the project was carried out by Nippon

Wheels Co., Ltd. (Nippon Sharyo Seizo KK.) alone, because each of

the five companies disagreed on its share of the capital investment.

The Japanese government discouraged production of passenger

cars and encouraged production of trucks with a two-ton loading capacity.

As the Nash project did not coincide with government policy, it was

abandoned even after the company had bought I 4.O acres of land to build

a p la n t.

The Tokyo Motor Vehicle Industries, Ltd. could not be a licensed hS

company because it did not have the production capacity of 3,000 units

annually. The government authorities tried to find a method to save

the company. An opportunity appeared in the mid-thirties when the

future prospect of the diesel engine seemed bright.

Western countries showed their interest in diesel engine motor vehicles beginning around 1935* Japan attempted to utilize fully the advantages of the diesel engine from the aspect of fuel saving and the national defense of cold areas such as Manchuria. Nine companies pro­ posed to produce them, and four of them participated in the Tokyo Motor

Vehicle Industries, Ltd. through a technical tie-in and capital invest­ ment.

This renewed Tokyo Motor Vehicle Industries, Ltd. was named

Diesel Motor Vehicle Industries, Ltd. (Diezeru Jidosha Kogyo KK.) on

April 30, 19^11 with a capital of 77*5 million yen ($18,135 million).

As the company planned to produce 5,000 diesel motor vehicles annually, it became a licensed company on April 9» 19^-1 •

The Hino Works of Diesel Motor Vehicle became an independent business entity as a condition when Diesel Motor was given permission to be a licensed company. It became known as Hino Heavy Industries,

Ltd. (Hino Jukogyo KK.) on January 1, 19^-2, with a capital of 50 million yen ($11.7 million).

Nippon Diesel Industries, Ltd. (Nippon Diezeru Kogyo KK.) started to produce units in 1935 with a capital of six million yen ($1.7 million).

The company changed its name to the Kar gafuchi Diesel Industries, Ltd. in 191*2.

Diesel Motor Vehicle was the origin of today's Isuzu Motor Limited, Hino Heavy was the origin of today's Hino Motors, Ltd., and

Nippon Diesel Industries was the origin of today's Nissan Diesel Motor

C o., L td.

The production of three-wheeled motor vehicles made great pro­ gress in the thirties. The rate of production of three-wheelers in the industry exceeded the production rate of other vehicles. There were about fifteen three-wheeler manufacturers in 1937, such as Daihatsu Kogyo

Co., Ltd. (Daihatsu Kogyo KK.) and Toyo Kogyo Co., Ltd. (Toyo Kogyo K K .).^

There were some clear reasons why the business of three-wheeled motor vehicle manufacturing was prosperous:

1. Big companies participated in their manufacture.

2. The export market in Southeast Asia was bright because of the low price of the Japanese three-wheeler.

3. An automatic licensed system was expanded to include three-wheeled motor vehicles of 700 cc. engine size in 1933.

I4. Three-wheeler manufacturers lowered their prices to compete with the Datsun.

C. The Japanese Motor Vehicle Industry During World War II

The production of motor vehicles during World War II decreased steadily and the industry faced final collapse at the end of the war because of the reasons which we w ill discuss in this section .1 10 ft T his

tendency to decline and collapse was common to most Japanese industries

during World War II.

However, the decrease in production and the collapse of the

Japanese motor vehicle industry were not the direct result of the bombing by the U.S. Air Force. The industry was never a prime target for air attack. There was slight damage caused by bombings to some plantB of 47

Nissan and Diesel Motor Vehicle, hut direct attacks were limited to one

10,000 pound experimental bomb on the Koromo plant of Toyota. 19

The deterioration of the Japanese motor vehicle industry was due to the following factors;

1. The shift of priority by the Japanese government concerning motor vehicles.

2. Shortage of raw materials.

3. A transportation bottleneck.

4. The dispersal plan.

When the main battlefield was in China, motor vehicles played a very important role. However, when the battlefield shifted to the

Pacific after World War II began, priority was given to the production of airplanes for the control of the scattered areas in the Pacific.

Motor vehicles were rated as follows in the Japanese army priority systems;20

191*1 1942 1943 1944 1945

Bx B2 C C B£

Units produced in 1943 and 1944 decreased significantly in accordance with the priority system. One of the direct causes of the deterioration in production of motor vehicles was the lessened availability of raw materials. Lack of steel appears to have been one of the most decisive factors in the drop in production from 1941 until the spring of 1945* Various other raw materials such as nickel were also in short supply during the war. Lack of truck transportation due to the decreased production of trucks undoubtedly contributed to the failure of the Japanese army to solve its logistics problems during the war. It brought, for example, a decline in production in many fields of war materiel in the spring of

19hBt including motor vehicles, because raw materials could not reach manufacturers when they were needed and the railway system was damaged by the bombing.

The Japanese army tried to improve this desperate situation by allocating more raw materials to the motor vehicle industry through upgrading the priority of the industry in 19kS» as shown in the previous page. However, it was too late.

The large-scale dispersion program put into effect in 19h5 for the manufacturers of aircraft, aircraft ordinance, special attack weapons, and motor vehicles, imposed a new burden on truck transporta­ tion. The combination of inadequate preparation of the dispersal points and a too abrupt movement of machinery from the old plants resulted in the complete disruption of production.

Motor vehicle plants were dispersed in March, 19k%f by the order of the Japanese army. However, the plan was badly executed. The machines of Nissan were, for example, exposed to rain and production was stopped in May, 19U5* Almost 5>0 percent of the machines of Toyota were also dispersed and moved to the grotto of Sanage Mountain near Koromo City

(now Toyota City), but they remained idle. Diesel Motor Vehicle set up an underground plant in Nagano Prefecture and 1+00 machines were dispersed to assemble 2$0 truck chassis a month. However, no motor vehicles were produced because of the power problem. 49

The production and distribution of motor vehicles were put Tinder

the strict control of the Japanese army during World War II. The dis­

tribution system was regulated by the "Adjustment Plan for the Dis­

tribution Structure of Motor Vehicles and Motor Vehicle Parts" announced 21 in 1942. The guidelines of the Adjustment Plan were as follows:

1. The production and distribution should be separated so that manufacturing companies may concentrate on the improvement of quality and techniques of motor vehicles.

2. The distribution should be proper and satisfactory through the unitary distribution system so that the capability of transportation can be maintained.

3. A company to act as the sole agent for both selling and buying should be established in order to have unitary control in the distribution of motor vehicles and motor vehicle parts.

According to this guideline, Nippon Motor Vehicle Distribution

Company (Nippon Jidosha Haikyu Kaisha) was established with a capital of

10 million yen ($2.34 million) to act as a sole distribution agent. The

company purchased every motor vehicle from the companies at the manu­

facturer's selling price, and then distributed them directly to the

army and navy. As for public demand, motor vehicles were sold through

regional branches of the company. These regional branches unified all

three dealers of Toyota, Nissan, and Diesel Motor Vehicle, and set up

a one dealer system for each prefecture.

The system of competitive selling was, therefore, wiped out, and

distribution was put under strict control.

The War Plant Law was proclaimed in October, 1943 > and the three

manufacturing companies of Toyota, Nissan, and Diesel Motor Vehicle were designated as war plant companies in 1944> and put under the strict

control of the Japanese army. 5o

The wax1 was over. After the war the Allied Forces began to govern Japan. We will study how the Japanese motor vehicle industry, which was greatly devastated by the war, coped with the new and unstable environment in the next chapter. Footnotes

1. However, Nissan became a licensed company on September 22, 1936. Nissan proposed to produce trucks of 1-g- tons, and was approved by the government.

2. General Motors Overseas Operations, The War Effort of the Overseas Division (New York: General Motors Overseas Operations, 19144-), p . 88,

3. Ozaki, J i dosha Nihonshi, II, pp. 186- 87.

I4. Naokazu Yamamoto, Nihon no Jidosha Toyoneto Seichoshi ("Japanese Motor Vehicles: History of Growth ofToyopet") (Tokyo: Tokyo Sogensha, 1959)> P* 31*

5. Ozaki. Jidosha Nihonshi. I, p. 375*

6. One reason for Toyota's success may be attributed to Toyoda 1 s ability to gather a "brain trust" around him. Besides Dr. Kumabe, he had excellent scholars such as: Drs. Taizo Nukiyama, Shiro Nukiyama, Kotaro Honta, Tokuhichi Mishima, Masao Naruse, and Hideto Kishida. He also consulted with Mitsuzo Wada, one of Japan's famous artists, for the design of motor vehicles.

7. At that time, one of the severest critics of motor vehicle manufacturing was Taizo Ishida, who became the president and still holds the chairmanship of Toyota Motor Co., Ltd.

8. Yamamoto, Toyopeto. p. 8$.

9. In the City of Koromo, which changed to the City of Toyota on January 1, 1959 > existed the first comprehensive plant of motor vehicle production in Japan. One of the top engineers was sent to the United States by Kiichiro Toyoda to investigate the factory system of the U.S. before the Koromo plant was established.

10. Kodaira, Jidosha. p. 105.

11. The right of manufacturing Datson cars was transferred to the newly established Jidosha Seizo KK. from Jidosha Kogyo KK. gratis. The name of Datson came from "the Son of DAT" which meant a small Dat motor vehicle. However, son pronounces exactly as loss in the Japanese language; that is DAT-loss. So the Datson has been changed to present Datsun by Y. Aikawa. Sun is the center of the solar system and symbolizes brightness; Datsun manufacturers have hoped that the future of the motor

51 52 vehicle would he bright like the sun, see Yoshio Ando, Showa Keizaishi heno Shogen ("A Testimony on the History of the Showa Economy") (Tokyo: Mainichi Shimbunsha, 1965), vol. I, p. 278.

12. G. C. Allen, A Short Economic History of Modem Japan (London: Allen & Unwin, 1962), pp. 151+-55*

13. Kodaira, Jidosha. p. 105.

14. The United States Strategic Bombing Survey, Japanese Motor Vehicle Industry (Washington: U.S. Government Printing Office, 191+6) , p . 3.

15. Eleanor M. Hadley, Antitrust in Japan (Princeton: Princeton University Press, 197o), pp. 20-21.

16. Yamamoto, Toyopeto. p. 71•

17. Ozaki, Jidosha Nihonshi. I, p. i+ 66.

18. The United States Strategic Bombing Survey, Japanese Motor Vehicle Industry, p. 1.

19. Ibid.. p. 2.

20. Ibid.. p. 6.

21. Yamamoto, Toyopeto. p. 193* CHAPTER I I I

THE POST-WAR RECOVERY AMD U .S. INFLUENCE

A. The American Occupation of Japan

The Policy of the Allied Eorcea

The basic policy of the United States toward the occupation was based largely on two separate documents, a Presidential statement of

September 6, 19^5, and the Basic Directive of November 1, "the

Presidential statement, General MacArthur was advised:

Encouragement shall be given and favor shown to the develop­ ment of organizations in labor, industry, and agriculture, organized on a democratic basis. Policies shall be favored which permit a wide distribution of income and of the owner­ ship of means of production and trade . . . To this end it shall be the policy of the Supreme Commander; . . . To favor.a program for dissolution of the large industrial and banking combinations which have exercised control of a great part of Japan's trade and industry.^

The Occupation Authority was zealous for social and political reform, and its purpose was not merely to prevent the re-creation of a war potential but also to demonstrate the value of democracy to the country by encouraging a wider diffusion of wealth and political and economic power.

On November 1*, 19U5> the Japanese government submitted a proposal to Gen. MacArthur for approval. This incorporated the "Yasuda Plan," under which the holding companies of the Big Pour (Mitsui, M itsubishi,

Sumitomo, and Yasuda) would begin dissolution procedures, and a Holding

Company Liquidation Commission (HCLC) would be created to administer the

53 & program. General MacArthur accepted the proposal of the Japanese govern­ ment on November 6, 1949, two days after it was submitted. Between

September, 1946, and September, 1947* the HCLC designated 83 holding 2 companies to be dissolved and reorganized.

The Occupation authorities also encouraged the labor movement in

Japan. Numerous laws were enacted immediately by SCAP (Supreme Commander for the Allied Powers) to encourage this. As a result, the Ministry of

Labor was newly created in September, 1947, and membership in labor unions increased rapidly.3

However, the or-licy for Japan by the Allied Forces was influenced by and closely related to American foreign policy. Specifically, the cold war between the U.S. and the USSR forced the Allied Forces to adjust their policy toward Japan. The relationship between the United States and

Soviet Russia deteriorated, and the Communists advanced on Mainland China in 1949*

One of the basic policies of the United States toward Asia was to protect the Asian countries from Communism. Japan became the strategic and logistic base for this purpose. An impoverished and enfeebled Japan would not serve America's strategic interests, and as long as trade and industry faltered, the burden on the American taxpayer in providing aid could not be lifted. The effort of the Allied Forces henceforth was directed primarily to economic recovery.

The Nine Point Stabilization Program of April, 1949» also known as the Dodge Line4 by the Japanese, was the highlight of such a policy change of the Allied Forces. The main objectives of the Dodge Line were to create a balanced consolidated budget and to improve tax collection, to eliminate government subsidies, and to employ the Counter Fund effectively. In addition, the establishment of a fixed foreign exchange rate ($1=360 yen) was also an important objective. As a result of this deflationary policy, credits and loans were severely restricted by the Japanese government. The policy of the Dodge Line halted the inflationary pres­ sure which plagued the Japanese economy in the post-war period, and laid a sound foundation for the future economic development of Japan.

The Japanese motor vehicle industry was also regulated by the policy of the Allied Forces. The production of passenger cars was pro­ hibited by the SCAP authorities, although the production of trucks was permitted in September, 1949.^ However, this severe restriction was lifted in accordance with the policy change of the Allied Forces, and an annual production of three hundred passenger cars was permitted in

June, 1947.^ Even this restriction was finally removed on October 29,

1949 . 7

In the meantime, the Allied Forces removed motor vehicle manu­ facturing plants from the list of plants designated to be taken over as reparation.

The Motor Vehicle Industry Under the Occupation

When the war was over, Japanese motor vehicle manufacturers found themselves in a desperate situation. The war had distorted their manage­ ment system, raw materials were still in short supply, the equipment of their plants was almost obsolete, and the level of technology had made no progress at all.

The first task was to restore the industry to the prewar level and reorganize it from its wartime distortion. Since the restoration process was beyond the owners' capabilities due to lack of needed funds, they 56

turned to the government for help. The government helped the industry through the Reconstruction Finance Bank, established in January, 191+7» by granting loans. The industry recovered to the prewar level by 191+8 and

the units produced in 191+9 outpaced the peak production in the prewar p e rio d o f 191+1 .

There were four events which affected the Japanese motor vehicle industry during those years of the Occupation:

a. The industry was attacked by the Bank of Japan and the financial world from the point of view of the theory of comparative advantage and the opportunity cost concept.

b. Many foreign motor vehicles flowed into Japan.

c. The Dodge Line policy had an unfavorable effect on the industry.

d. There emerged many manufacturers of motor vehicles and motor vehicle parts.

The Bank of Japan and the Japanese financial world insisted that

Japan should develop products of international economic specialization, investing heavily in areas of comparative advantage, while committing only lim ited resources to industries where technology and scale require­ ments penalized domestic producers.

It is not quite clear how this negative attitude affected the

Japanese motor vehicle industry because the Ministry of International

Trade and Industry advocated strongly for the industry. However, we can safely assume that the managers of motor vehicle manufacturing companies were upset by this opposition toward them. The hesitant attitudes of bankers toward the industry in granting loans in the post-war period might have had some relation with the negative attitude of the financial w o rld . 57

The influx of foreign motor vehicles to Japan was one of the hardest

blows. The regular import of foreign motor vehicles was prohibited offi­

cially by SCAP. But they poured into the Japanese market mainly through

unofficial sales by the Occupational Forces, military civilians, and third

country nationals. In addition to these unofficial sales, there were

official disposals of American m ilitary motor vehicles. Approximately

22,000 were disposed of during four years, 191+6- 19l+9 inclusive.®

The free import of motor vehicles was allowed by the U„S.-Japan

Administrative Agreement of 191+9* It regulated those motor vehicles

which were eligible for free import, such as passenger cars of American

soldiers and those motor vehicles of American civilian employees of the

U.S. Army. Those motor vehicles of free import were exempted from tariffs

and excise taxes.

These motor vehicles, and passenger cars particularly, made their

own contribution as a means of transportation for those years when the

production of passenger cars was suspended by the Occupational Forces.

The deflationary measure of the Dodge Line policy had two great

effects on the Japanese motor vehicle industry: labor strife and diffi­

culty in collecting credit sales.

There were layoffs of workers in the industry as a result of the

Dodge Line policy, and wages of workers were reduced. Workers protested

fiercely against these measures through strikes. Top managers of Toyota

promised workers that they would not be laid off as a means of overcoming

the crisis. However, Toyota reduced the wages of workers by 10 percent

and Aichi Kogyo KK., a subsidiary of Toyota, laid off 260 workers and cut wages of the remaining workers by 20 percent. Nippon Denso KK., another

subsidiary, followed suit and laid off 1+73 workers out of 1 , 371+ employees 58

and cut wages by 10 percent.9 The entire Toyota group laid off approximately

23 percent of their employees. A strike by the workers at the Koromo plant

started on April 11, 1950, and continued for more than two months until

both parties signed an agreement on June 14, 1950. According to the agree­

ment, K. Toyoda, president and the founder of the company, and Dr. K.

Kumabe, vice-president and a classmate of K. Toyoda, resigned, and a new era started for Toyota.

During the months of the strike, Toyota incurred monthly losses

o f 30 to 1+0 m illion yen (approximately $100,000) which could have led to

the collapse of the company if such an unfavorable situation had continued a little longer.

Diesel Motor Vehicle abolished its agreement with the labor union and laid off 23 percent of its employees in October, 1949* The workers protested against the layoff and held three 24-hour strikes.

Nissan also laid off l,8 ll employees in October, 1949 > with a 10 percent decrease in the wages of the remaining employees.

Other difficulties which the manufacturers faced in those days were slack sales and accumulation of inventory, and difficulty in collecting accounts receivable. The case of Nissan shows what it really meant. Con­ tracted motor vehicles for sale accounted for just 11.20 percent of the total production in 1949 those which were expected to be sold accounted for 10.16 percent. The remaining motor vehicles had no possibility of being sold.^

The wartime expansion of Japan's defense industry produced many subcontractors among small and medium manufacturers in the fields of aircraft, weapons, shipbuilding, and motor vehicles. The subcontractors of aircraft and weapons transformed their business to the motor vehicle industry. The 59

shift of subcontractors continued and they were established firmly after

the special procurement of the Korean War which we w ill discuss in the 12 next section.

In summary, it was a period of struggling to survive under one

of the most unstable environments in the history of this Japanese

industry. Manufacturers tried hard to survive by adjusting to the new

environment. They adjusted to the surrender of Japan by reorganizing

themselves from m ilitary plants to civilian plants. Again, they adjusted

first to the restrictive policy of the Allied Forces, and then, to the permissive new ones, by producing trucks, and further by producing passenger cars. Japanese motor vehicle manufacturers once again adjusted

themselves to the bitter environment of the deflationary pressure. It was one of the hardest battles to survive by laying off employees; nonetheless,

the result was the incurring of losses.

However, they managed to survive, and it was a requisite for

tomorrow’s survival and prosperity. Meantime, the Korean War broke out, and the industry reaped great benefits from the procurements of the U.N.

Forces which we w ill discuss in the next section.

B. The Korean War and the Japanese Motor Vehicle Industry

S p e c ia l Procurem ent from th e U .S . Army

The Korean War broke out on June 25, 1950 (Korean time), when the

Japanese motor vehicle industry was struggling desperately for its survival. American m ilitary forces in Japan began to procure m ilitary goods from Japanese industries such as iron and steel, motor vehicles, trains, chemicals and pharmaceuticals, textiles, and so forth.

The amount of procurement ordered was 9«U billion yen ($21.1 m i l l i o n ) ^ 60

in the first month after the war broke out.

The first procurement for motor vehicles began in July, 1950, and was renewed twice until March, 1951. Almost all of the industries of

Japan benefited by this special procurement program from the American

Forces; but the motor vehicle industry reaped the most benefit. Motor vehicle manufacturers recall the procurement as "the benevolent rain after drought," "the foundation for post-war revival," and "the special procurement boom to the motor vehicle industry at the sacrifice of the

Korean people." In other words, these were the days when supply could not catch up with brisk demand as far as motor vehicles were concerned.

Therefore, it will not be entirely strange to hear, as some Americans phrased it, "The UoS0 created the Japanese motor vehicle industry. Were it not for Korea, there might never have been a Japanese motor vehicle in d u s try .

Between July, 1950» and March, 1951> the U.So armed forces ordered the special procurement of motor vehicles from Japanese manufacturers.

These totaled 11,920 units, and amounted to more than 9*8 billion yen

($27.2 m illion ) . ^ Manufacturers cleared away the accumulated inventories and paid back their debts with the payments advanced by the American Forces so that their credit was re-established for purchasing materials.

Within a year after the procurement, the net income of Toyota jumped more than three times, and dividends paid were 20 percent per year from September, 1951. Additional dividends of 10 percent were also dis­ tributed until the first half of 1953* Toyota had never distributed dividends until this boom period after the surrender. Toyota cleared away its debts where the debt equity ratio was almost 2:1, and even made a great profit just one year after the Korean War. 61

Nissan also profited from the special procurement. Monthly production of Nissan increased significantly from August, 1950. Finan­ cial statements also showed favorable results. As net income amounted to lli+ million yen ($317}000), dividends of 20 percent were distributed in the 28th period (December 30, 1950, to March 31, 195l)> and 30 percent in September, 1951» (the 29th period) as the net income amounted to 1+39 million yen ($1.22 million)

Toyota and Nissan ranked first and second in dollar earnings through the special procurement and made a deep impression upon the

Japanese general public.

As Isuzu Motors Limited (the former Diesel Motor Vehicle Co., Ltd.) had concentrated on the production of diesel motor vehicles, the firm was not greatly affected by the special procurement, as.were Toyota and Nissan.

Nonetheless, Isuzu Motors responded to the special procurement by pro­ ducing gasoline-engine trucks without hurting the domestic demand for diesel motor vehicles.

The financial statement of the first half of 1951 showed the net income of Isuzu Motors was 80.8 m illion yen ($22l+,000) with a 20 percent dividend. Furthermore, the 26th financial statement of the last half of

1951 showed the net income of more than 152 m illion yen ($1+22,000) and a

10 percent special dividend was distributed in addition to the 20 percent dividend. -*-7

The impact of the Korean War on employment in the motor vehicle industry was not so impressive. The special procurement took place just after motor vehicle manufacturing companies laid off many employees from their companies. However, they made up for this shortage of workers by 62

extending working hours and hiring temporary workers. The policy of l8 Toyota to meet this special procurement was as follows:

(1) The monthly production plan of 700 motor vehicles would be increased to 1,000 units from November, 1950.

(2) No additional employees would be hired and the shortage of workers could be met by shifting of employees and additional work of two hours.

( 3) Model change of trucks of ordinary type would be postponed until the complete delivery of the special procurement; and production of buses, chas­ sis, and engines of 95 horsepower would be re­ s t r i c t e d .

(If.) Funds o f 38O million yen ($1.05 m illion) would be raised from the related banks.

Nissan also met the shortage of workers both by extending working

hours and by the shifting and reinforcement of workers among plants.

This meant that staffs and workers worked at other sections where they

were needed due to heavy workloads in those areas. Nissan extended

working hours by two hours a day for three days a week beginning August

to October, 1950; and four days a week from November to December 1,

1950. In addition, there was special overtime work. The managers of

. Nissan admitted that it was not the best solution to have temporary

workers. However, they hired them because managers were afraid of lay­

ing off more workers once the industry was placed in unfavorable condi­

tions. Since Japan has a lifelong employment system (shushin koyo) in

most cases, it is a great problem for employers to lay off their employees

in times of depression.

Isuzu Motors also hired more than 200 temporary workers after

consulting with the labor -union in September, 1950, and had bB m inutes

of overtime work each day. 63

Investment for the Replacement of Equipment and Facilities

The Japanese industry grew even bigger through the special pro­ curement for the Korean War; and the major companies of Toyota, Nissan, and Isuzu grew into large companies.

These companies invested a great amount of their earnings in the replacement of facilities and equipment, as well as using other sources

of capital. The Japanese industry had been given no opportunity to re­ place them because of the war and the gloomy prospect of the industry in the post-war period. However, this uneasiness was wiped out by the special procurement for the Korean War.

The amount of investment in 1932 was twice that of the previous year, while the amount of investment of 1953 increased 2.5 times that of 1952. In 1954 > it increased to 1.3 times as much as the 1953 investment.

The companies were also encouraged to invest in equipment through existing laws on depreciation. Two laws were relevant for this invest­ ment; one was the "Property Revaluation Law" of April, 1950; and the other was the "Law of Promotion for Rationalization of Enterprises" of

March, 1952. The former contributed to investment through the enlarged amount of depreciation together with the revaluation of property; while the latter contributed to investment through special depreciation, one of the most important objectives of the law. It allowed the accelerated depreciation and the special depreciation at the same time so that any company could depreciate up to the half of the entire depreciation in the first year. This special depreciation gave an advantage to the motor vehicle industry, where model changes could be frequent so that equipment and machine tools would become obsolete that much sooner. ek

Operation Roll-Up

One major source of dollar earnings for the Japanese industry before and after the Korean War was the rebuilding of American m ilitary 19 motor vehicles. This was called "Operation Eoll-Up," y the program for the recovery and rehabilitation of World War II equipment which had been abandoned throughout the Pacific by the hasty demobilization of U.S.

Forces. The BIG 5* the popular m ilitary term for "Base Industrial

Group Fifth Echelon"20 -was set up, and was directed by civilians.

They operated that portion of the U.S. Eighth Army Ordinance Section in Japan. It was in the planning stage as early as 1945* In 1946» they began to turn out engines and other units, and fully manufactured com­ plete motor vehicles by 194-8.

With the Korean War, this roll-up operation assumed enormous pro­ portions. By 1951» the Japan Logistical Command, as the complex was now called, was providing this kind of roll-up operation company-managed employment for more than 30,000 Japanese spread out in about 14 units of the industrial complex.

Toyota was ordered to rebuild American m ilitary motor vehicles from A pril, 1947 > and continued to do so until 191+9* The company re­ conditioned approximately 300 and all expenses and costs were paid by the Americans. Nissan was also ordered in April, 1947 > to do the same, and continued until 1951* Nissan rebuilt 1,480 motor vehicles. Diesel

Motor Vehicle (isuzu) also negotiated a contract to rebuild in March,

1947 > and continued until June, 1952.

However, the most typical "Operation Eoll-Up" plant was the Oppama plant of Fuji Motors Co., Ltd. (Fuji Jidosha KK.). In the plant of Oppama, the production line turned out as many as i|.,000 motor vehicles a month at 21 the time of the Korean War; and over a ten-year period, 187,000 units were rebuilt. It is not surprising that the complex was referred to as

"little Detroit" by Americans.

Soji Yamamoto, president of Fuji Motors, responded positively to the Allied Forces for their request of rebuilding damaged American m ilitary motor vehicles scattered around the Pacific. As a result of a decision made in the fall of 19U7 he started rebuilding work for the repatriates from Manchuria. The rebuilding plant would bring income to more than nine thousand employees and the plant would bring income to

Japan in those days of despair. It also contributed to the U.S. Army, specifically for those years of the Korean War. The plant had a conveyor line system just before the Korean War broke out, so the factory was able to supply ^0,000 rebuilt units to the U.S. Army in 1951 and the following y e a r.

In August, 1958» the U.S. Forces in Japan informed Fuji Motors of the cessation of rebuilding American m ilitary motor vehicles at the Oppama plant from January 6, 1959» because units which required rebuilding in the area were greatly decreased. The plant earned approximately 18 billion yen 22 (150 million) from its operations.

Transfer of American Motor Vehicle Technology

From its beginning the history of the Japanese industry has been closely linked with the technology of the American industry. Pioneers of the Japanese industry manufactured their motor vehicles through modeling after American motor vehicles in most cases. After the Great Earthquake,

Ford and General Motors dominated the Japanese market, and many Japanese 66 came into contact with American technology in production and marketing.

Shotaro Kamiya, president of Toyota Sales Motor Co., Ltd. who has been called the "King of Selling" (which means he is one of the best experts in marketing in the Japanese motor vehicle industry) is a product of

General Motors Japan. The factory system at Koromo of Toyota Motor Co.,

Ltd., one of the largest plants in Japan, followed the Detroit factory system. Nissan also had a technical tie-in with the American Graham-

Paige Motor Corporation in Detroit during the thirties, and Graham-

Paige made a turnkey sale of its plant to Nissan.

The technological relationship between the United States and

Japan became completely extinct during the wartime system of Japan.

Japan found a wide gap in technology after the surrender:

The war was over and Japan opened her door to contact with other countries. Suddenly Japan found that the gap of technology was too great and the pace of technological development was so fast that it seemed to be impossible to narrow this gap of technology.^3

However, this apprehension was gradually melted away by the transfer of American technology through the American m ilitary forces stationed in

Japan in the crucial stage of restoration.

The transfer of technology was highlighted during the years of the occupation and the Korean War through the BIG £. This experience gave

Japanese engineers, mechanics, and laborers on-the-job experience with modem American production layout, methods and newly developed techniques, as well as experience with American creative ingenuity in dealing with the scarcity of motor vehicle parts.

Japanese engineers saw and worked on equipment and techniques which were unknown in Japan. Some of these were modem enamel painting, 67 electroplating1, and safety glass. Another on-the-job influence on Japanese engineers was quality control. When the Japanese manufacturers worried about defective goods, the concept of quality control and the implementa­ tion of the concept made a great im pact.^

It is not too much to claim that these on-base, American m ili­ tary-supervised production operations provided the Japanese with the fundamental know-how of American mass production procedures. This was clearly one of the foundations for future development of the Japanese motor vehicle industry.^

The role of government concerning the development of the Japanese motor vehicle industry is very influential. In the next section, we will discuss the government policy for the development of the industry and the implementation of such policy. The section covers the period before and during World War II, and those unstable post-war years.

C. Government Policies and Regulations on the Japanese Motor Vehicle Industry

Government Policies Until the End of World War II

The basic policy principles of the Japanese government for the

Japanese motor vehicle industry were:

1. The Japanese motor vehicle industry for national security.

2. The Japanese motor vehicle industry for the reduction of imports of motor vehicles and their parts.

3. The Japanese motor vehicle industry for the rapid development of the industry itself.

These three principles were incorporated into every policy, law, and guideline of the administration until the end of World War II.

National security was given top priority when the M ilitary Motor

Vehicle Subsidy Act was enacted with hopes of establishing the industry. 68

When the movement to develop the industry arose afresh in 1929» major priority was given to the restriction of importation of both vehicles and parts, as well as to the sound growth of the industry. The emer­ gence of the standard motor vehicle of the M inistry of Commerce and

Industry, however, meant that the priority was shifted from motor vehicles for military use to civilian use. In other words, this means that in a true sense priority was given to develop the Japanese motor vehicle industry for the first time.

The Motor Vehicle Manufacturing Business Act lasted almost ten years. It was enacted on May 29, 1936, was rescinded on January 16,

19^6. This was comprehensive legislation to accomplish the principles mentioned above. The law gave a sound foundation even though it was distorted by the m ilitary control of Japan. It became one of the spring­ boards through which the rapid growth of the industry could be accomplished successfully after World War II. However, the law became too distorted under the control of m ilitarists during the war, since sole priority was given to national security at the cost of the growth of the Japanese motor vehicle industry.

The Post-War Policy of the Government

Government policies and guidelines were liberated from the inter­ ference of Japanese militarism after the surrender of Japan. However, they were influenced, once again, by the policies of the Allied Forces until the conclusion of the Peace Treaty in September, 1951*

The first task of the motor vehicle industry was to rehabilitate itself to its prewar level and reorganize the industry from wartime dis­ tortion. The government helped the industry mainly through monetary means 69 during the first stage. Among them was the Reconstruction Finance Bank of January, 191+7. One of the most urgent problems facing the industry was the replacement of worn-out equipment and facilities, and motor vehicle manufacturers needed funds desperately. However, banks were hesitant to give them loans because of the gloomy prospects of the industry. As a last resort, leaders of the industry petitioned the government for assistance. Meanwhile, the Reconstruction Finance Bank was established.

The bank was a government bank whose main objective was to supply the needed funds for industries. The organization was dissolved in January,

1992. The first loan ever issued by the Bank was given to the motor vehicle manufacturing companies such as Toyota, Nissan, and Diesel Motor

Vehicle, and all of their debts to other banks were transferred to the guaranteed loans of the Reconstruction Finance Bank. At the end of 191+8,

Toyota's outstanding debt amounted to 630 million yen ($1.79 million) of w hich I4.OO million yen ($1.1 million) was from the Bank loan.^ Diesel

Motor Vehicle also got a loan of 702 million yen ($1.99 million) from pO the Bank until March, 191+9. Though the priority of loans went to such industries as coal, iron and steel, fertilizer, electricity, and marine, the motor vehicle industry received great help from the Bank.

However, the policy of the Dodge Line was devastating to the indus­ try as mentioned before. Individual companies were forced to adjust to this deflationary measure: that is, every cost should be reduced and many workers should be laid off. This led to strife between management and labor. K. Toyoda, president of Toyota at that time, became the scapegoat, and resigned from his position on June 9» 1990, twenty days before the outbreak of the Korean War which changed the course of the

Japanese motor vehicle industry. 70

One of the government policies which related directly to the industry was the "Basic Policy for the Mo+or Vehicle Industry" announced in October, 19^4-8. ^9 Under the Basic Policy, a five-year production plan was put into effect, 19k9 being the base year. According to this plan, there would be 100,000 motor vehicles at the end of 1953* However, this plan was interrupted by the Bodge Line policy.

The Japanese government established an "Outline to Bevelop a

People's Car." This was announced by the Ministry of International

Trade and Industry in May, 1955j to encourage the production of small passenger cars. This passenger car had, according to the outline, an en gine o f 35>0- 5>00 cc., its production cost less than 2$0,000 yen ($69U)» and monthly production was scheduled to be 2,000 units.30 This small passenger car was not produced because it was almost impossible to develop the type of passenger car which MITI suggested. However, this outline stimulated motor vehicle manufacturers to develop small passenger cars henceforth.

Meantime, there continued a debate concerning the priority of the motor vehicle industry, in the government and the financial world, from 19U7 to 19^0. Some c r i t i c s opposed g iv in g p r i o r i t y to th e m otor ii!‘ vehicle industry from the points of the comparative advantage theory and the opportunity cost concept.

Both Suehiro Nishio, Secretary General of the Katayama Cabinet and the succeeding Ashida Cabinet, and Hisato Ichimada, the Governor of the Bank of Japan, were critics of the motor vehicle industry. S. Nishio arg u ed :

Japanese motor vehicle manufacturers cannot compete inter­ nationally because equipment is too obsolete and the production 71

method lags behind those motor vehicle manufacturers in advanced countries. I recommend urgently, therefore, not to produce Japanese motor vehicles as far as pas­ senger cars are concerned. There is a 20-year or even 30-year gap between Japanese passenger cars and imported ones in terms of design, performance, and durability. Prices of foreign motor vehicles are also half of their Japanese counterparts. Prom overall aspects, it seems to me that it w ill be the right policy to import pas­ se n g e r c a r s . 31

H. Ichimada insisted:

It is meaningless to develop the motor vehicle industry in Japan. Now is the time of international division of labor. As we can get inexpensive motor vehicles of excellent quality from the United States, why don't we r e l y upon them ?32

On the other side of the debate, the Ministry of International

Trade and Industry had an apparently different view: MITI supported strongly the development of the Japanese motor vehicle industry. The

Ministry insisted that the nature of the industry was critical, and that motor vehicle production would advance major machinery and supply industries, and hence permit broad-based economic growth. In addition,

MITI advocated im port-substitution. MITI pointed out, for example, that the amount of foreign exchange drain from imported passenger cars over a short number of years could itse lf finance domestic production and marketing facilities and hence prove self-sufficient. The policy debate was finally settled in favor of the motor vehicle industry by the out­ break of the Korean War.

The underlying policy on foreign technology of the Japanese government was based on two premises: Japan should not allow the domination of the Japanese motor vehicle industry by foreign manu­ facturers; and the technological gap between Japan and other advanced countries should be narrowed through technical tie-in. 72

The Ministry of International Trade and Industry issued the "Basic

Policy on the Introduction of Foreign Capital for Passenger Cars" in June,

1952, and the "Basic Policy on Technical Tie-in and Assembly Agreement for

Passenger Cars" in October, 1952.-^ The two premises mentioned above were embodied in these two policies. They made it clear that a technical tie-in with foreign manufacturers was urgently needed for the reconstruction of the Japanese industry. On the other hand, they also made it clear that only those parts which were indispensable for assembly of motor vehicles, and could be manufactured in Japan within five years, would be treated preferentially for the allocation of foreign exchange by the government.

Through the encouragement of the government, four motor vehicle manufacturers, Nissan, Isuzu, Bono, and Mitsubishi made contracts for a technical tie-in with foreign counterparts. Major American manufacturers did not participate in these assembly contracts, mainly because the

Japanese government did not welcome them, and did not show their enthusiasm for Japan in those days. However, Toyota insisted on a self- supporting policy (see page 42). This was a great risk for Toyota because the Japanese motor vehicle industry was said to be ten years behind in technology, relative to advanced countries. Nevertheless, Toyota confirmed once again its traditional policy of self-support.

After having recovered from the war damage, mainly through the procurement of the Korean War by the American forces, and having established a sound foundation for growth in terms of replacement, the industry has achieved a great success.

In the next chapter, we w ill discuss the success and the reasons behind such success for the years 1955 to 1971. Footnotes

1. Hadley, Antitrust, p .6.

2. Ibid.. p. 70.

3. SCAP, Mission and Accomplishment of the Supreme Commander for the Allied Powers in the Economic and Scientific Fields (Tokyo:SCAP, 1952), p. 10.

1+. The SCAP's letter to the Prime M inister, dated December 19j 191+8, outlined the nine-point economic program for economic recovery and stabilization. The application of this program was further urged by Joseph M. Dodge, Financial Advisor to SCAP. His recommendations, known as the "Dodge Line," contributed to the future development of the Japanese economy.

5. SCAP, SCAPINS (Supreme Commander of the A llied Powers' Instructions to the Japanese Government) (Tokyo: SCAP, March 20, 1952), p . 10.

6. Ibid., p. 386.

7. Ibid., p. I+87.

8 . N issan Jidosha Kogyo KK., Nissan Jidosha San.iunenshi( "Thirty Year History of Nissan Motor Vehicles'"} (Tokyo: Nissan Jidosha Kogyo KK., 1951+), P. 138.

9. Yamamoto, Toyopeto. p. 217.

10. Nissan Jidosha Kogyo KK., San.iunenshi. p. 215.

11. Kodaira, Jidosha. p. I 87.

12. There were 33 motor vehicle manufacturers after the war, and many of them were from the defense industry. See Tadahiro Iwakoshi, Jidosha Kogyoron ("The Motor Vehicle Industry") (Tokyo: University of Tokyo Press, 1968), p. 262.

13. Kodaira, Jidosha. p. 197*

II4. "How the Japanese Blitzed the California Auto Market," p . 28.

15. Kodaira, Jidosha. p. 197.

73 74

16. Masahisa Ozaki, Datosan ("Datsun") (Tokyo: Jikensha, 1959)» pp. 125-26.

17. Isuzu Jidosha KK., Isuzu Jidoshashi. p. 273.

18. Yamamoto, Toyopeto. p. 225.

19. Daniel L. Spencer, M ilitary Transfer of Technology: Inter­ national Techno-Economic Transfers via M ilitary By-Products and Initiative Based on Cases From Japanese and Other Pacific C o u n tries(Washington, D.C.: Air Force Office of Scientific Research, 1967) APOSR-67-0231, p . 59*

20. Ibid., p. 30.

21. I b id . . p . 60.

22. Soji Yamamoto, Nihon Jidosha Kogyo no Seicho to Henbo ("Growth and Transformation of the Japanese Motor Vehicle Industry") (Tokyo: Sanei Shobo, 1961), p. 254.

23. Seiji Nakamura, Gi.iutsu Kakushin to Gendai ("Technological Renovation and Modem Times") (Tokyo: Sanichi Shobo, 1959), P» 96.

24. Spencer, M ilitary Transfer, p. 79*

25. Ibid., p. 62.

26. The Study Committee on the "Policy of Establishiffeilt of Motor Vehicle Industry" established the standard motor vehicle of the Ministry of Commerce and Industry in 1932. They were of medium-type, bigger than Pords and Chevrolets, so these motor vehicles of both types did not com­ pete with each other. The Ministry of Commerce and Industry gave a sub­ sidy to the manufacturer of the standard motor vehicle from 1932.

27. Yamamoto, Toyopeto. p. 211.

28. Isuzu Jidosha KK., Isuzu Jidoshashi. p. 263 and pp. 266-268.

29. Tadahiro Iwakoshi, Jidosha Kogyoron. p. 262. The Basic Policy emphasized that it would be difficult to import motor vehicles because the foreign exchange reserves were very low. As an alternative, it pro­ posed a production plan of small motor vehicles (passenger cars as well as trucks) because of bad road conditions and lower income in Japan.

30. Daiyamondosha, ed., Jidosha ("Motor Vehicles") (Tokyo: Daiyamondosha, i 960) , p . 33*

31. Keisaku Kumaki, Nippon no Jidosha Toyota Jidosha ("Toyota Motor Vehicles: They Are Japanese Motor Vehicles") (Tokyo: Tenbosha, 1959)» pp. 139-40. IB

32. Yamamoto, Toyopeto. p. 207.

33« U.S. Department of Commerce, Bureau of International Commerce, Japan. The Govemment-Busines s Relationship, by Eugene J. Kaplan. (Washington, D.C.: Government Printing Office, 1972), pp. 112-13. CHAPTER IV

THE DEVELOPMENT OP THE INDUSTRY, 1955-1971

A. Physical Exp ana ion of Motor Vehicle Manufacturing Companies

After having established itself firmly through the special procure­ ment during the Korean War, investment for equipment and facilities, and

the introduction of foreign technology, the Japanese motor vehicle industry

accomplished a rapid and steady progress. This can be seen by a comparison

of production between 1955 and 1970s

1220 1955

Passenger cars 3,178,708 20,268 Trucks 2,063,88 3 1+3,857 Buses It6.566 Iu 807 Total 5,289,157 68,932

Source: Motor Vehicles Statistics of Japan 1971 (Tokyo: Japan Motor Vehicle Manufacturers Association, Inc., 1972), p. 6.

Overall motor vehicle production increased 78 times in the sixteen years from 1955 to 1970 inclusive. The production of passenger cars accomplished the most significant progress; it increased almost 156 times, while trucks increased i+7 times and biases nearly ten times. On the other hand, three-wheeled motor vehicles decreased from a peak production of

278,032 in I960 to li+,06l in 1970.1

Toyota and Nissan accounted for more than half of the Japanese units produced in 1969 (55*9%) and 1970 (56.3%)* Together these two companies dominated the industry, even though some competitors revived

76 77

their strength at times and the influence of both companies decreased

occasionally. However, the government policy encouraged a merger move­

ment around Toyota as one group, and Nissan as another group, and they

regained their production power particularly through this merger movement w hich we w i l l d is c u s s s h o r tly .

Exports also showed a rapid growth for those sixteen years from

1955 to 1970 inclusive, and expanded remarkably from the late sixties.

Only two passenger cars were exported in 1955> but exported passenger

cars were increased to 720,586 units in 1970.^ Trucks and buses also

showed an increase in export during these years; exports of trucks and buses increased 388 times and 30 times, respectively, while the over­ all increase of exports of motor vehicles was 882 times. Three-wheeled motor vehicles also showed an increase of kS times. During the first seven months of 1971» Japan exported 936,219 units of motor vehicles O which were valued at approximately $1,3^8 m illion .J

One of the important characteristics of the export of Japanese motor vehicles was that the ratio of export to production had been very low; it was less than 10 percent before 1965 and still less than 20 percent until 1970. Domestic demand had been very brisk. Nevertheless, the export of motor vehicles and parts amounted to $1,086 billion in

1970 and accounted for 8.2 percent of all Japanese exports that year.^

The destination of the export motor vehicles shows a significant change. The market share to Asia decreased steadily from more than half of the Japanese motor vehicle exports to not quite ten percent during these years. On the other hand, market penetration to North America was remarkable; the market share of the area accounted for nearly half of the export in 1970 and this market is almost synonymous with the

U.S. market in terms of export.^ The penetration into the European 78

market had been difficult for Japanese motor vehicles, although they had made progress. Europe accounted for just .1 percent of the total units exported (four-wheeled motor vehicles only) in 1957> but advanced to 11.6 c percent in 1970. This is a strategy to avoid dependence upon one market too heavily.

Both Toyota and Nissan had taken a lion's share in exports; that . is, they held an average of 73*8 percent in the three years between

1963 to 1965 inclusive and then jumped to 81.2 percent in 1966. T his great market share was also maintained by them in 1969 and 1970 as

81.J4. percent and 80.7 percent, respectively.

The special procurement by the American m ilitary forces played an important role in the export of motor vehicles. As this was mostly for trucks, truck export benefited by it in initiating the export boom in the industry in the sixties.

Overseas activity was very strong. It involved the establishment of offices, branches, and assembly plants in other countries. Technology export was also included. The first arrangement for the establishment of an overseas office was made by Toyota Motor Sales Co., Ltd. in Bangkok,

Thailand. The business center of the company was established in February,

1957 1 became a branch office in May of the same year. Nissan also established a liaison office in Bangkok that year.^

Nissan Motor Co., Ltd. made a technical tie-in with the Yue Loong

Motors Co., Ltd., in Taiwan on December U, 1957* and was recognized by the Taiwan government in June, 1958. The Chinese company planned to assemble trucks, buses, and passenger cars for seven years after the contract. The royalty was two percent of the price of motor vehicles 79

for the first year, 2.5 percent for the second year, 3 percent for the third year, 3*5 percent for the fourth year, and 1+ percent for the fifth year.® This licensed production was the first such case in the history of the Japanese motor vehicle industry.

Almost at the same time (November, 1908), Toyota Motor Co., Ltd. shipped 800 assembly parts of the Land Cruiser, Toyota Jeep, to Brazil to establish an assembly plant there. Investment of Toyota in Toyota

Brasil S.A. was 1.5 billion yen ($l+.l6 m illion).

The Japanese motor vehicle industry had 54 overseas offices and affiliates, and 44 overseas assembly plants around the world by the end of 1970.9 The share of capital participation was different from one company to another. Australian Nissan was, for example, a wholly owned subsidiary, and Thai Toyota was also a wholly owned subsidiary. On the other hand, the share of capital participation of Toyota in an Australian company was 10 percent.^

This accomplishment of the industry was done through fierce com­ petition among companies, and some dropped out of competition, while some succeeded in taking a lion's share of the industry. Toyota and

Nissan were examples of the latter situation, and Prince Motors was an example of the former case, which we w ill discuss later (see page 87).

One major reason for the remarkable accomplishment of the Japanese industry seems to be the high rate of investment. The investment was second among all industries in the late fifties and became top in the sixties. High investment rate usually occurs when managers expect large market and large sales. In case of the Japanese industry, its expectations were more than fulfilled. 80

However, the marketing system did not operate as effectively in

Japan as in the United States. There is, of course, the installment pay­ ment system in Japan, hut it is not a common practice in Japan to get an individual auto loan, as in the United States. The tendency of payment methods for motor vehicles in Japan for the past six years, 1965-1970 inclusive, shows that cash payment accounts for approximately 20 percent; installm ent payment, 65 percent; personal loans, 10 percent; and other methods, 5 percent.H

B. Efficiency of Motor Vehicle Manufacturing Companies

Research and Development in the Motor Vehicle Industry

There are many reasons for the great development of the Japanese motor vehicle industry in the past two decades. One reason may be attributed to research and development (R & D). R & D may be defined as the planned effort to relate concepts to commercial or social applications in some systematic way. There are two kinds of R & D as far as Japanese motor vehicle manufacturing companies are concerned: one is the R & D which is initiated by the Japanese; and the other is introduction of technical know-how from other countries. We may call the former original R & D, and the latter purchased R & D. Sometimes it is difficult to distinguish between them: that is, the original R & D may be derived from the purchased R & D, as in the case of the rotary engine.

A survey of the Japan Development Bank shows the trend of investment in R & D in Japan. In I960, the investment made by the industry surpassed all other industries except that of the chemical industry.^

Original R & D in 1958, as an example, was made through various institutions: The Study of the M inistry of International Trade and Industry through Motor Vehicle Technology Institute (jidosha Gijutsukai):

(1) The establishment of standardization for motor v e h ic le s

This was a three-year project, 1955 being the base year; professors and technicians of motor vehicle manufacturing companies participated.

(2) Study on motor vehicles for higher speed

This study was made specifically for exports. Engines and transmission gear were intensively s tu d ie d .

( 3) Study on motor vehicle parts

Adjustment on kinds of parts was studied as well as the sim plification of manufacturing methods.

Projects of the Motor Vehicle Technology Institute

Studies on the skidding of tires and the size of diesel engines for small four-wheeled motor v e h ic le s .

Technical Research Laboratory of the Ministry of Trans­ p o r ta t io n

Studies on the brake system and safety driving.

Technical Research Laboratory of Railways

Studies on air springs for motor vehicles.

Small Motor Vehicle Industry Association

Studies on racers and the standardization of motor vehicle parts.

Motor Vehicle Parts Association

Study on radiators.

Body Industry Association

Joint study of body for high-speed buses.

Research by universities

Production Technology Center of Tokyo University, 82

Nippon University, Nagoya University, Waseda University, and Gumma University had their own projects on motor vehicles.

Besides this research, there were two conferences sponsored by the Motor Vehicle Technology Institute in 1958* In the spring con­ ference, twenty-six papers were presented, and twenty-five papers were given in the fall conference. Such research was continuously conducted in the fifties and sixties.

In the years 1970 and 1971» research on electronics, pollution, and motor vehicle safety received top priority for R & D. The Agency of Industrial Science and Technology initiated a five year research project for electrical motor vehicles, 1971 being the base year. Five billion yen ($ 13.9 million) w ill be invested and a test car will be made in 1973* ^

The industry has been concentrating on the study of anti-pollution to meet the requirement of the "Clean Air Law (Public Law 91-601+)" of the United States. The study on safer motor vehicles has also been progressing. In March, 1963* one company received patents on air bags from Japan, Germany, and the United S tates.^ The first test of this air bag was made in September, 1966. A subcommittee on the air bag in the Research Committee of Human Engineering of the Japan Motor Vehicle

Research Institute (Nihon Jidosha Kenkyujo) was formed and a study has been made from the biochemical point of view.

The rapid growth of the level of technology in Japan has been also attributed to the introduction of technical know-how from other countries . ^

This introduction of technical know-how has contributed, in other words, to narrow the large gap of technology between Japan and other advanced countries. This introduction began from 1950 to 1959 > the revival period 83

in Japan. Another intensive introduction of foreign technical know-how

was made in order to lay a sound foundation for future growth from i 960

and the years following thereafter. Foreign technical know-how had

been introduced to accelerate economic development.

The motor vehicle industry made an aggressive introduction of

foreign technical know-how to make up for the large gap which had grown

during the period of Japanese militarism. Under the encouragement of

the government, the motor vehicle manufacturers initiated contracts for

technical know-how with foreign motor vehicle manufacturers. Nissan

made a contract with Austin (U .K .) in 1953 and produced Austin motor

vehicles until the expiration of the contract in i960. Is u z u made a

contract with Roots (U.K.) in 1953> and Hino, with Renault (France) in

1953* Both companies extended their contracts for two more years in 1958.

Mitsubishi began to produce jeeps under contract with Willys (U.S.A.) and

their technical tie-in continued until 1959* From 1955 to August, 1971 > motor vehicle manufacturing companies made 95 contracts from nine countries to introduce technical know-how."^ The United States accounted for 5U*7 percent of such contracts.^ Nissan and Toyo Kogyo utilized foreign technical know-how most intensively. Toyota, on the other hand, utilized •10 less of it, and most of the contracts were those of Class B. This may be regarded as an exception to the Toyota policy of cultivating its own technology. Prince Motors, Ltd. also utilized domestic know-how exclusively.

Research on the Rotary Engine

Most companies have their own research laboratories. The Central

Research Institute of Toyota is a typical one. Each laboratory may develop either its own research projects or work on the purchased 81 + technology. However, the case of the rotary engine shows the most typical example of the Japanese attitude toward purchased technology: "Find out what the best practice is, and do it better.

Toyo Kogyo Co., Ltd. made a cross license agreement on the rotary engine with NSU-Wankel of West Germany on July 12, i 960, and this was acknowledged by the Foreign Investment Council on July 1+, 1961. At that time HSU made contracts with sixteen other companies around the world. The advantage of the rotary engine had been well known throughout the world. Many scientists and technicians had, however, challenged it and found that it was possible to have a rotary engine in theory, but not in practice.

Staff members at Toyo Kogyo argued fiercely about the rotary engine to decide whether they should involve themselves in it or not.

However, a decision was made by Tsuneji Matsuda, president of the com­ pany, to go ahead. When engineers of Toyo Kogyo stayed at HSU in Germany to study the rotary engine after the contract, they learned a very impor­ tant fact; HSU could not mass produce the rotary engine because of the

" c h a tte r marks.After they returned to Japan, the company formed a committee to develop the rotary engine. On November 25, 1961, the company made its first test rotary engine modeled after the HSU engine. Unfortu­ nately, the chatter marks were found in the test rotary engine. Disap­ pointed with this result, the company made a second and a third rotary engine, and the same chatter marks appeared. However, the willingness of T. Matsuda, president of the company, to go ahead was unshaken by the results of the tests.

The Research Department of Rotary Engines was established in April,

1963, with a staff of 1+7; their average age was twenty-five. Through 85 intensive study, every problem was solved by the Department by January,

1961+, except the chatter marks. However, the problem of the chatter marks s till remained unsolved. When an engine makes 8,000 revolutions per minute, apex seals rub through the housing at this powerful speed.

So the real problem was either how to make a stronger housing wall to endure the friction, or how to develop new apex seals.,

In I 96I4., the president of the company handed a newspaper clipping to the chief engineer. The newspaper reported that Nippon Carbon Co.,

Ltd. had developed a new carbon which had ten times more strength than ordinary carbons. The chief engineer then persuaded Nippon Carbon of the need for a strong carbon for the rotary engine. A combined research team was formed between the two companies and an aluminum-impregnated carbon material for its apex seals was devised in November, 19614-. A rotary engine of carbon seals was tested and stopped after 672 hour revolutions on December 28, I 96I+. No chatter marks were found, and three carbon seals were in perfect condition. Thus, a phantom engine became a real engine. The first rotary engine motor vehicle, the Cosmo

Sports (Mazda 110S) was on sale in 1967, and the first mass production was made the following year. The company spent approximately 8.0 billion yen

($22 million) for the research on the rotary engine.^ The rotary engine of Toyo Kogyo surpassed NSTJ in those days because the rotor tips of NSU

E0 80 passenger cars wear out quickly and have to be replaced after

15,000 miles, while Toyo Kogyo claimed a life of 30,000 miles.

Productivity of the Japanese Motor Vehicle Indutrv

One of the good indices of efficiency in any industry is labor productivity. The labor productivity of the motor vehicle industry can 86

be expressed either as the number of manhours needed to produce a unit,

or the number of units an employee produces in a given time period.

Labor productivity is a function of management style, workers' attitudes

toward work, labor unions, educational level of workers, and capital

investment per worker.

Labor productivity in terms of manhour input to produce a unit had

been decreasing steadily during the years, 1955-1970, in the motor vehicle 22 industry. On the other hand, labor productivity in terms of units of

motor vehicles an employee produces showed a steady increase. However,

some companies showed a more favorable trend than others. Toyota and

Nissan outnumbered other companies in terms of units an employee pro­

duces. However, 1*1.2 units per employee of Daihatsu in 1970 showed a 23 remarkable progress of the company. But Nissan Diesel had shown slow

progress. Overall labor productivity of motor vehicle manufacturing

companies was remarkably high up to 1960,^ but that of later years 25 lagged behind some other industries.

C. Merger Movement of the Japanese Motor Vehicle Industry

There was a merger movement in the industry in the sixties. This movement was planned and supported strongly by the Japanese government, particularly by the Ministry of International Trade and Industry. There

are two reasons for this movement: one of them is the principle of

economies of scale in the motor vehicle industry, and another is to cope with foreign capital effectively by concentrating Japanese motor vehicle manufacturing companies into a few giant ones. Japan expects an inflow of foreign capital in the near future. The first mentioned reason is based on the profit-oriented motive, while the second is based on the 87 more politics-oriented motive.

Competition in the industry has never been restricted except under wartime control, and the entry of new firms also has never been limited.

However, two or three firms surpassed other firms, and some dropped out of business or merged with other companies. Both Prince Motors, Ltd. and Aichi Machine Industry Co., Ltd. are examples. The former company was merged with Nissan Motor Co., Ltd. in 1966. The company was the third largest motor vehicle manufacturer of passenger cars and small trucks in 1 96I* just before the merger and challenged aggressively both

Toyota and Nissan. However, the company incurred losses mainly because its management was not so effective as Toyota and Nissan. Specifically, the company was weak in marketing even though its technical level was inferior to none.

The president of Prince made a final decision after consultation with the owner and chairman of Prince to merge with one of the major motor vehicle manufacturers on the grounds that it would be impossible to compete successfully with either Toyota or Nissan on the production scale of Prince in the present and foreseeable future, and that it would be good for Japan if the top-notch technicians of Prince could be utilized more effectively in big companies. Pfi

Aichi Machine withdrew its membership in the Japan Motor Vehicle

Manufacturers Association, Inc. because the company would not produce its own motor vehicles after the end of 1970. The company then devoted itse lf to the assigned production of motor vehicles for Nissan Motor Co.,

Ltd., as well as the production of parts for those motor vehicles. The loss in the September period of 1970 was 3tb3® million yen ($9*55 m illio n ) 88

for the company, and disinvestment in the form of loss of assets was

507 m illion yen ($1.2j. million) in the same p e r i o d . ^

The merger of Prince with Nissan was politically arranged; that is, the merger was initiated by MITI and related banks. The first effort by the banks was aimed at a merger with Toyo Kogyo, but failed because

Toyo Kogyo did not welcome it. MITI then initiated a merger with Toyota

Motor Co., Ltd. This was rejected by Taizo Ishida, president of Toyota.

He insisted that Toyota would go its own way by itself. Finally, Nissan was aimed at, and the merger was completed. The basic reason for this merger was the improvement of competitive capability against Toyota; the subject of the Nissan motto was to catch up with Toyota. However, a more fundamental political reason for the merger movement was that motor vehicle manufacturers should merge to cope with the liberalization of capital investment by foreign companies in the near future, so that they could compete for such companies effectively. The policy of Toyota was, on the other hand, to arrange tie-in with other companies such as

Hino Motors.

The' 1 were actually four groupings in the motor vehicle industry around August 15, 1971* One was the Toyota group, another was the Nissan group, third was the group tied in with foreign capital, and fourth was a group of independent companies. Hino Motors, Ltd., Daihatsu Kogyo Co.,

Ltd., and Toyota Motor Co., Ltd. formed the Toyota group. Aichi Machine

Industry Co., Ltd., Fuji Heavy Industries, Ltd., Nissan Diesel Motor Co.,

Ltd., and Nissan Motor Co., Ltd. formed the Nissan group. Isuzu Motors,

Ltd., and Mitsubishi Motors Corporation belonged to the third group. The nature of the tie-ins of the companies in this third group is as follows: 89

General Motors-Isuzu Tie-in

An agreement was signed between General Motors and Isuzu of Japan

for a tie-in on July 16, 1971 > and the Japanese government acknowledged

it in August, 1971. General Motors owned 3U» 2 percent of the shares of

Isuzu at the time of the tie-in. The plan of both companies through 28 the tie-in was as follows:

1. Joint development of small passenger cars which are expected to be on the market in 1973*

2. Exports of small-sized trucks of Isuzu to the United S ta te s .

3. Joint effort for R & D.

1+. Introduction of advanced management systems to Isuzu by GM.

5. GM-Isuzu, Kawasaki Heavy Industries, and Itohohu Motor w ill establish a joint venture of automatic transmissions and gas turbine engines.

Chrvsler-Mitsubishi Tie-in

An agreement was signed between Chrysler and Mitsubishi for a

tie-in on May 12, 1971* and the Japanese government approved it on June

12, 1971. Chrysler owned 10 percent of Mitsubishi shares in 1971* and was scheduled to own 2f> percent by 1972, and 35 percent by 1973*

Under this tie-in, more units oi M itsubishi's Galant would be channelled through the sales network of Chrysler in the United States 29 under the name of Dodge Colt. M itsubishi's motor vehicles will also be assembled in Chrysler plants in other countries such as Australia, the Philippines, South America, and New Zealand. Furthermore, both companies have started to study ways and means of effecting standardi- 10 zation and making interchangeable parts for their motor vehicles.

The negotiation of Toyo Kogyo and Ford for a tie-in ended without 90

any results, and Toyo Kogyo confirmed that the company would remain as one of entirely Japanese capital, even after it might make a selling tie-in with Ford.-^

Both Honda Motor Co., Ltd., and Suzuki Motor Co., Ltd. would remain independent. Honda had complained against the concentration policy of the

Ministry of International Trade and Industry because it meant Honda's dependence on either Toyota or Nissan. This is contrary to its manage­ ment philosophy: independence. However, the government policy has never changed basically, even after Honda's protest.

In summary, the Japanese motor vehicle industry achieved a remark­ able success during sixteen years from 1955 to 1970 inclusive. The

Japanese government played an important role in the growth of the industry; encouragement and protection of the industry through govern­ ment policies. (Ve w ill discuss the problem of protection in Part II.)

Entrepreneurship of the top managers in the industry also played a crucial role in the development of the industry, mainly through investment policy.

Again, the brisk demand of the Japanese for motor vehicles became the basis of such roles of both the government and the industry.

Before discussing the impact of the Japanese motor vehicle industry on the U.S. market, we w ill discuss the motor vehicle parts industry mainly because of its importance within the Japanese motor vehicle industry. Footnotes

1. Japan Motor Vehicle Manufacturers Association, Inc., Motor Vehicles Statistics of Japan 1971 (Tokyo: Japan Motor Vehicle Manufac- turers Association, Inc., 1972),p. 6.

2. Ibid., p. ll;.

3. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. l| 8l .

4. Ibid., p. 99-

9. Exported units of Japanese motor vehicles to Canada were 73>lUU> w h ile th e U n ited S ta te s im p o rted i+22, 6I4J4. units, see Japan Motor Vehicle Manufacturers Association, Inc., Statistics 1971, p. 38.

6. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1998, p. 179, and 1971, p. k k l.

7. See p. 119 for the reason why Bangkok was selected for their o f f ic e s .

8. Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan. 1998, p. 192.

9. Overseas offices and affiliates of motorcycle manufacturers which manufacture four-wheeled motor vehicles are included, while they are excluded from overseas plants.

10. Keizai Hyoronsha, Jidosha Sangyo 1971, P* lb and p. 92.

11. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. 89.

12. Akira Uchino, Nihon no Kenkyu Toshi ("Investment in R & D in Japan") (Tokyo: Jitsugyo Kohosha, 1962) , p . 13^-.

13. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. i+8.

ll+. Ibid., p. 37.

19. Noboru Tsuda, Gi.iutsu Boeki no Jishiki ("Trade of Technology") (Tokyo: Nihon Keizai Shimbunsha, 1969), p. li+9-

91 92

16. Gaikoku Gi.jutsu Doyu Yoran ("A Directory of Foreign Technology Introduction, 1962-1966 Annuals") (Tokyo: Jukagaku Kogyo Tsushinsha, 1962-1966), passim, and Nihon Jidosha Kaigisho and Nikkan Jidosha Shim- bunsha, Jidosha Nenkan, 1956-1967 and 1971-1972 Annuals, passim.

17. Loc. cit.

18. Class B means that payment of fees and service offerings are less than one year.

19- Daniel L. Spencer, Technology Gap in Perspective, (New York and Washington: Spartan Books, 1970)> P* 162.

20. The rotary engine delivers power through spinning rotors rather than reciprocating pistons. Each triangular-shaped rotor is enclosed in a housing with a pudgy figure-eight shape. As the apex seal of the engine spins around the rotor housing, it makes scars on the wall of the housing. This is called a "chatter mark."

21. Keizai Hyoronsha, Jidosha Sangyo 1971. p* 127* One expert states that Toyo Kogyo spent 3*5 billion yen ($9 • U m illion) for the rotary engine. See the Special Issue on Motor Vehicles of Jitsugyo no Nihon, April, 1968, p . 302.

22. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan, 1972-1973» passim.

23* I b i d . , passim .

2l+. Rodo Nenkan 1962 ("Labor Yearbook 1962") (Tokyo: Katsura Rodo K enkyujo, 1961), p . 31U•

25- Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. 278.

26. Nihon Keizai Shimbunsha Kogyokyoku, ed., Kokusansha wa Dokoe Yuku ("The Future of Domestic Motor Vehicles") (Tokyo: Nihon Keizai Shimbunsha, 1969) , pp. 63—61+.

27. Kaisha Nenkan 1972 ("Yearbook of Corporations 1972") (Tokyo: Nihon Keizai Shimbunsha, 197l)> P* 1272.

28. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. 5U*

29* The Dodge Colt was distributed into the U.S. market through the Chrysler network even before the tie-in.

30. Nihon Keizai Shimbunsha and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. 5U«

31. The negotiation concentrated on the ratio of capital partici­ pation of Ford to Toyo Kogyo and the patent of the rotary engine. CHAPTER V

THE MOTOR VEHICLE PARTS INDUSTRY

A. Characteristics of the Japanese Motor Vehicle Parts Industry

The industry is highly dependent on motor vehicle manufacturers

as subcontractors. There is a hierarchical or vertical relationship between motor vehicle manufacturers and motor vehicle parts manufacturers.

There were almost 8,000 motor vehicle parts manufacturers in

Japan in 1971* Those manufacturers who produce finished motor vehicle parts are called primary subcontractors. There are also secondary and

tertiary subcontractors who deal mainly with the primary subcontractor.

Each company has its own group of subcontractors for parts. Toyota had 202 member subcontractors-*- in March 1971 under the name of Kyohokai

(literally, Association of Cooperation with Toyota; the Chinese character ho of Kvohokai is the same as that for Toyo of Toyota). Kyohokai was originally organized in November, 1939 > with 1 6 companies, and later added the two regional Kyohokais of Kanto and Kansai.

Nissan also has subcontractors: Takarakai (literally, Treasure

Association) whose members numbered 11$, and Shohokai, (literally ,

Crystal & Treasure Association) whose members numbered 1+2 in 1971* The members of the former association are processing parts manufacturers, while

the members of the latter are professional manufacturers of motor vehicle parts. Takarakai was officially recognized in 19$8» Shohokai began its

93 activities in 1966, aiming at smooth communication among managers of member companies.

The association of primary parts manufacturers of Toyo Kogyo is called Toyukai, and that of secondary parts, Tokokai. Toyo Kogyo embraced

88 companies in 1971 through these two associations. However, Toyo Kogyo had no capital participation with these companies, and the proportion of outside orders or im itation motor vehicle parts was approximately 90 3 percent. Outside orders by motorme vehicle manufacturers ranged from 60 to 70 percent on the average. h

Members of parts companies in groups of other manufacturers are £ as follows:

Mitsubishi 337 companies Isu z u 231 Fuji Heavy 162 Daihatsu 180 Hino 161+ Suzuki 82 Nissan Diesel 61+

There is a difference between Toyota and Nissan toward the grouping of subcontractors. Toyota avoided organizing its own subcontractors.

Rather, the company recommended that big primary finished motor vehicle parts companies, such as Nippon Denso KK.^ (which made motor vehicle parts mostly for Toyota) form a primary and secondary subcontractors association. Nissan organized its own subcontractors through capital participation.

Each company's parts association tries to improve efficiency through information exchange, conference, and study discussion. The

Technology Committee of Takarakai has studied the following subjects: l) joint R & D of new products; 2) joint quality control; 3) exchange of new technology; and i|.) mutual utilization of machine tools. 95

The Japanese parts industry can he classified into five groups:

Toyota group, Nissan group, Mitsubishi Motor group, independent group, and foreign capital (mostly U.S.) group. The vertical relationship of each group was not so rigid as might be expected. A member firm of any group has the freedom to manufacture for companies of other groups. Some­ times it is recommended to do so by its own principal company, because the manufacturer does not want to bear the entire burden of its subcon­ t r a c t o r s .

Parts firms and motor vehicle manufacturing companies of the same group usually meet twice a year, and the former are ordered by the latter in many cases to reduce their cost to a certain percentage. If parts manufacturers do not obey these orders, they may have trouble obtaining further shitauke, or subcontracts. According to a MITI survey, the trend of prices for parts showed a decrease for three consecutive years from

1961 to. 1963.^ Although the trend may be attributed to the increase in efficiency of the parts industry, the attempt of motor vehicle manufac­ turers to reduce the selling prices of parts also should be considered.

The dependence of the parts industry on motor vehicle manufacturing O companies is very high from the point of products: 78.1 percent in 1970.

There are many small companies in the parts industry. They can be identified by the structure of employees and capital. According to a survey by the Japan Auto Parts Manufacturers Association, almost half

(1+7.8%) o f th e com panies su rveyed had l e s s th a n 500 employees, and only 9 9.3 percent of them had more than 2,000 employees in 1970. The propor­ tion of production by small companies, however, was very meager; those companies with less than 500 employees contributed only 15*3 p e rc e n t 96

to the. total motor vehicle parte production. The biggest companies con­

t r i b u t e d alm o st h a l f (1+7.2%) to th e t o t a l p ro d u c tio n . In o th e r w ords,

the structure of the Japanese parts industry was concentrated. The three

largest companies accounted for 89 percent in 1963» and 87 percent in

1968, of the total production of parts in Japan.^

The industry can be studied also from the point of view of capital

structure. The above-mentioned survey also shows that those companies with capital of less than %0 million yen ($ 139* 000) compose 1+0.9 p e r c e n t,

and more than half (53*9%) of the companies had capital of less than one hundred m illion yen ($278,000). Only 12.1 percent of the companies had more than one billion yen ($2.8 million) of capital. Many companies

(32.9%) belong to the range of capital with J?0 to 100 m illion yen. The

contribution of big companies with more than one billion yen of capital was almost half (l+I+.0%) of the total production.

There is another characteristic of the parts industry: the business

of this industry is not as profitable as that of the motor vehicle

industry. The difference in ratios of net income to total capital between

the parts industry and the motor vehicle industry was extreme: The

ratio of the former was more than double that of the latter during the

four years from i 960 to 1963 inclusive.^

Production of non-motor vehicle parts in the motor vehicle parts

industry has been increasing. The survey by the Japan Motor Vehicle

Parts Manufacturers Association shows that approximately 20 percent of

the products of motor vehicle parts manufacturers were non-motor vehicle p a r t s .

As in other industries, the main contribution of the industry is 97

the value added to the gross national product and earnings through

exporting motor vehicle parts. The industry produced approximately

15 million yen ($ 7, 327, 500) of value in 1931 > but over one trillio n yen ($2.78 billion) of motor vehicle parts were produced in 1970, a

total which had been the target of the industry for several years.-*-3

The development of the parts industry has shown a sim ilar trend to that of the motor vehicle industry. When motor vehicle production was encouraged under the Motor Vehicle Manufacturing Business Act, parts companies emerged during the five years between 193& and. I 9I4O inclusive.^

The development pattern from 19b9 to 1951 is the same as that of the motor vehicle industry: revival from the destruction of the war, the recession of the Dodge Line, and the great leap during the Korean War.

The expansion of the production of Japanese motor vehicles in the mid­ fifties was followed by the expansion of the parts industry. Again, the Japanese parts industry developed rapidly after the motor vehicle industry renewed its expansion program in the mid-sixties and thereafter.

Exports of motor vehicle parts can be classified into two cate­ gories: one is those parts which w ill be used as replacement parts for exported motor vehicles; and the other, parts which w ill be used for newly assembled motor vehicles. In Japan, most of the motor vehicle parts (82.5%) have been used for newly assembled motor vehicles, while only 11.3 percent have been used for replacement. The remaining 6.2 percent does not belong to either category such as motor vehicle stereos . ^

However, the case of export is just the reverse. Most Japanese parts have been exported for the service of exported motor vehicles. Prom

$80 to $100 worth of parts have been exported for each motor vehicle exported."^ The destination of these parts has also been similar to that

of the motor vehicle industry. Export has been concentrated on East and

Southeast Asia. The market share of this area was more than half of the

total exports for the first three years of the sixties. The market share

of Asia declined significantly to less than 30 percent by 1971. On the

other hand, market penetration to North America (the United States, for

the most part) was remarkable. Prom just below 10 percent until the 17 m id-sixties, the market share jumped to 39*6 percent in 1970.

The 1970 export of parts accounted for 1.1+ percent of total Japa-

■j O nese exports, but for a sizable amount in the machinery industry.-1-0 How­

ever, this accounted for just 1* percent in the world motor vehicle parts market for service of $6,920 million, excluding Japan . ^

Export was done through three channels: one was the export of parts by motor vehicle manufacturing companies (approximately 50% o f

exports); another one was export by parts dealers, and lastly, some parts (10%) were exported directly by parts manufacturers.

The future prospect of the Japanese motor vehicle parts industry

seems to be very bright because the industry has begun to be recognized

as the world's factory of motor vehicle parts, and quality, performance, production technology, and prices have met satisfactorily the demand of motor vehicle manufacturers in Europe as well as in the United States.

B. The Government Policy on the Motor Vehicle Parts Industry

Before World War II, the Japanese government encouraged the develop­ ment of the parts industry and the standardization of parts through the

Motor Vehicle Establishment Committee of the M inistry of Commerce and

Industry. The Research Committee of Standardization of Size of Industrial 99

Goods studied the possibility of standardization of motor vehicle parts in

1931 and. 1933» and a study of interchangeability of parts was also carried

out. As a result of these studies, the Regulation of Recognition of

Superior Motor Vehicle Parts and M aterial of Motor Vehicles was proclaimed

in 1938. After the Motor Vehicle Technology Committee was established in

September, 1939, with the underminister of the Ministry of Commerce and

Industry as chairman, a comprehensive study was again made for the improve­

ment of the parts industry. The foundation of the industry was essentially

established during this period.

The springboard of the rapid development of the Japanese parts 21 industry was, however, the Machinery Industry Promotion Act of 1996.

This act was extended twice: once in 1961, and again in 1966. After the

enactment of the law, the parts industry became a nominated industry. The major objective of the act was to encourage the rationalization (increase

of efficiency) of the motor vehicle parts industry through the purchase or

import of nominated machines by loans. This rationalization aimed at

lowering production cost by 20 percent during the years of 1956 to i 960,

along with the establishment of a production system for the improvement

of performance, and mass production of superior goods.

A special loan by the Japan Development Bank for the investment of

1.8 billion yen ($5 million) was made to the motor vehicle parts industry u n t i l i 960. The extended act again encouraged investment, and over 20

billion yen ($55*6 million) was invested by 1961|, and special loans of

13.8 billion yen ($ 38.3 m illion) were exercised through the Japan Develop- 22 ment Bank and the Smaller Enterprise Loan Corporation.

Equipment and facilities of the industry improved remarkably, and 100 the production in i 960 became 6.7 times as much as that of 1956, and smaller and medium enterprises of less than 50 million yen of capital decreased from 80 percent in 1956 to 55 percent in 1965. ^ When th e act was extended in 1966, the main target of the industry shifted to the strengthening of international competition. The basic strategy to achieve this objective was to have enterprises of large scale, efficient management, and intensive R & D. Approximately 50.8 billion yen ($llj.l.l million) was loaned by the Japan Development Bank and the Smaller Enter­ prise Loan Corporation for the plan.^

As a result of the first and extended second acts, the professional production system for parts was established, and their international competitiveness was greatly enhanced by the extended third act. The third act also recommended strongly the merger or grouping movement.

Motor vehicle manufacturers of electrical accessories and related parts formed three groups: one group was formed around Nippon Denso KK., another one was formed around the Hitachi Works, Ltd. (Hitachi Seisakujo), and the third one was formed around Mitsubishi Electric Co., Ltd. (Mitsubishi

Denki KK.).

C. R & D in the Motor Vehicle Parts Industry

As with other industries, the key factor in developing the Japanese parts industry is R & D. This is important in the sense that it is the only way to compete successfully in the world market. There are both original R & D, and purchased R & D, as in the motor vehicle industry.

There is also another research activity. As many firms are of small size, they cannot initiate their own research projects. As an alternative, major motor vehicle manufacturing companies give advice for their R & D. 101

One survey indicated that approximately 1+0 percent of parts manufacturers got some kind of advice and assistance from motor vehicle m anufacturers.^

More than half of the parts manufacturers have some technical tie- in with foreign companies. The Bendix Corporation is a good example. The company made a technical tie-in with Akebono Brake Industry Co., Ltd. in

1965 in the form of a 20 percent capital participation, and a 13 p e rc e n t capital participation with Jidosha Kiki Co., Ltd. in 1969.^ Approximately

300 contracts were arranged with foreign companies to make technical tie- ins from 1951 to 1971*^ The number of contracts has been increasing steadily in recent years. Among contracting countries, the United States pO has had a lion’s share of more than half of them (91)..2%). Germany has accounted for 16.2 percent, and Great Britain 11+.8 percent of the contracts.

Besides this technical tie-in, fourteen parts companies have allowed capital participation by foreign companies, and eight U.S. companies have participated in this case. Other countries are: Germany (3 companies), Great Britain pQ (l), Sweden (l), and Prance (l). The proportion of capital participation ranged from 10 to 3$ percent. There are also 20 joint ventures in the industry and the proportion of shares of foreign companies range from 10 to $0 percent. Seventeen U.S. companies have participated, and the 30 countries of Great Britain, Germany, and Belgium have also participated.-'

In Part II, we will discuss the impact of Japanese motor vehicles on the U.S. market. The term impact refers to the market share of Japanese motor vehicles in the U.S. market, the concern of both the U.S. government and American motor vehicle manufacturers about such a penetration, and their subsequent reaction. 102

The increase of market share in the U.S. market is a result of the

conscious joint efforts of both the Japanese government and Japanese manufacturers. The former has protected the industry through the blockade

of foreign capital in Japan. On their part, manufacturers have conducted

an aggressive export of their motor vehicles.

In the next chapter, we will discuss the trade policy of the Japa­ nese government in general and motor vehicles particularly. We w ill also

discuss the trade strategy of Toyota as an example of manufacturers. Footnotes

1. Japan Motor Vehicle Parts Manufacturers Association, ed., Jidosha Buhin Kogyo 1971 ("The Japanese Motor Vehicle Parts Industry 1971") (Tokyo: Oto Toredo Janaru, 197l)» PP« 221-30.

2 . I b i d . . p . 23k-h0.

3. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. 186.

I+. I b i d . , p . 182+.

5. Ibid. . pp. 181+-86.

6. The company was previously the Denso Plant of Toyota Motor Co., Ltd. The plant became incorporated in December, 19^-9 > and merged with Aichi Denso in 1959* Toyota Motor Co., Ltd. and Toyoda Automatic Loom are the two largest shareholders of the company.

7. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1966, p . II4.6.

8. Ibid.. 1972, p. 171.

9. Japan Motor Vehicle Parts Manufacturers Association, Buhin. 1971, P. 163.

10. I b i d . , p . 200.

11. Ibid.. 1965, P. 71.

12. Ibid. . 1971* P* 36.

13. Ibid., p. 167, and Ozaki, Jidosha Nihonshi. I, p. 605*

11+. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1958, p. 133*

15. Japan Motor Vehicle Parts Manufacturers Association, Buhin. 1971» p . 56.

16. Ibid., p. 52.

17. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1966, p. li+9; 1971* p. 120; and 1972, p. 195*

103 lO lf .

18. Japan Motor Vehicle Parts Manufacturers Association, Buhin. 1971» p. 99-

19. Ibid., p. 62.

20. Loc. p i t .

21. Beside this act, there were some subsidies to the parts industry such as the Subsidy for the Rationalization of Production Equipment of the Motor Vehicle Parts Industry.

22. Japan Motor Vehicle Parts Manufacturers Association, Buhin. 1971» p . 32.

23. Only those companies which participated in the Japan Motor Vehicle Parts Manufacturers Association were considered.

2)4. Japan Motor Vehicle Parts Manufacturers Association, Buhin. 1971» p . 32.

29. Zentaro Nagare and Hideo Yamanaka, Jidosha ("Motor Vehicles") (Tokyo: Yuhikaku, 1966) , p . II4.I.

26. Japan Motor Vehicle Parts Manufacturers Association, Buhin. 1971 p . 190.

27. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1967 > PP* 221-23, and 1972, pp. 173~83.

28. Loc. pit.

29. Japan Motor Vehicle Parts Manufacturers Association, Buhin. 1971» p . 190.

30. Loc. cit. PART I I . THE U .S . MARKET AND THE JAPANESE MOTOR VEHICLE INDUSTRY CHAPTER VI

INTERNATIONAL TRADE POLICIES ON MOTOR VEHICLES

The history of Japanese importation of foreign motor vehicles and parts until the end of World War II can he divided into two periods: one, before the Motor Vehicle Manufacturing Business Act of 193&; the other, the period after the Act was enacted until the surrender of Japan.

A. Trade Policy Before the Surrender of Japan

Imports of Foreign Vehicles and Parts

The Japanese government allowed openly the import of foreign motor vehicles and parts for assembly until the late 1920s. Since

Japanese-made products could not meet the demand in Japan in the years before the enactment of the Motor Vehicle Manufacturing Business Act of

1936, there was no alternative for the Japanese government to take except encouraging the import of foreign motor vehicles.

In 1930> foreign motor vehicles in use in Japan accounted for almost 95 percent of all motor vehicles.^ And, as Table 2 shows, U.S. products in that year accounted for more than 95 percent of all these foreign imports. Eord and Chevrolet alone accounted for about 75 p e rc e n t of these foreign motor vehicles.

Imports of finished motor vehicles and imports of parts to Japan contributed to the unfavorable balance of trade during those years

105 106 before the enactment of the Motor Vehicle Manufacturing Business Act o f I 936.

TABLE 2

FOREIGN MOTOR VEHICLES IN JAPAN (1930)

Type of motor Units of Market vehicle motor vehicles sh a re

Ford 32,122 38. 31% C h e v ro le t 30, 1+30 36.29 B uick 3,111 3-71 S ta r 2,579 3.08 E ssex 1,829 2.18 W hippet 1,733 2.07 O verland 1,677 2.00 Dodge 1,1+51+ 1 .7 3 C h ry s le r 1,135 1 .3 5 Nash 1,001 1.19 Hudson 955 1 . 11+ G.M.C. 66I4. .79 C itro e n 651+ .78 O ldsm obile 653 .78 P o n tia c 616 .7 3 Leo 601 .72 Packard 570 .68 Willys Knight 538 . 61+ W olseley 5il+ .61 Graham-Paige 513 .61 A ukland 508 .61 T o ta l 83,857 100.00

Source: The Japanese Empire. 1912 (Tokyo: The Japan Times, 1931)» p . 176.

The policy after the Act of 1936 was to restrict imports by raising tariff rates (see Appendix IV). There was virtually no import policy dur­ ing World Wax II as far as motor vehicles and parts were concerned.

Export of Japanese Motor Vehicles and Parts

The first export of Japanese vehicles was Otomos of Hakuyosha to

Shanghai, China and Hong Kong as samples in 1923. However, no exports 107 were made between 1923 and 193^» even though it became a national objective to improve the unfavorable balance of trade in the late twenties and the early thirties. For almost twenty years after the

M ilitary Motor Vehicle Subsidy Act of 1918, the industry tried hard to establish itself firmly in Japan, but even the domestic demand was never met by the industry. Export was out of the question, although

Japan exported parts such as tires to Southeast Asia in the early t h i r t i e s .

Export and assembly of Japanese motor vehicles were closely related to Japanese militarism and the so-called policy of the "Greater

East Asia Co-prosperity Sphere." Exports were encouraged to achieve the objective of the m ilitarists. After 193U» Japanese motor vehicles were exported to Manchuria, China, the Kwantung Leased Territory

(Kantoshu), and other Asian countries. Exports to other countries accounted for less than 10 percent of the total motor vehicle exports in most years (1935- 1938), and for almost nothing from 1939 until the end of World War II. 2 Approximately 70 three-wheeled motor vehicles were exported to Southeast Asia including Hong Kong, Manila, Singapore,

Bangkok, and Borneo in 1932 and 1933*^ These were the first formal exports for three-wheelers and the prospect seemed bright; however, export was discontinued after 193U both because of international tension and because the driver's seat was not made to endure the hot weather of the South Pacific.

After the Motor Vehicle Manufacturing Business Act of 1936 was enacted, the trade policy of the Japanese government before World War II was characterized by two aspects: tariff rates on imported goods, in­ cluding motor vehicles and parts, were adjusted so that the policy of 108

restricting importation could be effective; and export of Japanese products

was encouraged.

The ta riff rate on imported motor vehicles was revised completely

on December 22, 1936, to protect the Japanese industry. This was the

true objective of the Motor Vehicle Manufacturing Business Act of 1936.

This tariff rate was generally raised. As a result of this tariff

policy, imports of both vehicles and parts decreased steadily from 1937»

and the domestic industry made rapid progress.

Almost one year before the outbreak of World War II, the Regulation

of Temporary Export and Import Licensing was revised (on August 3> 19^0),

and the export and import of vehicles and parts were placed under strict

government control. Vehicles, parts (excluding motor and chassis) be­

came licensed items. Export of both vehicles and parts were handled

solely by the Nippon Machinery Export Promotion Co., Ltd. (Nippon Kikai

Yushutsu Shinko KK.) after June 16, 19U1•

Several repair and assembly plants were established in Korea,

Manchuria, and China through the encouragement of the Japanese industry under the regulation of the Japanese army. However, contrary to the

expectation of the army and the industry, the industry itself was weakened by this very encouragement because the plants established there

did not operate well and became a burden to the Japanese industry. The main reasons for malfunction were inefficient management and the lack of

skilled workers. We w ill discuss these repair and assembly plants in

d e t a i l .

Manchuria

Dowa Motor Vehicle Industry, Ltd. (Dowa Jidosha Kogyo KK.) was 109

established with a capital of 6 .2 million yen ($ 1.8 million) in

Manchuria in 193k after Manchukuo was created.^- The company later

increased its capital to 30 million yen ($9*9 million). However, the

company gave up its plan to manufacture in Manchuria in order to protect the Japanese industry and avoid competition with it. Instead,

the company assembled units from parts imported from Japan. Seven

companies in Japan formed a cooperative association through which parts

for assembly were sent to the Dowa Motor. After establishing the Man­

churia Heavy Industries Development Company (Manshu Jukogyo Kaihatsu

Kaisha), Yoshisuke Aikawa of Nissan planned to set up a joint venture £ with Ford in Manchuria. However, the plan did not materialize and

Nissan went into Manchuria alone.

The plan was severely protested by the Maintenance and Equipment

Section of the M inistry of the Army, which had supported Toyota, on the

grounds that it was not fair for Toyota if Manchuria was monopolized by

Nissan. After long and hot debate, the Manchuria Motor Vehicle Manu­

facturing Co., Ltd. (Manshu Jidosha Seizo KK.) was established in 1939 with a capital of 100 m illion yen ($2$,981,000) in Antung, Manchuria with

the understanding that the policy on motor vehicles in Manchuria would

not be implemented in favor of the Manchuria Heavy Industries Development

Company of Y. Aikawa. Dowa Motor Vehicle was absorbed by Manchuria

Motor Vehicle in June 19^2„ However, the company did not produce any­

thing until the end of World War II.

China

A compromise was reached between the rival sections of M ilitary

A ffairs, which had supported Nissan, and Maintenance and Equipment, 110 which had supported Toyota. They agreed to send Toyota Motor Co., Ltd. to China. This plan was warmly recommended because Toyota had already done business in China in textiles. An assembly plant and a body plant were established in Tientsin, China and the Northern China Motor Co.,

Ltd. (Hokushi Jidosha KK.) was formally established with a capital of

6 m illion yen ($l.ij. million) in February, 19^0. The company became the North China Motor Vehicle Co., Ltd. (Kahoku Jidosha KK.) on absorbing the Motor Vehicle Department of the Northern China Transpor­ tation Co., Ltd. (Kahoku Kyotsu KK.). It engaged mainly in repair b u s in e s s .

In Central China, a repair factory was established in Shanghai in February, 1937» and became an independent entity in 191+2 as the Cen­ tral China Toyota Motor Co., Ltd. (Kaehu Toyota Jidosha Kogyo KK.), with a capital of 0 million yen ($ 1.17 million).^

Korea

The objective of the Motor Vehicle Manufacturing Business Act of

1936 was directly connected with the policy of the Japanese army on China and Manchuria. After the Shanghai Incident of 1937» Korea Japanese-Motor

Vehicle Industry, Ltd. (Chosen Kokusan Jidosha Kogyo KK0) was established with a capital of 6,320 thousand yen ($1.82 million) in Seoul, Korea, as a first step to implement the policy. The main business of the company was both assembling and repairing motor vehicles. Diesel Motor Vehicle absorbed Korea Japanese-Motor Vehicle in June, 1939» and assembled and

O repaired Isuzu motor vehicles.

Southeast Asia

After World War II broke out, the area occupied by the Japanese Ill army was assigned to both Toyota and Nissan for the maintenance of motor vehicles. Some countries such as Thailand and Burma were assigned to

Nissan, and the South Pacific area was assigned to Toyota. Nissan also controlled Ford in occupied Singapore, and General Motors in occupied

Manila was administered by Toyota. But Diesel Motor Vehicle established two plants in Singapore and Djakarta, respectively, in 19l+3«

B. Trade Policy After World War II

The trade policy of the Japanese government after World War II began with the establishment of the Board of Trade in December, 191+5 j to manage state controlled imports under the Allied Forces Occupation. g Limited civilian trade was authorized by SCAP in 19U7.

The year 191+9 was epoch-making for the trade policy of Japan.

Exports of Japanese goods were encouraged for the first time by the policy of Dodge Line for the establishment of a self-supporting economy in that year. Another important event was the full reorganization of the Ministry of Commerce and Industry into the Ministry of International

Trade and Industry in May, 191+9 • As the name indicates, top priority was shifted from the domestic economy to international trade. The main emphasis was on export promotion and those policies which helped to attain this objective. Thirdly, a fundamental law regulating trade was enacted in December, 19*1+9! The Foreign Exchange and Foreign Trade Control

Law. This law has been the basis of trade policy from 191+9 to the present and has brought about a new age of foreign exchange and trade control in

Japan. This new system was backed by several supporting laws and regu­ lations such as the Foreign Exchange Control Law, the Export Trade Control

Order which provided that exporting goods should be licensed almost autom atically, the Import Trade and Overseas Payment Control Order,

and the Import Trade and Trade Payment Regulation. Most of them were

enacted around 191+9•

In 1950» the government affirmed export promotion as one of the

four pillars of Japan's international and domestic trade. The other

three were an increase in production, promotion of small and medium

business, and promotion of industrial technology. The Export Credit

Insurance Law was enacted in March, 1950, through which exporters were

insured payment by the government. A Law on Foreign Capital was also

enacted in May of that year. Its objective was to prevent excessive

introduction of foreign capital into Japan and proper utilization of

what was introduced for the revival of the Japanese economy.

During the Korean War, an Export-Import Bank was set up and a

system of export license, government guaranteed insurance, and loans

from the Export-Import Bank was firmly established in Japan.

After the Korean War, a trade policy whose main objective was to

promote exports and restrict imports was affirmed by the Japanese govern­

ment. The Supreme Export Council (whose chairman is the Prime M inister)

and the Industrial Export Council were established in September, 1951+*

as export promotion measures. These councils discussed bottlenecks

in export, reviewed more specific export promotion strategies, and

established export plans product by product.

The M inistry of International Trade and Industry announced an

"Outline of New International Trade and Industry Policy" in September,

195^+. The outline included some measures for the strategy of trade promotion, such as: the encouragement of greater export efforts through

the establishment of the Council of Export, the revision of the Law of Export and Import Transactions, the strengthening and integration of trading companies, the development of new overseas markets, the strengthening of market research, and the promotion of trade with the

USSR and the People's Republic of China.

A comprehensive Six-Year Economic Plan was announced immediately after the new outline of trade policy. The plan aimed at the improve­ ment of the balance of payments and the founding of a base through which future development would be accomplished by normal trade in the first three years, and the expanded development of the economy and full employment during the latter three years. The following measures were taken as trade policy:^

(1) The establishment of a proper order for export and import transactions:

The law of Export and Import Transactions was revised in August, 1955» and some mea­ sures were taken to strengthen cooperation between trading companies and manufacturers.

Voluntary export adjustment was to be made vis-a-vis the United States for textiles, pottery, tuna, and plywood (exports rapidly increasing then).

(2) The conclusion and revision of trade agreements:

The open account system was to be changed to the cash account system for some countries.

(3) Adjustment of export insurance:

A new insurance system was created for the remittance of overseas investment in 1957» and the procedure for export insurance was much simplified.

(i|) The enactment of the Law of Export Inspection:

The law was aimed at improving the quality of exported goods, and voluntary inspection was changed to mandatory. Ilk

(5) The improvement of the system for foreign exchange and tr a d e :

The Foreign Exchange and Trade Council was established in 1959 hy the MITI in order to promote trade through simplify­ ing the procedure of foreign exchange and trade, and enlarging automatically the number of licensed goods.

The Tariff Council was also established at the same time to classify goods and study tariff rates.

( 6) Trade Promotion Projects:

The Japan External Trade Organization (JETRO), which had been conducting over­ seas market research and promotion, was reorganized; the Japan Trade Promotion Company was established in July, 1958* to strengthen export promotion activity.

In the sixties, a major task of the Japanese government was how

to cope with the liberalization of the Japanese economy which we w ill

discuss later.

C. The Post-War Trade Policy for Motor Vehicles

The basic policy of the Japanese government for the Japanese motor vehicle industry has not changed, although there had been a time

of some ambiguity, confusion, and indecision after World War II; this

industry should be protected and promoted as other industries. The

trade policy of the Japanese government was based on this postulate.

However, there was a division of labor between the Japanese

government and the motor vehicle industry for implementing the policy:

it was the government which played the major role in import; it was the

industry which played the most important role in export. In other words,

the Japanese government restricted the importation of foreign motor

vehicles, and the industry initiated an aggressive effort to export 115

its products with government encouragement.

The Import Policy

The import policy of the Japanese government was set up as a protectionist policy in order to promote the firm establishment of the

industry. Even since the industry has grown to maturity, the import of

foreign motor vehicles has been restricted.

Import of motor vehicles was banned officially by the SCAP

authorities immediately after they were given control of Japan. However, many unofficial vehicles and those disposed of by the Allied Forces

flooded into Japan. It was not until 1955 that the supply of Japanese vehicles outnumbered all others (with the exception of 195l ) •

After European passenger cars were lifted from import restriction

in April, 1952, the Japanese began to import them, and total imported vehicles accounted for 31-1 percent of total units supplied in 1952."*’"*’

However, imported vehicles were decreasing then and the ratio of imports 12 to the total supply of units in 1956 was just 8 percent. This decreased

ratio was the result of the import restriction on foreign motor vehicles which still prevailed together with the increased Japanese production.

In the last half of 1952 the government set up a policy that 80 percent

of foreign exchange allocation fo r the import of motor vehicles must be for the demand of foreign residents in Japan; the remaining 20 percent 13 was for the demand of the Japanese.

S in ce 195k > when the Hatoyama Cabinet issued a statement on the

restriction of the import of foreign motor vehicles, the Japanese govern­

ment restricted their import severely because of the decrease of foreign

exchange reserves and promotion of the domestic industry,^ even after 116 the import liberalization of European passenger cars.

The import policy became more flexible as the industry established itself more firmly. In 1961, imports of both trucks and buses were freed from restriction, and the Subcommittee of Passenger Cars of the

Council of Industry Structure (MITl) recommended more intensive imports of foreign motor vehicles on the ground that the Japanese industry would be stimulated and the performance of the Japanese product could be improved by the very fact of imports of foreign motor vehicles. In

I 96I1, Japan became an A rticle 8 IMP country, and on August 17, 1965, the Japanese government decided to free all passenger cars from import restriction after October 1, 1965. However, the number of their units was not increased by the liberalization. The market share of U.S. motor vehicles in Japan accounted for approximately 25 percent, on the average, of total imports, and their units had never exceeded 5,200 during the s i x t i e s . ^

Volkswagen of Germany had the lion's share in the Japanese import market in the sixties. They accounted for approximately 50 percent of total imports since 1963.^ English passenger cars accounted for approximately 15 percent during the same period. However, European small passenger cars, priced higher than their Japanese counterparts, could not compete in the Japanese passenger car market, and their share of the market in Japan continued to decrease from 1967 until 1970.

There were forty-six importers of foreign motor vehicles in 1971, and they formed the Japan Motor Vehicle Importers Cooperative. Yanase

Co., Ltd., Itohchu Trading Co., Ltd., and Seibu Motor Sales Co., Ltd. are major importers of foreign motor vehicles. Yanase imports Volkswagen,

Audi, Vauxhall, Chevrolet, Buick and Cadillac. Itohchu imports Alfa 117

Romeo (Italy), Oldsmobile, and Chevrolet. Seibu imports Citroen, Ferrari

(Italy), Fiat, Chevrolet, and Saab.

Policy and Strategy of Export by Motor Vehicle Manufacturing Companies: The Case of Toyota

The great success of the Japanese in exporting their motor vehicles

is a well-known story. The Japanese government should, of course, share

the credit of this success because of its effective policy guidance.

However, major and direct credit should be given to individual companies

for their success with exports. Without their effective policy and

strategy, Japan might not have been so successful even if the government had stimulated it vigorously.

The reasons for the Japanese success in exporting can be summed up as follows:

(a) The late development of the Japanese industry:

This had, of course, certain disadvantages, but it also served to some advantage. For example, the willingness to redesign Japanese motor vehicles to catch up with the more advanced manufacturers in the world.

(b) The improvement of performance of Japanese motor vehicles:

The quality and performance of Japanese trucks and buses climbed up to world level with the help of the skills accumulated during the prewar years, and those of passenger cars were also developed remarkably through original and purchased R & D.

(c) The strengthening of the competitive capability of exports by motor vehicle manufacturers:

This came from the greater domestic demand. Contrary to the saturated market of Europe and the U.S., the domestic demand for motor vehicles had been brisk and led to economies of scale in terms of cost reduction. Once local demand slackened in 1957 and the following year, positive penetration of the world export market was attempted. 118

Some companies built their own wharves and ships to export motor vehicles.

(d) "Pump-priming” in the form of special procurement and reparations:

This appeared to be an act of God. The special procurement revitalized the industry and contributed to the export of Japanese vehicles, and those motor vehicles required as reparations acted as samples for possible future markets.

(e) The success in exporting the Japanese product to the U.S. market-^:

The success in penetrating the U.S. market has changed the Japanese industry to a typical export industry, and also has changed it to a passenger car oriented industry rather than an industry of trucks and buses.

The policy and strategy of Toyota was based on two premises: l) Toyota should not be behind in competing with Nissan for exports, and 2) Toyota should penetrate the world market of motor vehicles as far as it could.

T oyota began i t s e x p o rt a c t i v i t y in 1950'*'^ when th e head o f th e

Export Department was sent to Central and South America to investigate the potential for Toyota products. One hundred gasoline trucks (BX) were sent to Brazil in 1952. However, the intensive effort to export

Toyota units began in 1955 when export was stimulated by government policy. It had added a motor vehicle section to the (MITl) Heavy

Machinery Export Council. Toyota sent personnel to Southeast Asia for market research on politics, economic conditions, and motor vehicle 20 business in this region. Toyota chose Southeast Asia and Central and

South America because Toyota believed it entirely impossible to penetrate the market of advanced countries with its modest level of skill and limited product line. However, Toyota changed its strategy and began to consider 119 penetrating the U.S. market after it found that many Volkswagens were imported to the U.S. market and the company had gained confidence in

Toyota motor vehicles.

Bangkok, Thailand was chosen as the center of market penetration to Southeast Asia because the anti-Japanese attitude of the Thai was not so bad and the law and order was reliable to a great extent. Land

Cruisers, the so-called "Toyota Jeep" were sent mostly to both Southeast

Asia and Central and South America where they became famous. Motor vehicles for reparations were a great help to Toyota. Approximately

2,500 units were sent to Burma and the Philippines, and were demonstrated as exported samples. Land Cruisers were sent to penetrate the Australian market in August, 1957.

The policy and strategy of Toyota vis-4-vis the U.S. market underwent a great change in 1955» and this market became the ultimate target for Toyota. One of the real reasons to boost export to the U.S. market was to increase domestic demand. It would increase the demand at home if they were sold in the United States.

Toyota's penetration of the U.S. market had three stages: the initial stage; the retreat; and the comeback. Shotaro Kamiya, president of Toyota Motor Sales Co., Ltd. visited the United States in 1955 and found that many European small passenger cars had penetrated the U.S. market. The assumption held by the Japanese so far was that only large passenger cars were driven in the United States. He visited the U.S. again in March, 1957» and affirmed the possibility of penetrating the

U.S. market with Toyota products. After he returned to Japan, S. Kamiya asserted that it was time to export Toyota units to the United States.

However, many executives were not convinced and opposed the idea. They 120

insisted that it would be a business for the unforeseeable future, and

the quality and performance of Toyota products could not satisfy American

drivers. However, S. Kamiya insisted firmly on his plan of export and a 23- decision was made in spite of some opposition.

Two Crowns were sent to the U.S. on August 2£, 1955 > and Toyota

Motor Sales U.S.A., Inc. and Toyota Motor Distributors Inc. were estab­

lished. The latter company was established to set up a dealer system.

In the meantime, Toyota participated in motor shows in Los Angeles and

S e a t tle .

However, Toyota motor vehicles were forced to retreat from the 22 U.S. market. They got the nickname "Jap cars." These Jap cars were criticised as "flying cars"^ because American drivers felt that these cars could not stick firmly to the ground at a high speed on American highways. By contrast, Nissan enjoyed the U.S. market because the company had the Datsun Bluebird, an adequate type of passenger car, for export. Dealers who handled Toyota passenger cars in the States cancelled their contracts one after another.

After retreat from the U.S., Toyota Motor Sales reorganized the

Export Department, and established the Headquarters for Export in

February, 1962. Staff members were increased from $2 in September, 1959>

to 221 in three years.^ The export strategy was to catch up with Nissan

in three years ( 1965), to get more thorough market information by direct confirmation with Toyota personnel and through market research, to select

the most suitable passenger cars for export, and to improve selling methods and services.

The Headquarters of Export classified the world market into AA,

A, B, and C according to market size. Australia, South Africa, Thailand, 121

Okinawa, Malaysia, and U.S.A. became the AA group, the top priority market. The U.S. market was, of course, the most important one even among these AA countries.

The Joint Council of Export of Toyota Motor Co., Ltd. and Toyota

Motor Sales Co., Ltd. were formed in August, 1963, to implement more effectively export strategies. The Joint Council adopted a five-year plan of Toyota motor vehicle export. As previously mentioned, Toyota expected to catch up with Nissan in 1965 but the desire was not material­ ized because exports of Nissan were more aggressive than Toyota. A second five-year plan was newly adopted, 1966 being the base year, and the first five-year plan was abandoned. Toyota began to produce a new model of

Corona RT i+0 in I 96J4 as the strategic passenger car for export. Five hundred passenger cars were shipped to Australia, Malaysia, and Okinawa in September, 1961+. However, the production of the Corona could not even meet domestic demand. During these interval years, Toyota tried hard to promote Corona passenger cars; sample cars were exported and Coronas par­ ticipated in international shows and rallies. The Corona was evaluated as the "Formidable .challenge of Japan" by motor vehicle journals in Great

Britain, and "Attractive cars to Americans" by American journals.^ Toyota e x p o rte d 105,000 passenger cars and other motor vehicles against 102,000 motor vehicles of Nissan in 1966, and regained the top ranking in export

Of. of motor vehicles after eight years of struggle.

The comeback stage of Toyota to the United States began with much disagreement. Some executives argued that Toyota Corona should be exported to the U.S. market since foreign motor vehicles were selling well there, and that the quality and performance of Corona had been improved remarkably for the past three years. Many other executives were more conservative 122 and argued that there was s till some uneasiness about the performance of

Coronas when they were driven on American highways. However, a decision was again made to go on by S. Kamiya, on the grounds that selling should coincide with timing or chance. This was another major decision for

Toyota Motor Sales. Samples were sent to the United States and received favorable response from American drivers. Over one hundred dealers were added during the two years of 1J66 and the following year. As a product line strategy, Corolla, another smaller passenger car of Toyota, was added for export to the U.S. market in 1968.

Export of Toyota motor vehicles to Europe started with two sample

Corona passenger cars to Finland in June, 1962. One Crown Deluxe was exported to Denmark in December, 1962, and a contract was made with a

Danish agent to sell Toyota passenger cars. Sales networks were 27 extended to Sweden, Netherlands, Finland, Norway, Switzerland, and

Belgium. The strategy of Toyota for exporting its motor vehicles was concentrated on those countries which had no influential motor vehicle manufacturing companies. Exports to Germany, France, and Great B ritain were started in 1971 but accounted for less than one percent of market share in each country. Toyota exported approximately 2,000 motor vehicles to Europe in 19&bf but exported units increased to 53»303 at the end 28 o f 1970.

In addition to knockdown assembly in Brazil, Toyota had such assembly plants in the following countries: South Africa, Australia,

Venezuela, Thailand, and Uruguay. The policy for knockdown assembly was adopted mainly because host countries were very reluctant to import finished motor vehicles, and they preferred to have knockdown assembly for employment increase, and possible manufacture of motor vehicles by 123

themselves in the near future. Export for knockdown assembly was approxi­

mately 12,000 motor vehicles in 1965 hut reached approximately 85.QOO in

1 9 6 9 . 29

In the next chapter, we will discuss strategies of Japanese motor vehicle manufacturers vis-a-vis the U.S. market in detail to identify the

reason of the successful penetration of Japanese motor vehicles into the

American market. Footnotes

1. Kodaira, Jidosha, p. 7 (data rearranged).

2. Ozahi, Jidosha Nihonshi. II, p. 206.

3. Ibid., pp. 201-203.

1*. Ibid., p. 396.

3. I b i d . . p . 397.

6. Kumaki, Toyota Jidosha. p . 73*

7. Ibid., pp. 73-7U-

8. Isuzu Jidosha KK., Isuzu Jidoshashi. p. 61*.

9. In 19V7 the Anti-monopoly Act was enacted. It was titled formally the "Law concerning the Prohibition of Private Monopolization and the Preservation of Fair Trade," and was enacted to guarantee free competition and to prevent the restraint of trade in Japan. However, it is believed that the Japanese Anti-monopoly Act was more permissive than those laws which regulate monopoly and the restraint of trade in the U.S. When the Act was amended in 1953 > it allowed the holding of shares even in a rival company if there was no possibility of a substantial restriction of competition. The Anti-monopoly Act regulates international trade by requesting the notification of international agreement to the Fair Trade Commission (which was established to administer the law).

10. MITI, Shokosho San.iugonen Shoshi ("Thirty-five Year History of the Ministry of Commerce and Industry") (Tokyo: MITI, i 960), pp. 77-79*

11. Kodaira, Jidosha. p. 221*.

12. Loc. cit.

13. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, J id o s h a Nenkan 1972, p. 117*

ll*. Imports in 1957* for example, were restricted because foreign exchange reserves were only $300 m illio n .

15. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972, p. 1*91*

121* 125

16. Asahi Shimbun on September 16, 1971» introduced an article by a photographer. The article dealt with the reason he abandoned his Japanese passenger oar and bought a Volkswagen. However, Japanese a tti­ tudes toward Germany have traditionally been biased, as in the United States, as the following quotation indicates: "And many Japanese profes­ sional photographers w ill pay a premium price for a Leica even while professionals in the rest of the world are switching to the made-in-Japan Nikon." See "Germany's Export Boom Steams Right Ahead," Business Week. November 1, 1969 > P» 112.

17. We w ill discuss more fully the reasons for this success in the next chapter.

18. However, at that time, the company did not consider the markets of advanced countries such as the United States.

19. The Toyota records show that one large-type truck (BX) was exported to Okinawa, and one passenger car (Model SA) to Egypt in 19^7*

20. Toyota Motor Co., Ltd. got a loan of 200 million yen ($555»000) from a consortium of 25 banks in 19b9 when the company was in the worst situation in its history. This loan was granted under the condition that a sales company would be established. Toyota Motor Sales Co., Ltd. was established in 1950 and was responsible for marketing Toyota vehicles.

21. Nissan faced almost the same situation. When Katsuji Kawamata, president of Nissan, discussed the possibility of exporting Nissan pro­ ducts, some executives were reluctant. They argued that they were not so confident of their products, and these should be exported to developing countries. However, K. Kawamata insisted: "If we export at all, we should export to the U.S. market, the center of world motor vehicles, and they should be tested over there. If the export of our product increases, Datsun w ill be known world-wide." Thus, Nissan's great decision was made. See Taro Kameoka, Kore ga Ekonomiku Animaru da ("This is the Economic Animal") (Tokyo: Sankei Shimbunsha, 1970), p. 8.

22. James McGraw, who was national sales manager of Toyota Motor Distribution Inc., said, "When I took this job in 1961, I told them to take your little cars and go home." See "How the Japanese Blitzed the California Auto Market," p. 29.

23. Toshio Suzuki, Toyota no Dokon.io ("The Gut of Toyota") (Tokyo: Tokuma S h o ten , 1968) , p . 139*

9)|. The Editing Committee of the History of Toyota Motor Sales Co., Ltd. ed., Motarizeshon to Tomoni ("With Motorization") (Tokyo: Toyota Jidosha Hanbai KK., 1970), pp. 128-29.

25. I b i d . . pp. 21+8—1+9-

26. Loc. cit. 126

27. One Japanese Toyota salesman in Amsterdam spent almost three months in one zoo teaching a parrot to pronounce "Toyota, Toyota, Toyota..." and the bird repeated it to many Dutch visitors with clear voice.

28. The Editing Committee of the History of Toyota Motor Sales Co., Ltd., Motarizeshon. p. 61.

29. Ibid., p. 269. CHAPTER VII

STRATEGIES OP JAPANESE MOTOR VEHICLE MANUFACTURERS

VIS-A-VIS THE U.S. MARKET

We may legitimately infer that Japanese motor vehicles have been

accepted fairly well by the American consumer, as many Japanese omits have

been exported to the United States during the late sixties and early seventies.

In this chapter we will study strategies the Japanese have used to

reach the U.S. market. In other words, we will try to identify what they

have done to obtain such a favorable response from American consumers.

Any basic strategy for successful business operations is closely

related to four areas: production, price, promotion, and place (business

logistics). Appropriate quality, durability, design, and the like of a pro­

duct affect acceptance by consumers. Prices also must be considered

reasonable by potential purchasers, in the sense that they are competitive

to those of similar products. And potential purchasers must be well informed

about the product which is on the market. It is the responsibility of sellers

to utilize effective methods of promotion. Finally, those goods which poten­

tial purchasers are going to buy should be easily accessible to them, and

both service and repair systems should be prompt and satisfactory. In addi­

tion, operations in the four areas mentioned must be managed by means of

organization that is able to cross geographical and cultural frontiers, when products are intended for sale in international markets.

As we have shown that Japanese motor vehicle manufacturers have been

successful in their business operations in the U.S. market, they

127 128

must utilize effectively the basic strategies mentioned:

1. P ro d u ct

Japanese motor vehicles are well accepted by American buyer-drivers from the points of quality, durability, design, and satisfy desires of American consumers.

2. P ric e

Prices of Japanese motor vehicles are reasonable to potential purchasers. They are less than or equal to those of American small passenger cars, Volkswagen, and other small passenger car§ of same size.

3. Promotion

Their motor vehicles are well promoted in terms of advertising and public relations to potential purchasers in the United States.

i|. P la c e

Japanese motor vehicles are easily accessible to potential buyer-drivers in the States. However, they are more selective as far as the geographical distribution of their motor vehicles are concerned to produce more effective results. American drivers are also satisfied with their after-sales service and repair system.

5. Organization

Japanese motor vehicle manufacturers understand properly the constraints of conducting business enter­ prises within different nation-states and have set up organizations and management practice which w ill best serve their profitable operations.

We are going to discuss each factor in detail to see how Japanese manufacturers designed and implemented their strategies in the U.S.

m ark et.

A. P ro d u ct L ine

It has been the basic strategy for the Japanese to export only

small passenger cars to the United States. The assumptions behind such

a strategy are as follows: 129

1. The a t t i t u d e s o f th e Am erican consumer-*- tow ard m otor vehicles have changed, and many of them buy small passenger cars as their second and third cars. In many other casesfam ilies buy them as their first cars.

This means that there exists a great potential market for Japanese motor vehicles in the U.S.., as far as small passenger cars are concerned.

2. Prior to 1970, no major American company had produced subcompact passenger cars on the grounds that they yield small profit margins or no margins at all. (We will discuss this in detail in the next chapter.)

The small passenger car market in the U.S. in the sixties was dominated by European passenger cars, specifically by Volkswagen of Germany, but in the late sixties, Japanese passenger cars began to obtain a share of the market. This means that Japanese small passenger cars did not compete directly with American passenger cars in the U.S. market until the American manufacturers produced sub­ compact passenger cars in 1970.

However, the selection of small passenger cars as the typical unit for export was not a result of deliberate study by the Japanese. Japan has traditionally^ produced small motor vehicles as far as passenger cars are concerned.

Tha Japanese found that the small passenger car market in the

United States was open to them, and they hit that market at a time when the convenience of small passenger cars was recognized by American drivers. The convenience was, of course, pioneered by the Volkswagen.

What the Japanese did under such favorable conditions was to increase the quality and performance of their product. The motor vehicles shipped to the United States by both Toyota and Nissan, the major Japanese exporters, are equipped with greater horsepower or engine capacity3 to satisfy

American drivers on highways. In addition, these passenger cars were fully equipped with accessories such as radios. 130

Models and styles may influence potential purchasers when they consider buying a passenger car. The Japanese tried to satisfy American buyer-drivers in both respects. Man has a curiosity about new things, but he may reject them if they are too strange. The Japanese product was tailored to both of these traits exactly; the passenger cars satis­ fied curiosity because they were not American products, but at the same time the American consumer felt quite comfortable with them because the

Japanese styles were derived from those of the United States. The

Japanese manufacturers had tried hard to understand Detroit-type styling.^

Their passenger cars are essentially American motor vehicles, only more compact and more economical to drive and to repair.

After GM's Vega and Ford's Pinto were produced in 1970» Toyota reinforced the Corolla, with 1,166 cc. engine, to avoid competition with these U.S. subcompact passenger cars. The Corolla is much smaller in size than the Corona. In 1968, a small passenger car of Honda Motor, the Honda

M600 with a 600 cc. engine, was designed for export to the U.S. market.

Neither of these small passenger cars competed directly with the Corona, the Datsun, the Vega or the Pinto.

B. P ric e

The Japanese pricing strategy in the U.S. market has been to keep a price advantage over other motor vehicles. Japanese motor vehicles, for example, had a $100 to $1+00 price advantage over the Pinto and the

Vega,^ while their prices were comparable to those of other imported motor vehicles of comparable size.

This price advantage may be attributed to a number of factors.

One possibility is that the Japanese practiced dumping of motor vehicles in 131 the United States. Some managers of American companies were suspicious about the pricing of Japanese units in the U.S. market. However, they admitted that dumping would be very difficult to prove.^ Some Japanese admitted the possibility of dumping. One of them wrote "The dumping of

Japanese exports is well known all over the world, and even the Diet discussed the problem."? This practice was known among the Japanese as the "bleeding export" or the "export that makes no profit." Nissan's

K. Kawamata rationalized it as a requirement for the economies of scale necessary for Nissan to retain its top-ranking position among Japanese

O companies. S. Kamiya of Toyota Motor Sales said with tears in his eyes

(in an airplane bound for Washington, D. C.), "Why should I make such a desperate effort to export our motor vehicles when it will contribute nothing to our net income?"^ It is an established fact that the factory prices on export units are 20 percent or more below those of similar models sold in the home market."'®

It is hard to pinpoint clearly what these two presidents meant.

They may have meant that the prices of their units were less than the average total cost but above the average variable cost. Or they could have meant that their prices were exactly the same as the average variable cost. As the international market is generally more elastic than the do­ mestic market, exported goods may be priced below the domestic level.

However, it is almost impossible to identify the true relationship between the production cost and the price of a Japanese motor vehicle in the United States. The Tariff Commission, which tries to restrict the dumping practices of foreign merchandisers, has never investigated the pricing practices of the Japanese motor vehicle exports to the UCS. market. The Commission investigated some Japanese products, however, and made injury determinations on some of them such as television receiving sets.''"' 132

C. Promotion

It is difficult to determine what is the most effective promotional mix because output (effectiveness of promotion) cannot be objectively correlated with input (expenses for promotion). In theory, however, promotions should combine all the possible promotional ingredients into a b le n d o f maximum e f f e c tiv e n e s s .

There are usually four methods for promoting motor vehicles: magazine and newspaper, spot television, spot radio, and network television advertising.

It is not easy to identify the strategies of the Japanese for producing the maxi mum possible effective promotion in the United States.

However, we can review their ways of spending their budget on promotional media. Japanese companies, specifically Toyota and Nissan, depended more heavily on spot television advertising than other manufacturers of imported motor vehicles. In 1971» Toyota accounted for 39 percent of the total spot television advertising of imported motor vehicles, and Nissan accounted for

19 percent, while Volkswagen of America, Inc. accounted for less than

16 percent.^

The Japanese did not spend much on network television. Volkswagen of America virtually dominated total network television advertising expenses

(almost 90 percent) in the imported motor vehicle category in 1971* On the other hand, European exporters of such passenger cars as the Renault and the Volvo dominated the category of spot radio advertising; the former accounted for almost 37 percent of the total, and the latter accounted for

22 percent. Toyota and Nissan accounted for 17 percent and 4 percent, respec­ tively, of this type of advertising. 133

Volkswagen of America, Inc. was also committed heavily to magazine advertising; this company's expenses for this medium accounted for almost

29 percent of the total expenditure in 1971 in the imported motor vehicle category. (Of this, Volkswagen Beetle advertising comprised 16 percent.)

In this medium Toyota and Datsun accounted for only 12 percent and less than 10 percent, respectively.

The promotion of Nissan Motor Corp. in U.S.A. provides an example of such activities of those companies which handle Japanese motor vehicles in the United States. Although Nissan's history dates bank to mid­ fifties, budget figures are available only since 1968.

TABLE 3

PROMOTIONAL EXPENSES OP NISSAN MOTOR CORPORATION IN U .S.A .

(in thousand dollars) 1968 1969 1970 1971

Magazine 980( 17.3%) l,i+06( 13.7%) 1,87U( 11.9%) 2,70l( 10.8%} Television 2,0l+0( 35-9 ) 5,052( bS.2 ) 5,30l+( 33-6 ) 8,71l( 34-9 ) B adio 292( 5 .1 ) l+6l ( 1+.5 ) 2,1691 13.7 ) 3,3 81 ( 1 3 .5 Newspaper 1,732( 30.5 ) 2,127( 20.7 J 2,899( 18.1+ ) 3,999( 16.0 Other 187( 3.3 ) 2671 2 .6 ) 982C 6 .2 ) 1 , 637c 6.6 Non-media 1+1+7C 7*9 j 952( 9-3 ) 2,562( 16.2 ) b,Sbl( 18.2 ) Total 5.678(100.0%) 10.265(100.0%) 15.790(100.0%) 2lx.976(100.0%)

Source: Nissan Motor Corp. in U.S.A. Notes: These spendings include both those of Nissan Motor Corp. U.S.A. and dealers. The spending of the latter a c c o u n t e d f o r 37.1+% o f the total in 1968, 38. 5% in 1969, 30. 3% in 1970, and 37.1+% in 1971.

As T able 3 indicates, the promotional expenses of Nissan increased greatly every year; 8l percent increase in 1969 o v er 1968, 51+ percent increase in

1970 o v e r 1969, and 58 percent increase in 1971 over the previous year.

The weight given each medium underwent some changes. Magazine and news­ paper lost their importance to some extent, and radio and non-media gained importance. 131+

We cannot conclude that the Japanese advertising mix is more effective than different mixes used by other manufacturers. But the mixes used by U.S. companies provide a basis for comparison. The U.S. manufacturers depended heavily on television advertising in 1971. They spent almost 80 percent of their budget on it: i+3 percent on network television, and 37 percent on spot advertising. They allocated 13 percent of their budget to spot radio advertising and approximately 3 percent to magazines."* 3 As advertising practice is closely related with the units sold, the pattern of the Japanese motor vehicle handling companies cannot be exactly same as that of the American counterparts. If the units sold are increased greatly, however, the Japanese may utilize expensive net­ work television advertising for maximum exposure to potential customers as American manufacturers do.

Advertising expenditures per unit sold may be a rough criterion of the efficiency and effectiveness of advertising. Advertising expenditures per unit sold of Toyota, Nissan, and Volkswagen in 1966 were $11$, $101, and $16, respectively.^ In 1971, expenditures of each of these three com­ panies were $66 for Toyota, $55 for Nissan, and $35 f o r Volkswagen. "*^

In summary, we can say that Toyota and Nissan have utilized adver­ tising heavily for the promotion of their products in the United States.

This can be applicable to other Japanese motor vehicles. The advertising spending per unit sold of Mazda, for example, jumped from $1+2 in 1970 to

$108 in 1971.16

D. P la c e

We w ill define business logistics in this industry as covering these areas: geographical distribution, dealerships, transportation used 135 in distributing motor vehicles, after-sales service, and the repair system.

1. Geographical Distribution

The strategy of the Japanese with respect to geographical distribu­ tion was a highly selective one. Japanese motor vehicles were concentrated in only a few states. Wo attempt was made to cover every state though there was considerable overflow. Pacific states (including Hawaii) were the favorites as the target market for the first penetrating stage. Among them the state of California was the most important. This state is one of the wealthiest in the United States. Wew passenger car registrations for the past ten years (1961-1970) show that California has ranked at the top (an average of 10% more) every y e a r . -*-7 As a result, California was the major target market for the Japanese motor vehicles. During the past six years (1965-1971) approximately one-third of all Datsuns and Toyotas exported to the United States were allocated to California.-^

Other Japanese companies followed the same pattern. Only four

Honda passenger cars landed in California in 1969, but in 1970 they ac­ counted for 80 percent of the Honda passenger cars imported to the U.S.

They had decreased to just under 50 percent in 1971* California was also important for the Subaru (Fuji Heavy Industries, Ltd. is the manufacturer).

It had swallowed 37 percent of all the Subarus exported to the U.S. in

1969. This figure was 28 percent in 1970, and decreased significantly to barely 10 percent in 1971*

The Mazda (Toyo Kogyo is the manufacturer) has shown a somewhat different pattern. The state of Washington accounted for 52 percent of all Mazdas imported to the U.S. in 1970, Oregon 23 percent, and Hawaii

11 percent. California, on the other hand, bought less than 2 percent of the Mazdas exported that year. However, it absorbed almost 1*0 percent 136

in 1971* California was important even for the Bodge Colt; it took approximately 33 percent of all Bodge Colts imported in 1971.^9 (Chrysler imports the Bodge Colt from Mitsubishi Motor Co., with which it has a tie- in contract, a "captive import" type of strategy.)

The Pacific states played an important role during this first penetrating stage. But their significance decreased gradually, except in California, as Japanese motor vehicles began to penetrate into other states such as Texas and Florida. At the end of 1971, Toyotas accounted for more than 20 percent of all the motor vehicles imported into the

United States in thirteen states. These were Arizona, Arkansas, Califor­ nia, Florida, Georgia, Idaho, Louisiana, Massachusetts, North Carolina,

Bhode Island, Texas, Utah, and Hawaii.^ On the other hand, there were only three states where Batsuns accounted for more than 20 percent of the total in 1971s Idaho, Oregon, and Hawaii. Japanese units accounted for

73 percent of all imported motor vehicles, and 36 percent of the total market in Hawaii at the end of 1971* In that year Batsuns and Toyotas together accounted for just over 66 percent of all imported motor vehicles in that state.

The Japanese companies, however, did not penetrate deeply into large population states such as Illinois, Michigan, Minnesota, New York,

Ohio, Pennsylvania, and Wisconsin. These accounted for 37 percent of the total U.S. motor vehicle registrations in 1971. Batsuns accounted for only 16 percent, and Toyotas 19 percent of the imports in these states in

1971- Japanese motor vehicles are at a geographical disadvantage, as these states are located mainly in the middle west and the east coast.

If we assume that no artificial barriers arise to prevent

Japanese motor vehicles from coming into the United States, Japanese units 137 may be increased in number because they are now rolling eastward across

the country in force. Both companies, Nissan and Toyota, have poured millions of dollars into warehouses, dealer-training programs, and new

office buildings. This may be interpreted as an effort to obtain a national market in the near future for Japanese motor vehicles in the

United States.

2. Dealers Handling Japanese Motor Vehicles

The strategy of the Japanese companies in the United States for

dealerships is to establish dealer networks in the selected areas that will give buyer-drivers entirely satisfactory service in the initial

stage of penetration.

There were 3>621+ franchises to handle Japanese motor vehicles in the U.S. as of January 1, 1972.^ These dealers can be classified as fo llo w s :

Colt (Dodge) 908 D atsun 922 Honda 215 Mazda 165 Subaru 527 T oyota 887

These accounted for almost 23 p e rc e n t o f th e t o t a l (16,0144-) im port f r a n ­ chises in the United States in 1971*

Franchised dealers for Japanese motor vehicles showed great strides

in sales during the years from 1969 to 1971» though Volkswagen retained , its high number of outlets during this same period. ^ The brisk demand for Japanese motor vehicles encouraged many more dealers to handle them.

Nissan, for example, signed up more than 300 dealers in 1970.^3

Toyota w ill be studied as a typical case of strategy for the geo­ graphical distribution of franchised dealers in the United States. Toyota

USA routes its units through five distributors in five regions, with ten ports of entry. California houses more than 10 percent of its dealer force. 138

Toyota also has strongholds in other key states as Table 1+ shows.

TABLE 1*

TOYOTA DEALERS IN THE UNITED STATES

Dealers Dealers

California 121+ (lb%) Ohio 30 (3%) Texas 55 ( 6 ) Washington 27 (3 ) New York 1+3 ( 5 ) Hew Jersey 26 \3 ) F lo r id a 36 ( ^ ) North Carolina 26 (3 ) Pennsylvania 32 ( ) Oregon 21+ (3 ) Massachusetts 31 ( 3 ) ______H aw aii______9 Cl J

Source: The Dealer Bulletin of Toyota Motor Sales, USA, Inc. Notes: The data is as of June 15, 1971. Other states whose Toyota dealers account less than 1 percent of the total Toyota dealers in the United States are omitted. (Percentages are rounded off to the nearest whole number.)

The strategy which Toyota devised for establishing dealers in the

United States in the in itial stage may be described as the "Strategy of bowing one's head and asking to live together."

Toyota decided to arrange contracts only with those dealers who handled American products. It by-passed imported motor vehicle dealers and those who handled both American and foreign motor vehicles to avoid direct confrontation with any other import. However, this principle of the initial strategy was applied with some flexibility, and Toyota approached import dealers occasiohally, bowed their heads, and asked the dealers to handle Toyotas along with their main import motor vehicles.

The dealers consented, in many cases, without paying much attention to the

Japanese product until their showrooms were overwhelmed. Some foreign motor vehicle dealers closed their main lines and requested, in turn, to become exclusively dealers for Japanese motor vehicles.^ 139

Japanese manufacturers did not need to worry about dealers in 1971*

On. the contrary, there was a moratorium on securing new dealers for Datsuns

in 1971» and only a slight expansion in 1972 was expected.^

The reason why many dealers switched to the Japanese product or

made an effort to establish these dealerships is the margin which these

dealers got or expected to get. It is a well-known fact that any change

in established dealer margins w ill have an important effect on sales for

the following year, and Toyota has, for example, given its dealers an

excellent margin. Datsun dealers also got equally favorable margins.

Each Toyota dealer made an average net profit of $l8l a unit which was

just about as much as an average Chevrolet dealer.

New Japanese motor vehicles such as the Subaru and the Mazda have

also adopted either the exclusive dealer system or the parallel dealer

system. Most of the dealers coming to Mazda, for example, already have

an existing franchise, but some of them have switched to become exclusive

Mazda dealers.^7 Typical dealers who signed for Mazda passenger cars were

those who had had Oldsmobile, Chevrolet, Saab-Volvo, B ritish Leyland, or

Chrysler-Plymouth. The majority of dealers for both Toyota and Nissan

switched from other makes, and most switched from Domestic makes. They

did, therefore, have previous experience with the motor vehicle business.

Almost half of the Datsun dealerships are exclusive ones, while the other half consists of dual or parallel dealers. By contrast, approximately

89 percent of the Toyota dealers are exclusive ones and the remaining pO 1$ percent are dual or parallel dealers. 0

It is not sufficient, in Japanese policy, just to have many dealers giving satisfaction to their customers. They should be trained continuously. iUo

The major Japanese companies have emphasized such training for their dealers in the United States. For example, in 1971 Toyota has launched a new sales training program aimed at a better understanding of the dealership and the general consumer. The basic premise for this training is that motivation at the dealer level is the highest single problem facing all dealers. Nissan also has a similar training program in its

Business Management Program. The basic objective of this new program of

1971 is to furnish Datsun dealers with accounting tools and business management guides that w ill enable them to gain a fair return on their investment. There are also training schools throughout the regional offices.

Effective dealer organizations mean satisfactory after-sales service and a good repair system. They mean a lengthy warranty, adequate parts depots, and skilled mechanics. The failure of Renault in the early sixties in the United States, while Volkswagen made a successful inroad, was a ttri­ buted mostly to its poor dealer organization, and its poor subsequent after-sales service and repair system.^9 The major Japanese companies do not ignore the importance of dealer organization. Nissan, for example, makes it mandatory for newly established dealers to set up two departments for after-sales service and repairs. In addition', service, mechanics, space, and parts should meet the Nissan standard.

In summary, the strategy of the Japanese motor vehicle manufacturers was to have sufficient and well-qualified dealers with satisfactory after­ sales service and repair facilities. This has contributed to sales increases and customer satisfaction.

E. Management

The basic strategy of the Japanese in doing business in the United

States is to let American managers handle the business for them according 1U1

to the American way, but only under basic policies made by Japanese and

American managers at national headquarters.

The organization in these companies in the U.S. is consistent with this basic strategy even though there are two types of organization, as

Figure 1 shows. Distribution companies are organized either as Japanese subsidiaries, or they are wholly owned by Americans. Toyota, Nissan, Toyo

Kogyo (Mazda), and Honda belong to the former type of organization where president, executive vice president, and most vice presidents are Japanese, while the general manager and other managers are Americans. 3® For example, the president, executive vice president, and four vice presidents out of five of Nissan Motor Corp., U.S.A. are Japanese, and ea-'h of these

Japanese vice presidents has one or two Japanese assistants. On the other

FIGTffiE 1

ORGANIZATION OF COMPANIES SELLING JAPANESE MOTOR ‘VEHICLES IN THE U .S.

F i r s t Type

m anagers

American v ic e g e n e ra l p r e s id e n t p r e s id e n t m anager

a n eea an ese Jap an eseJap American American

American Second type m anagers

Am erican g e n e ra l p r e s id e n t m anager

American American Am erican

Am erican 11+2

hand, all national managers and low-level managers are Americans. In the case of Toyota, the company has Japanese coordinators who advise American counterparts. The coordinator w ill be eliminated eventually and Toyota is scheduled to become a company of American managers. The American

Company of Subaru belongs to the second type of organization, a company composed entirely of Americans. Whichever form of organization is adopted, the actual selling of Japanese motor vehicles in the U.S. market is handled by Americans utilizing American management techniques. Heedless to say, Bodge Colt is a part of the Chrysler organization.

A collateral strategy to the basic one is to recruit Americans who have had experience in the motor vehicle business. The national sales manager of Toyota Motor Sales, U.S.A. joined Toyota in 1959; he had been a Ford sales executive for eight years. Toyota picked up some American managers from Chrysler and American Motors, too. The national sales manager of Nissan, U.S.A. was once with General Motors, and there is one

American manager in Nissan who worked twenty years for American Motors.

The general manager of Mazda Motors of America had been twelve and one half years with Chrysler and one and one half years with American Motors.

Mazda recruited American managers from Chrysler, American Motors, Nissan,

Toyota, and Volkswagen.

In addition to recruiting these experienced American managers, the

Japanese are trying to influence Americans in various ways, particularly by employing people with political stature, like Pat Brown, former Democratic

Governor of California, for example, who is a member of the board of directors of Mid-Atlantic Toyota D istributors, Inc.

The Japanese face some constraints in establishing their strategies for management and organization in the United States. One such is language. li+3

English must be spoken in the United States in everyday business because almost no American manager has any command of Japanese. Every Japanese manager dispatched to the United States must have a fair command of English.

This practice is quite contrary to the practice cf American managers in

Japan, where English is spoken in U.S.-Japanese joint ventures in most cases. Again, Japanese managers cannot force Japanese ways of doing business on their American counterparts, simply because Americans cannot imitate them. In addition, Japanese managers recognize that the American way of doing business in the United States is the only answer to profitable operations because American management techniques are so advanced.

The Japanese have set up their strategies of management, organization, and doing business in the United States under these constraints. This has been implemented in the following way, as mentioned before: basic decisions are made at top management level where Japanese are in the majority. Nissan, for example, makes such decisions in a vice presidential committee where four out of five are Japanese. After such decisions are made, American managers implement them. There are, of course, some misunderstandings and frustrations in the process of management between Japanese managers and their American counterparts. These cannot be entirely avoided in business organizations,^ especially in multinational business organizations.32

In summary, the Japanese companies have set up strategies to channel their small passenger cars and some other motor vehicles effectively to

American driver-buyers. They have found great demand for small passenger cars in the United States and have selected them as their typical product and designed them as the American consumer wants to have them. They have also established effective sales networks in terms of number of dealers, after-sale service, and repair facilities to channel their products to

Americans. As their sales volume has increased, they have switched their advertising from local to national, and television gets more and more emphasis in their advertising. The companies doing business in the United

States have sought to use American techniques utilizing American managers in most cases. It now becomes our concern to see how Americans, including the U.S. government and the American motor vehicle industry, have reacted to these Japanese strategies. This we w ill discuss in the next chapter. Footnotes

1. "How the Japanese Blitzed the California Auto Market,", p. 29 •

2. Iwakoshi, Jidosha Kogyoron. pp.

3. Kameoka, Ekonomiku Animaru. pp. 19-20.

1j.. "Make Room for the Japanese," Forbes. June l£, 1970, p. 22+.

5. Business Week. February 6, 1971* P* 20.

6. I b id .

7. Yonosuke MLLki, Nissan no Chosen ("Challenge of Nissan") (Tokyo: Kobunsha, 1968), p. li+9-

8. Ibid. , pp. li*9-15>0.

9. Ibid., p. l£0.

10. James C. Abegglen. ed., Business Strategies for Japan (Tokyo: Sophia University in cooperation with Encyclopedia Britannica (Japan) Inc. 1970), p. 87.

11. United States Tariff Commission, In.iurv Determinations Under The Antidumping Act. Sixth Edition, TC Publication 2+^1 (Washington, D.C., December 1971), p. 33*

12. A utom otive News 1972 Almanac, p . 76.

13. I b id .

li|. Abegglen, Business Strategies, p. 87.

15. Automotive News 1972 Almanac, p. 76 and Automotive News. January 10, 1972, pp. 1-2.

16. I b id .

17. Automotive News 1971 Almanac, p. 26.

18. R. L. Polk & Co., Import Passenger Cars Service "K" Report (Detroit: R.L. Polk & Co., 1969-1971) and rearranged. 11+6

20. I b id .

21. Automotive Hews 1972 Almanac, p. 75*

22. Ibid., p. 60.

23. "Oriental Invasion; Japanese Cars Score Success in U.S. Market," Wall Street Journal. May 26, 1971» P« 1«

2l+. Kameoka, Ekonomiku Animaru. pp. 23-26.

2^. Automotive News. February 7» 1972, p. 2.

26. "How the Japanese Blitzed the California Auto Market," P . 29.

27. "Mazda Expands U.S. Dealer Network," Automotive News. September 1+, 1972, p. 16.

28. Personal interviews on June 22, 1972, with George J. Schaut, Assistant Regional Sales Manager of Nissan Motor Corp. in U.S.A. at Secaucus, N.J. and John H. M iller, Executive Assistant & Administration Manager of Toyota Motor Sales U.S.A., Inc. at Lyndhurst, N.J. on the same day. Information on dealerships during the earlier period was not available.

29. Lawrence J. White, The Automobile Industry Since 191+6 (Cambridge, Mass.: Harvard University Press, 1971), P» 185.

30. General manager of Honda is Japanese.

31. David R. Hampton, Charles E. Summer, and Ross A. Mobber, Organizational Behavior and the Practice of Management (Clenview, 111.: Scott, Foresman and Company, 1968) pp. 356-372, passim.

32. Harold Koonts and Cyril O'Donnel, Principles of Management (New York: McGraw-Hill Book Company, 1968) , p p . 763- 783, p assim . CHAPTER V III

REACTION WITHIN THE UNITED STATES TO JAPANESE

MOTOR VEHICLES

A. American Policy toward Imports from Japan

There was no great problem with the importation of Japanese goods until the mid-thirties because most of what the Japanese sold in the United

States was non-competitive: mostly raw silk (which had been on the free list), and a few other Japanese products.-*-

However, after Japan began to export her manufactured goods to the U.S. market, the American government showed great concern about these very inexpen­ sive products. Tariff rates on some of them were raised and other restrictive measures were taken during the thirties.^ In addition, Japan received least benefits from the most-favored-nation treatment under the 1911 Treaty of

Commerce between the United States and Japan.3 And the United States abro­ gated the commercial treaty almost two years before the Japanese attack on

Pearl Harbor.

But after World War II, Japanese goods continuously received most- favored-nation treatment in the United States, and a Treaty of Friendship,

Commerce and Navigation was concluded which became effective in the fall of 1953* During the post-war period (l9i+5-197l) Japanese goods have re­ ceived more liberal treatment in the United States than in any other of

Japan's major export markets, with some exceptions, such as Hong Kong.

B. American Reaction toward Japanese Motor Vehicles

The remarkable penetration of the Japanese into the U.S. motor vehicle market in recent years have caused some alarmed reactions within the

ih l 11+8

United States. These reactions range from possible import quotas on

Japanese motor vehicles, still just a threat not a reality, to a

counter-attack on Japanese products through the manufacture of sub­

compact passenger cars by the American companies.

The strategy most easily implemented would be to squeeze out the

Japanese price advantage in the United States by forcing Japan to revalue the yen, devaluing American dollars, or imposing an import surcharge on

Japanese motor vehicles. There is also another strategy which can be implemented easily: competition directly with the Japanese by manufac­ turing American subcompact passenger cars. If the American consumer is satisfied with such motor vehicles in terms of price, quality, economy, etc., they will be a great challenge to the Japanese. We w ill discuss all of these reactions in detail.

1. Import Quotas

One of the easiest ways to restrict imported goods is to impose quotas on them. However, quotas are more political in nature than based on economic reasoning. In other words, import quotas are used most frequently to satisfy protectionists, and are usually intermingled with political protectionism. This sentiment of protectionism is aggravated by pseudo-scientific figures such as one used by Henry Ford II: "For every 1 percent of import penetration, there are 20,000 fewer jobs available in the U.S."^ However, he neglected to mention the jobs created in the United States by importing foreign motor vehicles. The imports support some 100,000 American workers.^ In addition, Japanese motor vehicle manufacturers earn income for the Japanese that they spend in the

United States to buy American goods. 11+9

The sentiment of political protectionism is high in the United

States, and specifically against Japan. The balance of trade between them has been unfavorable to the United States. The U.S. trade deficit with Japan was $1.2 billion in 1970, and $3.2 billion in 1971.6 The temptation to impose import quotas is a natural one in such an unfavorable situation. This sentiment can be aggravated if Americans believe that the Japanese have never properly or fairly treated American goods in

Japan, or have discriminated against them. Japan experienced such a sentiment when she was in a balance of trade situation unfavorable to the

U.S. before World War II. The Japanese government then sought more aggressive methods to improve its situation.

The argument for possible import quotas in the United States stems from two facts; the growing penetration of Japanese motor vehicles into the American market, and a desire to retaliate against the Japanese protection of its motor vehicle industry at home.

One consideration, however, is the timing of such import quotas.

As Table 5 indicates, motor vehicle imports from Japan were not worth thinking about until 1968. The number of units of Japanese imports has grown significantly from 1969 > but accounted for only slightly more than

3 percent in 1970. However, 1971 showed a different trend. Japanese motor vehicle imports to the U.S. jumped to 5 percent of total U.S. registrations, while those from other countries leveled off or decreased.

As Table 6 shows, Toyotas and Datsuns accounted for approximately

2 and 1 percent, respectively, of the total U.S. registrations in 1970.

However, they came close to the Volkswagen and accounted for 1+.65 percent of the total U.S. registrations in 1971. i5 o

TABLE 5

IMPORTS OP MOTOR VEHICLES TO THE U.S. m. 1964 1965 1966 1967 1968 1969 1970 1971

Britain .90 .76 .81 .99 .99 .90 .97 .93 Prance .40 • 31 .32 • 38 .31 .32 .38 .29 Germany 4.21 4.50 5.28 6.40 7.26 7.10 8.67 7.49 Italy .13 .11 .12 .21 .32 .46 •46 .46 Japan .09 .18 .42 .81 1.16 1.89 3.53 5.29 Sweden .28 .26 .36 .54 .52 .50 .66 .61

Source: R. L. Polk & Co., Import Passenger Cars Service "K" Report, (Detroit: R. L. Polk & Co., 1965-1971) and. rearranged. Notes: The percentage shows the proportion of imported motor vehicles of the total U.S. motor vehicles in terms of registration. There are some other countries, such as the Netherlands, which export motor vehicles to the U.S. However, their portion is so small that they are not shown here.

TABLE 6

IMPORTS OP MAJOR FOREIGN MOTOR VEHICLES TO THE UNITED STATES

1964 1965 1966 1967 1968 1969 1970 1971

Datsun .08 .14 .24 • 41 .43 .62 1.20 1.87 Toyota .01 .03 .18 .40 • 76 1.24 2.20 2.78 Volkswagen 3.81 4.12 4*66 5.42 5.99 5.70 6.79 5.23

Source: R. L. Polk & Co., Import Passenger Cars Service "K" Report. (Detroit: R. L. Polk & Co., 1965-1971) and rearranged. Note: The percentage shows the proportion of imported Datsuns, Toyotas, and Volkswagens to the total U.S. motor vehicles, in terms of registration.

The Japanese companies had "been forewarned that they might be obliged to impose voluntary export quotas if they accounted for 5 percent of the total U.S. motor vehicles in terms of registrations.7 The rationale for this concept was twofold: Japan had made a voluntary regulation for exporting Japanese steel at the time when exports reached 5 percent of

the total demand for steel in the United States; and the imports of the

Volkswagen had stayed at the level of 500,000 units for several years.

This figure is approximately 5 percent of the total U.S. motor vehicles

in terms of registrations in the past few years. This is not, of course,

the result of any voluntary restriction on the part of Volkswagen, hut rather competition from other motor vehicles and the revaluation of German mark. However, it is conceivable that there could be some restrictive measures if the units of imported Volkswagens increased far beyond this number.

Japanese executives were reasonably confident, however, that any action to restrict Japanese motor vehicles was not imminent. The rationale for their optimism was that there would be no import restrictions as long as the price was fair and they were not accused of dumping their product. K. Kawamata of Nissan, chairman of the Japan Motor Vehicle

Manufacturers Association, insisted that there was a difference between textiles and motor vehicles, stating that the circumstances existing in the textile industry had never existed in the Japanese motor vehicle industry.^ As there would be capital liberalization, he continued, the

Big Three of the United States could invade Japan and start production there for captive import to the U.S. The Dodge Colt is an illustration.

In these circumstances, there should be no possibility of import restriction on Japanese motor vehicles.9

One American executive of Nissan, U.S.A., said that Datsun sales would increase gradually until they reached an eventual goal of 500,000 units a year in 1976. If Toyota seeks a goal similar to Nissan's,

Japanese motor vehicles w ill total approximately 10 percent of the annual 152

U.S. market. Beyond this a strong political protectionism may easily set in."^ One expert has predicted that if the number of units of imports approached two m illion, the U.S. government would take some action to protect the domestic industry.H

In summary, there are unlikely to be import quotas on Japanese motor vehicles unless the U.S. industry is greatly injured by imports, and export restraint by the Japanese manufacturers w ill be the measure most probably taken to avoid the imposition of import quotas. In this way the Japanese can continue exporting their motor vehicles in the

United States.

2. Changes in Values of Currencies and Import Surcharge

While import quotas are aimed at the restriction of specific items such as textiles, motor vehicles, and television sets, changes in the value of a currency and the import surcharge aim at a general restriction of imported goods.

If the Japanese yen is revalued and/or the U.S. dollar is devalued, the international competitive position of Japanese motor vehicles w ill be weakened and it w ill be more difficult to export Japanese motor vehicles to the American market. If there is an import surcharge in addition to such a measure, the situation for exporting will be much more difficult.

However, an import surcharge should be the last resort because it may call for retaliatory measures from other countries. An import surcharge should be a temporary solution. It should serve as a warning signal rather than a permanent measure. 153

The revaluation of the Japanese yen and/or the devaluation of the

U.S. dollar may prove effective for curbing the flood of Japanese motor vehicles into the U.S. market in some circumstances. One of the reasons why the Volkswagen has been dwindling in exports to the U.S. in recent years is the adverse impact of the revaluation of the German mark, com­ bined with more competition from American subcompact passenger cars and the Japanese.

However, there are some factors that w ill minimize the effect of such drastic measures. The price-demand elasticity of Japanese motor vehicles, the capability to absorb pant of the revaluation by Japanese manufactuners, and the difference of production costs between the United

States and Japan, are examples.

The price cannot be raised exactly as the rate of revaluation.

The price is dependent on price-demand elasticity. The more elastic the demand, the smaller is the rise in price as a fraction of the revaluation.

The major factors influencing price-demand elasticity are: (l) the avail­ ability of good substitutes for the commodity under consideration, (2) the number of uses to which the commodity can be put, and ( 3) the price of the commodity relative to consumers1 incomes. The price-demand elasticity for

Japanese motor vehicles is rather elastic in terms of substitution, the number of uses, and the income-price relation. As a result of this, the price of Japanese motor vehicles cannot be increased at the same rate as the revaluation. 15k

In addition, revaluation as a restrictive measure cannot produce

i t s maximum e f f e c t i f th e Jap an ese m a n u fa ctu rers have p re p a re d f o r i t

and have the capacity to absorb part of it. As revaluation has been a

central topic for several years, Japanese motor vehicle manufacturers

probably have countermeasures to overcome unfavorable situations. They

could, for example, increase their exports to the United States drasti­

cally in advance in order to mitigate the possible effect of such a measure. They could switch dollars to the yen in their overseas sales,

anticipating such measures, because the revaluation of the Japanese yen has been a major target in the monetary world. Toyota Motor Sales, for

example, accumulated almost 5>.5> billion yen ($l£ m illion) during the

1 P past two years, 1969-1970, against an anticipated revaluation.

3. Request for Capital Liberalization in Japan

In Japan, capital liberalization means elimination of restrictions on any foreign capital that is interested in investment in Japan. Tradi­ tionally, the Japanese government has feared foreign capital because it has -unpleasant memories of former foreign economic domination. The great

British trading companies, for example, controlled Japan's external trade until the turn of the century.^ As a result, the government has been very strict about permitting foreign capital in Japan, and it has acted as the defense against the threat of a foreign capital invasion.

The capital liberalization question stems from the period when

Japan became a member of the Organization for Economic Cooperation and

Development (OECD). Although Japan was allowed 18 reservations under the revised liberalization code of I 96I4, she came under increasing criticism in 1965 and 1966 for her restrictive attitude."^ 155

In the summer of 1967, the Japanese government completed a program designed to answer OECD criticism of its capital restrictions. The pro­ gram divided Japanese industry into three categories. ”*^ A first category listed seventeen industries in which applications for foreign capital investment would he automatically approved. A second category listed thirty-three industries in which up to 50 percent of foreign equity applications would receive automatic approval, subject to the restriction of no foreign management control. A third category listed all other industries, where applications for foreign capital investment would re­ quire case by case government scrutiny and decision.

One of the biggest debates in Japan was whether the motor vehicle industry had grown to sufficient maturity to allow liberalization of foreign direct investment, or whether it was still at a stage where it needed protection.

The attitude of Japanese manufacturers toward capital liberaliza­ tion is well summarized in the Hakone Manifesto. ”*^ Top managers of the

Japanese motor vehicle industry announced a communique on the "Objection to earlier capital liberalization, and the concentration of domestic

(Japanese) capital" at the sixteenth meeting of the Board of Trustees of the Japan Motor Vehicle Manufacturers Association held at Hakone,

Japan, in July, 1968. This is the so-called "Hakone Manifesto" ("Sengen") which received unanimous consent from the Japanese manufacturers for the first time, and was the unified view of the industry until the tie-in of

Mitsubishi Motor and Chrysler.

The reasoning behind the objection to earlier liberalization of the industry was crystalized by K. Kawamata in his book "On Liberalization of Motor Vehicles." He begins by defining the industry as: 156

a. The most strategic industry earning foreign currencies.

b. An industry of high growth.

c. An industry with high production value.

d. An industry with many related industries and large employment.

If such an industry, he argues, is controlled by foreign capital, it is evident that the initiative of the Japanese economy is entrusted to that foreign capital. In addition, K. Kawamata points out in his book, the scale and techniques of the Big Three of the United States, which have tried to penetrate the Japanese market, are tremendously large in size and so superior that they can easily control the Japanese industry.

However, there have been other and different views concerning capital liberalization in Japan. The viewpoint of the Federation of

Economic Organization (Keidanren), one of the most powerful business organizations in Japan, is that the Japanese motor vehicle industry should be liberalized. Their arguments for liberalization are as follows:

a. The Japanese motor vehicle industry has the capability to compete with foreign capital.

b. Capital liberalization is desirable on the ground that buyer-drivers w ill get cheaper motor vehicles of good quality, and that the industry w ill introduce superior management techniques and foreign technology.

c. It would be harmful to the Japanese economy if the industry adopted a closed-door policy. Concentration on the export of Japanese motor vehicles to the U.S. could produce an adverse effect on the other industries in Japan (due to U.S. protectionism).

Keidanren announced this basic liberalization policy on January 8,

1969. It claimed that liberalization should be sought aggressively for the development of the Japanese economy and for the prevention of a tendency to protectionism around the world. And the policy restricted the negative lists (lists of non-liberalization industries) to only those 157 industries engaged in defense, natural resources, public enterprises, atomic energy, and electronic calculators. It further suggested that all other industries should be liberalized by the end of 1971 on a 50-50 basis.

Thus, motor vehicles were released from the negative lists.

The basic policy of Keidanren called forth fierce objections from both Toyota and Nissan. K. Kawamata of Nissan said that it was nonsense to discuss the liberalization of motor vehicles at that stage. At the same time, the chairman of Toyota, Taizo Ishida, proposed, as a retaliatory measure against the basic policy, a revision of company articles in order to remove foreigners from the top positions in management.

Meanwhile, there appeared some top managers who were proponents of capital liberalization. Soichiro Honda, president of Honda, claimed:

"We are not afraid of foreign capital, because our technology is inferior to none! If the Big Three want to come, let them come!"’'7 Although the encouragement of liberalization was h it hard by K. Kawamata and the Hakone

Manifesto was once again confirmed by him, an agreement to allow capital liberalization was made between the chairmen of Keidanren and the Japan

Motor Vehicle Manufacturers Association in February, 1969• The agreement was carefully worded so that it was not possible to foretell the date of liberalization. The reorganization of the motor vehicle industry was encouraged to be completed by the end of 1971, and earlier liberalization might be decided on after reviewing the reorganization.

However, the actual realization of capital liberalization by the

Japanese cabinet which had been scheduled for the fall of 1971 dates from April, 1971. This earlier liberalization was achieved mainly because the United States demanded it, in many conferences with Japanese counter­ parts for several years, and the Japanese government finally made a 158

concession. Japan had been concerned about the freezing out of foreign

capital because it might invoke retaliation against Japanese motor vehicles

in the United States.

The Japanese government has adhered to the following points on the

capital liberalization in the motor vehicle industry:

a. Capital investment must be limited to 50 percent for Japanese capital and 50 percent for foreign capital.

b. New joint ventures should be with new Japanese firms in which Japanese partners make a cash investment.

c. Existing manufacturers cannot establish joint ventures with foreign capital, except that they can be permitted after the government investigates the standing of the company, the market share, etc.

The United States government and the American companies were not

satisfied with this plan for capital liberalization in Japan and com­ plained that the three restrictions kept the liberalization program far

from the true concept of liberalization. Japan was ready to make another

concession to foreign capital by amending the Japanese commercial code to mitigate their criticism . The lim itation on ownership of outstanding

stock by foreigners was increased to 25 percent, from 20 percent. The code regulates that if anyone has more than 25 percent of the outstanding

stock, he is entitled to have an accumulated voting right for the selection of directors. If he has more than one-third, he is entitled to have a right of veto. This is the reason why Chrysler agreed to have 35 percent of outstanding stock.

1+. Production of Subcompact Passenger Cars by American Manuf ac tu re rs

It seems likely that imported motor vehicles are here to stay in

the United States, and the small passenger car market may become a domi­ nant segment of the new motor vehicle business within a few short years. 159

The most probable reaction to the imported small passenger cars and the

market segment they have is for American companies to produce subcompact

passenger cars, and they have been producing such subcompact passenger

cars since 1970.

In the early sixties, the Big Three were successful in pushing

back the imported small passenger cars in the U.S. by captive import from

European subsidiaries. Prom a high of 609,000 sales, or 10 percent of the m arket in 1959» import sales fell to 339»000 units, or 5 percent of the market in 1962.18

It is not clear whether American subcompact passenger cars will push back imported motor vehicles again in the seventies. The situation

in the late sixties and in the early seventies is quite different. Imported motor vehicles are now well established in the U.S. market in terms of price, quality, consumer preference, dealer networks, and after-sale ser­ vice , etc. They have become accepted among American buyer-driver s.

Their market share reached approximately 15 percent of the market in 1970.

American subcompact passenger cars w ill have two effects on the

American motor vehicle market. They w ill compete vigorously with imports

and may push them back to some extent. They may also encroach on bigger

American passenger cars which produce more profits, so that the total net

income of motor vehicle manufacturers, such as General Motors and Ford, may be adversely affected. If American subcompacts encroach more and more on

the bigger passenger cars, it means an enlargement of the market for small passenger cars, and this again opens new opportunity to imports as well as

to American subcompacts.

American companies had been very reluctant to produce small passenger

cars because they saw the small passenger car as a low-profit item, 1 9 and 160

they had also been afraid of the possibility that sales of small passenger

cars might diminish sales from their own bigger and more profitable passenger

c a r s .

Above all, the American manufacturers had never recognized the signi­

ficance of this market segment, having satisfied themselves with driving out most imports in the early sixties by introducing their own small passenger cars. But the imports crept back and found a golden American small passenger car market in the m id-sixties, and intruded even more aggressively in the late sixties, especially with the Japanese motor vehicles, before the

Americans recognized the great significance of this market segment.

General Motors, Ford, and American Motors have counter-attacked at last against this flood of imports by producing their own subcompacts or by arranging captive imports from their subsidiaries, assuming that it is better to have lower profits than none at all. Chrysler, on the other hand, never had a plan to produce small passenger cars itself, and introduced the

Dodge Colt from Mitsubishi Motors of Japan as a kind of captive import.

American manufacturers may face difficulties in producing small passenger cars in the United States. Among many problems, cannibalization of large motor vehicles is one of the most serious. We may call it the

"Effect of Encroachment." It may affect both American passenger cars and im p o rts .

If we assume that the small passenger car market in the United

States is firmly established, and that many Americans prefer to have small passenger cars for their various purposes, including the environmental pollution problem and the oil shortage, the demand for small passenger cars will definitely increase. 90 This increasing small passenger car market may take either one of two forms: it may be a newly created market without affecting the established market, or it may encroach on other market segm ents. 161

If it is a newly created market, there w ill be nothing for the

Americans to worry about except the competition between the foreign imports

and the American motor vehicles. But if the American small passenger cars

encroach upon their own bigger ones, it may cause serious trouble for the

American manufacturers. When Ford's compact Maverick came on the market

it cannibalized sales of the Falcon and even the Mustang in its first y e a r .^ 1

And one West Coast executive of a Japanese firm, talking about the effect

of encroachment, said, "Pinto is chewing into Maverick the way Maverick

chewed into Mustang." 99 After Ford introduced the Pinto in September, 1970,

the national sales of Maverick, which is bigger than the Pinto, have fallen

by 37 p e rc e n t from th e 1970 p a c e .^3

To conclude, it is not clear what w ill be the actual impact of the

American subcompacts on the imports and the Japanese motor vehicles in

particular. Two-year statistics (1970-1971) do not show much American

im pact.

5. Response of Japanese Manufacturers to the Reaction of the United States.

Both the Japanese government and Japanese motor vehicle manufacturers

had been keenly aware of protectionist attitudes in the United States. Under

such circumstances, there were four choices for them to take into consideration.

The first choice is to continue exporting aggressively regardless of

protectionist attitudes and possible import quotas. The second possibility

is to establish "voluntary quoT J.a" by having the Japanese motor vehicle

manufacturers modify their targets according to guidelines agreed to between

the manufacturers in both countries, the United States and Japan. A third

choice is to seek other markets. This assumes that the ceiling for Japanese motor vehicles is near at hand in the United States. Most probable new target markets for them are Western Europe, Eastern Europe, and China. A fourth 162

possibility is to assemble Japanese motor vehicles in the United States. This would overcome the criticism of American protectionists, and might be welcomed by the American public, the U.S. government, and interested state governments for possible increase of employment. It could also contribute to the Japanese economy through the utilization of the Japanese yen according to the concept of opportunity cost. Japan had foreign exchange reserves of approximately

$16 billion at the end of 1971* These lose value with each possible revalu­ ation. It could utilize them in foreign direct investment in the motor vehicle industry.

The first suggested possibility is not realistic. It is almost cer­ tain that the United States would impose restrictions if imported motor vehicles went beyond a certain percentage of the total American motor vehicles in terms of registrations. As discussed before, we may assume h e re t h a t 5 percent of the market obtained by any company or country w ill raise a warning signal, and that two million imported units in the U.S. market may become the upper lim it beyond which import quotas w ill be actively sought.

Japanese motor vehicle manufacturers may market aggressively up to this point, and then proceed cautiously, reviewing what the reaction of the United States would be if they seek to go further.

The second choice could be called the strategy of not-insulting- others. It might take either of two forms: one would be to inform the

U.S. as to the volume of intended exports. This assumes that the Japanese motor vehicle companies know beforehand what an acceptable volume is. The other is for Japan and the United States to discuss in advance the acceptable volume of exports.

As mentioned before, the third possibility avoids a direct confron­ tation with the American manufacturers. It switches the battlefield to 163 other markets after Japan has secured, her allowable share of the American market. The Japanese motor vehicle manufacturers have begun an intensive effort to broaden their market share in Western Europe, where their share has been almost negligible. They also have investigated the possibility of penetrating Eastern European countries, and China has been one of the most attractive target markets for Japan. Although some obstacles may exist, these communist countries should be a potential market for Japanese motor vehicles.

A fourth possibility is to attempt to mitigate American resentment against Japanese motor vehicles. Direct investment in the United States might be welcomed and it is also a test case for the Japanese motor vehicle manufacturers to see if they can become world enterprises in the true sense. However, they have been very reluctant to establish assembly plants in the United States because there are many problems to be solved

(which we w ill discuss in the next chapter).

Japanese motor vehicle manufacturers have been very cautious not to insult the feeling of Americans toward them. However, quite apart from this, it is a requirement that Japanese motor vehicles cannot be allowed lim itlessly in the U.S. market.

In conclusion, there are many ways for the American companies to cope with Japanese motor vehicles in the U.S. They may demand mandatory measures based on political protectionism, such as import quotas, or they may confront

Japan directly by producing their own small passenger cars. The latter course is preferable from the point of view of economic competition. Although it is not quite clear what effect American small passenger cars will have upon their Japanese counterparts, they may prove to be an effective counter­ measure against Japanese passenger cars in the U.S. market. 16U

On the other hand, it is the responsibility of American manufacturers to invade the Japanese motor vehicle market vigorously by requesting the

Japanese government to liberalize it and by manufacturing the kind of motor vehicles that Japanese driver-buyers want.

In the next chapter, we w ill discuss the impact of the new economic policy of the United States on Japanese motor vehicles in the American m arket. F o o tn o te s

1. Warren S. Hunsberger, Japan and the United. States in World Trade (New York and Evanston: Harper & Row Publishers, Inc., 1961*), p. 256.

2. I b i d .

3. I b i d . . p . 257.

I4. "How the Japanese Blitzed the California Auto Market," p. 28.

5. Automotive News, March 12, 1973> P* 18.

6. U.S. President, International Economic Report of the President (Washington, D.C.: Govemment Printing Office, March, 1973)> P* 88.

7. Yoshihisa Hanabusa, Moeagaru Nichibei Keizai Senso ("The Blazing Economic War Between the U.S. and Japan")(T okyo:Y aru Publishing Co., Ltd., 1970), p. 82.

8. K. Kawamata intended to emphasize, as the w riter understands it, the difference between the American textile industry and the motor vehicle industry. As the American motor vehicle industry is so big and influential that no other countries can have a great impact on the industry. Literally speaking, the United States is the center of motor vehicles in the world. The American textile industry, on the other hand, is not so big and influential as the motor vehicle industry. The Japanese textile industry had been the backbone of the Japanese economy and her exports. The quality of Japanese textiles is well-known. The American textile industry is not concentrated as the motor vehicle industry and the scale of individual company is not so big as an individual motor vehicle manufacturing company. The vigorous competition of the Japanese textile industry had a great impact on the American textile industry. The American motor vehicle industry has a great possibility to invade Japan once the Japanese government lifts most barriers to American motor vehicles. However, there w ill be no such a possibility for the American textile industry. The industry is not the one of comparative advantage.

9* Asahi Shimbun, October 21, 1971 > P* 12.

10. "A 10 percent (market) share is considered reasonable (for Japanese motor vehicles), for example, in auto manufacturing countries like the U.S., Great B ritain, West Germany, and France." See Automotive News. August 7> 1972, p. 33* (Parentheses are mine.)

165 166

11. "How Nissan Motor Deals with Competition and Devaluation," Business Week. April 7» 1973> P» 68,

12. "Those Industries Which are Affected Slightly by the Revalua­ tion," Shukan Daiyamondo. June 5> 1971 > p. 99*

13. Herbert Glazer, "Capital Liberalization," in Joint Ventures . and ..Japan,- ed, by Robert J. Ballon (Tokyo and Rutland, V t.: Sophia University in Cooperation with Charles E. Tuttle Company, 1967) , p . 18.

l i |. I b id . . p . 3.

15. I b id .

16. Nihon Keizai Shimbunsha Kogyokyoku, ed., Kokusansha. p. 32.

17. I b id . . p . 35.

18. White, The Automobile Industry, p. 185.

19. Henry Ford II once said, "Minicars, M ini-profits." See "American Minicars Gain on Imports," U.S. News & World Report. January 17, 1972, p. 37.

20. Mack W. Worden, Marketing Vice President of General Motors predicted that small passenger cars would dominate the motor vehicle market by 1980, see Automotive News. February 1^, 1972, p. 2.

21. "Detroit: New Era," Forbes. June 15, 1970, p. 2i+.

22. "Japan's Big Drive in Autos," Newsweek. May 3> 1971> p. 76.

23. I b id . CHAPTER IX

THE IMPACT OE THE NEW ECONOMIC POLICY ON JAPANESE

MOTOR VEHICLES IN THE U .S.

A. The New Economic Policy of the United States

We are now removing the time constraint that we have adhered to thus far (with some exceptions) and are going to consider the effect of the Nixon Statement of August 15, 1971» and. of measures such as the

Smithsonian agreement, on Japanese motor vehicles in the United States.

President Nixon announced that he would impose a freeze on wages and prices for ninety days, promised tax cuts totaling $6.2 billion in the current fiscal year, set the dollar afloat in the international exchange markets, made the dollar inconvertible, and imposed a 10 percent surcharge on all dutiable imported goods.

The problem that forced these changes was the U.S. balance of payments def'iit of $10.7 billion (in terms of the official reserves transactions balance) in 1970, and the inflationary pressure in the U0S. economy. For several months before the drastic new measures were taken, there were massive outflows of American dollars to European central banks, notably to Germany.

As a result, Germany floated her mark, and Swiss franc was revalued in May,

1971* Meanwhile, the U.S. gold stock fell below $10 billion for the first time since World War II. The United States ran an international trade deficit in the first half of 1971 for the first time in the twentieth century.

The origins of this problem go back to the Bretton Woods agreement of 19UU, which set up the international payments system. Under this system

167 168

the U.S. dollar became the reserve currency, and any country could change

the value of its currency in terms of the dollar. The dollar was always

a welcome asset on the books of any foreign bank. When the United States was the dominant power in the free world, this arrangement caused no problem s.

However, after Europe and Japan rebuilt their industry, the world monetary system did not operate properly. Countries such as West Germany began to find themselves with currencies undervalued in terms of dollars, rather than overvalued. They were reluctant, however, to revalue their currencies, because undervaluation gave them a trading advantage, par­ ticularly in the U.S. market. After the Japanese yen was fixed in terms of the U.S. dollar ($1 = 360 yen) in 191+9* it was never revalued even after the yen developed tremendous strength, giving Japan a powerful advantage in her world trade.

The Group of Ten finance m inisters tried to solve the world mone­ tary crisis after the Nixon statement, and Common Market nations demanded dollar devaluation as part of a broad realignment of currency values.

Pour months after the Nixon statement, an agreement was made among the

Group of Ten finance ministers at a meeting at the Smithsonian Institution.

The United States agreed to devalue the dollar by 7.89 percent, while

Japan revalued the yen by 16.88 percent, and West Germany revalued the mark

8y 13.57 percent. At the same time the 10 percent surcharge was dropped.

The U.S. motor vehicle industry welcomed the new economic policy, because the industry was preferentially treated by the repeal of a 7 per­ cent excise tax on passenger cars.

However, the effect was not immediately evident after the state­ ment (particularly in 1971) because the import surcharge was applied only 169

to those motor vehicles which were imported after August 15, 1971> import dealers had large stocks of motor vehicles, having already antici­ pated such measures in advance.1

Retail sales of Japanese motor vehicles in the United States in 1971 were not affected by the Nixon statement. The exports of Japanese motor vehicles to the United States increased almost 93 percent in 1971 over 2 1970. The export increase of Toyota to the United States was 90 p e rc e n t in 1971 o v er 1970, and motor vehicles for the United States accounted for

50 percent of Toyota exports. Nissan also made remarkable progress in exporting Datsuns to the United States in 1971s a 0$ percent increase over

1970. But after the Nixon statement monthly sales of the major Japanese companies, such as Toyota and Datsun, did not reach the highest 1971 monthly sales (August for Toyota - 31*598 units), (June for Datsun - 20,192 u n it s ) until February, 1973* ^

The exports of Japanese motor vehicles to the United States in 1972 showed a quite different trend. There was merely a 3 percent increase in

1972 o v er 1971* The following factors contributed to the great change in the export pattern of Japanese motor vehicles to the United States;

1. The Smithsonian agreement for the readjustment of foreign exchange rates among major currencies discouraged the Japanese export of motor vehicles in terms of price.

2. Japanese manufacturers reassessed the export of their motor vehicles to the U.S. market, which was in a strong protectionist mood.

3. The sales of small American passenger cars increased significantly in 1972.

We may understand more clearly the impact of the import surcharge and the revaluation and/or the devaluation of currency on imported motor vehicles and American subcompacts by comparing price changes between 1971 and 1972. The 1971 prices are as of August IJ 4, before the freeze and 170 before removal of the federal excise tax. As Table 7 shows, manufacturer's

suggested retail prices of Japanese 1972 models in the United States were

greatly affected by the revaluation of the Japanese yen and the devaluation

of the dollar. The prices of American subcompacts, on the other hand,

changed very slightly.

TABLE 7

MANUFACTURER’S SUGGESTED RETAIL PRICES OP SELECTED MODELS OP IMPORTED AND AMERICAN SUBCOMPACT PASSENGER CARS

1972 1971 Price Change(%)

Toyota Corolla 1200 $1,956 $1,798 8.79 P in to 1,960 1,919 2.11+ Datsun 1200 1,976 1,736 13.82 Volkswagen Beetle 1 ,999 1,899 5 .2 7 Gremlin 2,021 1,999 1 .1 0 Vega 2,060 2,090 -l.kh C o lt 2,095 1,92k 8 .8 9 Toyota Corolla 1600 2,109 1,918 9.9 6 VW Super Beetle 2,159 2,01+9 5.37 Cricket (1+ d r.) 2,017 1,915 5 .3 3 Opel 2,Ol+9 1 ,878 9-11

Source: Automotive News. February 7* 1972, p. 1. Note: Vega, Opel and 1972 Gremlin prices include dealer preparation charges and the others do not.

All the Japanese manufacturers except Toyota and Nissan increased

their sales in the United States in 1972. The rapid increase of Japanese

motor vehicles other than the Toyota and the Datsun has been attributed

to their uniqueness. Mazdas were equipped with the first rotary engine.

Hondas with a 600 cc. engine, were smaller than American subcompacts, and

Colts were distributed through Dodge dealer networks. 171

The popularity of the Mazda can he seen from the rush of applica­ tions for Mazda dealerships. There were 2,300 applications for the 80 openings, despite Mazda's stiff investment requirement of about $650,000 per dealership.^ What was the reason for this rush? One of the most important reasons was the dealer margin discussed before (see page 139)*

The average Mazda dealer is grossing $606 per passenger car, almost $225 more than the industry average.5

In summary, in 1972 Japanese companies were affected by the Nixon statement, the Smithsonian agreement, and the strong protectionist attitude in the United States. American consumers bought more American passenger cars, and the two major Japanese manufacturers did not seek an aggressive market penetration because they did not want to provoke American resent­ ment against Japanese motor vehicles.

B. The Strategy for the Future by Both the Japanese Govern­ ment and the Japanese Motor Vehicle Industry

Japan, was shocked by the Nixon statement ("Nixon Shock") because it was not consulted in advance. It then began to prepare its response to the new U.S. economic policy. The Japanese government decided, for example, to enforce the so-called seven point measures in May, 1972. The seven points incorporated in the new plan are as follows:^

1. Effective operation of fiscal and monetary policy 2. Promotion of imports 3* Promotion of orderly export marketing 1+. Expansion of capital exports 5. Utilization of foreign exchange reserves 6. Promotion of economic cooperation with developing c o u n trie s 7. Revisions of the existing laws concerned, such as the Foreign Exchange Special Account Law, the Export and Import Control Law and the Export- Import Bank Law, so that the new economic program w ill be implemented effectively. 172

Japan announced another five-point "yen defense program" on

October 20, 1972. The highlights of the new countermeasures are as fo llo w s : ^

1. Import promotion

a. Straight 20 percent reduction of tariffs b. Expansion of import frameworks by 30 percent c. Lowering of import-financing loans by 1 percent d. Improvement of the preferential tariff system

2. Export control

a. Pull use of the trade control act b. Abolition of a series of export-promotion measures c. Hiking of export-financing loan rates by the Export- Import Bank of Japan by 1 percent

3. Capital liberalization k. Promotion of economic cooperation with other countries 5. Bolstering of the nation's own welfare arrangements.

The Japanese cabinet finally announced on December 5, 1972, that passenger cars, bus and truck bodies, and motorcycles would be listed among those goods needing export licenses according to the Export Trade

Control Order. Thus, exports would be decreased by $i;50 million from

September, 1972, to August, 1973*^

The Japanese motor vehicle industry was also shocked by this government statement, as were other industries which were heavily dependent on the United States for their exports. The industry accepted the revalua­ tion rather calmly, but it was surprised by its extent, which was greater than it had anticipated. The Japanese companies had prepared against the revaluation even before the Smithsonian agreement. Nissan's counter­ measures against the revaluation of the Japanese yen were threefold:

(l) a shortening of the period from contract to settlement, ( 2) more utilization of borrowed money in foreign currencies, and ( 3) th e h ik e 173

of the f.o.h. price in advance so that the shock of the revaluation could

he minimized.9

Both the Japanese government and the industry s till face a great

problem, another possible revaluation of the Japanese yen. The first

effect of the Smithsonian agreement in Washington in December, 1971>

failed to correct the deficit in the U.S. trade balance and,' on the

contrary, widened it. While the United States trade deficit amounted

to $2 billion in 1971, it worsened to $6.1+ billion in 1972.^ Two

countries, Japan and Germany, were responsible for a major part of the

U.S. trade deficit in the two years, 1971-1972.

A world monetary crisis came again in January, 1973, and the value

of the American dollar fell sharply in the European money markets, notably

in West Germany. Japan's continuing trade surplus had been one of the main sources of strain on the international monetary system in general

and the U.S. balance of trade in particular.

Both American and Japanese official sources agree that the U.S.

trade deficit with Japan went up to $1+ billion in 1972. This is a jump

from $3*2 billion in 1971, and $1.2 billion in 1970. Japan's foreign

exchange reserves soared: $i+.8 billion at the end of 1970, $19.1+ b i l l i o n

at the end of 1971, and $18 billion at the end of 1972. However, it has been suggested that the actual figure is much larger (perhaps $29 billion), because Japan is concealing substantial amounts by buying

short-term bonds.

The U.S. government wanted the readjustment of the world monetary

order to come by revaluation of foreign currencies, particularly the West

German mark and the Japanese yen. But neither the Japanese nor the

Germans were willing to undercut their export chances. On February 12, 1973, 17k

President Nixon decided to devalue the American dollar another 10 percent and the Japanese government agreed to float the yen the following day.

Even though there are indications that the devaluation is working to curb imported goods, particularly motor vehicles, through a rise of prices in the United States, this paper will not deal with anything that happened after the second devaluation of the American dollar.”*"'

In conclusion, the Japanese government and the motor vehicle indus­ try were very anxious to avoid provoking American protectionist reactions.

The Japanese government announced that Japan would purchase more than $1 billion in U.S. goods and services, including agricultural products and commercial airplanes, to mitigate growing protectionist attitudes in the

United States. The major motor vehicle manufacturers such as Toyota and

Nissan also stopped aggressively seeking market penetration. We can identify this with the change in the number of dealers who handle Japanese motor vehicles. The number of dealers for Japanese motor vehicles in the

United States increased by 768 (21%) in 1972 over 1971• However, this increase came mostly from Dodge Colt dealers and Mazda dealers. The former increased by 981+ ( 63%) in 1972 o v er 1971, and. th e l a t t e r in c re a s e d by ll+3

(86%) in the same period. The number of major Japanese motor vehicle dealers, on the other hand, increased only slightly in 1972: Toyota by 1+9

(9%), and Datsun by 19 (2%). Both Honda and Subaru dealers decreased in number in 1972.

The import promotion of American motor vehicles in the Japanese market and capital liberalization for American motor vehicle manufacturers were not implemented satisfactorily, however, by the Japanese government.

Although it announced a cut in tariff rates for imported goods, American motor vehicles were not in a more competitive position because the tariff 175

rate on motor vehicles is scaled according to the size of the engine. In

private use, for example, $ 12.£0 is levied on those motor vehicles with a

36O cc. engine or less, while $15>0 is levied on those with 2,000 c c .

engines, and $ 2f?0 is levied if the wheelbase is over 3* 01+8 m e te rs.

Capital liberalization was not implemented as American manufacturers

expected until the second devaluation of the American dollar.

Japanese motor vehicles bound for the United States may face export

restrictions by the Japanese government, further revaluation of the

Japanese yen, and possible voluntary restriction by the motor vehicle

industry. In other words, Japanese motor vehicles may be faced with

tough barriers at home and in the United States in 1973 and the years

following. The concern of Japanese manufacturers can be summarized by

looking at the situation of Toyotas in the United States. One of the top

Japanese managers of Toyota, U.S.A., is worried about the revaluation of

the Japanese yen and has said that Toyota would be placed in a very difficult position if there should be another revaluation.

C. Assembly of Japanese Motor Vehicles in the United S ta te s

One of the possibilities that may be readily acceptable to both

Americans and the Japanese is the establishment of Japanese assembly plants

in the United States. But so far, Americans have shown more enthusiasm for this than have the Japanese. It involves difficult decisions for the Japanese manufacturers to make. The operation of assembly plants in the United States might give greater management problems than in Japan, and Japanese managers would face many problems, such as labor problems, once they start assembly plants in the United States.

Nissan has shown some indications of establishing assembly plants in the United States,”*3 while Toyota has shown a more negative attitude 176 toward the concept. However, the situation in 1973 is very different from previous years as far as establishing Japanese assembly plants in the United

States is concerned. Nissan is already assembling 15>0 pick-up trucks per day at a plant near Los Angeles on an experimental basis, and another assembly plant has been scheduled to open in Seattle."*^ There is also a report that Toyota w ill announce factory construction projects.^

The argument for assembling Japanese motor vehicles in the United

States involves three factors: (l) possible profitability for Japanese manufacturers in assembling their motor vehicles in the United States,

(2) avoidance of political resentment against the influx of Japanese motor vehicles into the United States, and ( 3) expectations of increased employ­ ment of American workers.

As Japan had accumulated a huge amount of foreign exchange reserves, at the time of writing it seemed able to invest in whatever it deemed most profitable relative to the opportunity cost concept. It also has the capability to build and run factories in advanced countries, such as the

United States, because it has become one of the most advanced countries in the world in terms of technology. If the Japanese yen is revalued again, it w ill be more costly to export Japanese goods to the United States, while it w ill be cheaper to establish Japanese plants in the U.S. because the Japanese yen w ill have even more value as against American dollars.

Assembly or manufacturing in the host country is more favorably regarded than importation in many cases because assembly or manufacturing directly benefits the host country by increasing employment. Many countries have, however, some degree of xenophobia about foreign direct investment in assembly or manufacturing plants. This is usually expressed in the form of apprehension about control of the economy by foreign capital. However, 177 few would conceive it possible that the American motor vehicle industry could be controlled by the Japanese manufacturers in terms of capital, technology, or management.

We may suggest that it is desirable for Japanese manufacturers to establish assembly plants in the United States, and that it is time to make a decision to implement such plans from the standpoints of profita­ bility, protectionism, and employment increase in the United States.

1. The Overseas Activity of Japanese Industry

The overseas activity of Japanese industry has been accomplished mainly through exports. Direct investment in the form of assembly or manufacturing plants has been less emphasized by Japanese entrepreneurs, who have invested mainly in developing countries. The trend of exports and direct investment of Japanese enterprises is as follow s:^

1965 1969 1970

E x p o rts ($ million) 8,1|58 16,003 19>333 Direct investment ($ million) 956 2,683 3>596

An interest in direct investment by Japanese entrepreneurs was aroused, however, by the growth of the Japanese economy as well as by the demand of other countries for such direct investment. The Japanese economy has grown into maturity and many Japanese entrepreneurs aspire to transform their enterprises into multinational ones with widespread operations. Unless they enlarge their organizations in this direction and succeed in their operations in such an environment, they cannot be multinational enterprises in the true sense. Japanese firms are beginning to organize themselves in this way. The means to becoming a multinational firm are to have direct investments overseas in assembly or manufacturing plants in the host country. 178

There axe, of course, many forms of international involvement. Export

is an initial step. Many firms first become involved in international

business simply by exporting their products to foreign countries. A second method of international involvement is through licensing agreements. In

this type of structure, the parent company rents a license or permit that gives a foreign firm the right to use the processes, techniques, and possibly

the name of the parent company in the manufacture or sale of a product.

Licensing agreements provide an inexpensive means for exploring and testing a company's (or product's) growth potential in a particular area before any investment is made. Prom a risk standpoint, licensing agreements entail greater risk than normal export operations but considerably less than direct investments. Licensing has the advantage of offering a company additional revenue for products or processes it has developed with a comparatively small investment of men and capital. However, an inadequately conceived agreement can cause a company to lose control of its product or possibly even to find that it has trained its own competitors.^

A third type of international business form is direct investment.

This can take the form either of joint ventures, or of wholly owned ventures.

In the former form of involvement, a company combines efforts with a second firm or individual to establish a business enterprise that is owned jointly by the parties. The latter form, a wholly owned venture, is the major investment alternative to a joint venture. It may be either a branch, which is simply an element of the parent corporation that happens to be geographically separate, or a subsidiary, which is a separate company controlled by the parent.

The basic motive for direct investment either in the form of joint ventures or wholly controlled ventures is an economic one; that is, the 179 optimization of the rate of return on an investment. Joint ventures seek such a possibility in foreign countries. However, there is an ambivalent attitude toward the joint venture in host countries. Discrimination against foreign controlled enterprises is widespread. Joint venture operations are, however, welcomed because people in all countries identify a joint venture with their own society. A valuable precondition is the cooperation of local officialdom, and a way to cultivate this is to integrate the firm into the national business system through joint ownership and management.

One of the great problems facing joint venture operations is that of cross-cultural management. Whenever individuals from different national, ethnic, and cultural environments join in a common effort, there is a high probability of conflicting views and value judgments and of different ways of looking at problems in general."'® Basic management theory and principles may have universal applicability, but management approaches and techniques vary in different cultures. Here lies a question: Can Japanese managers adjust themselves adequately to the American cultural environment when they establish assembly plants in the U.S.?

By the end of Japan's fiscal year 1973» March 31, direct foreign investments totaled an estimated $6.7 billion . ^ There are many reasons for individual Japanese enterprises to invest in other countries:

a. Sales expansion in host countries b. Host nation's domestic industry protection c. Difficulty in making outright export d. U tilization of abundant labor in overseas countries e. Securing dividends and royalties 20

In 1970, Worth America accounted for 27 percent of Japanese overseas invest­ ment, and East and Southeast Asia, 2 3 percent. Then followed Central and

South America (l9%)» the Middle East (ll%), Europe (ll%), Oceania (6%), and Africa ( y/o) . ^ 180

Approximately 20 percent of Japan's $3»5>96 million of overseas

investment in 1970 was in the United States, with about 30 Japanese

companies involved in mining, forestry, and manufacturing. Japanese partners hold more than £0 percent of the capital stock in the United

States in most cases. But direct investment by Japanese motor vehicle manufacturers in assembly plants is almost negligible.

Japanese motor vehicle manufacturers have been very cautious on the subject of assembly in the United States. K. Kawamata of Nissan once re v e a le d h is own view :

We are not considering capital investment in the United States because we are incapable of producing or assembling our motor vehicles there, and conditions for production or assembly are not so favorable as in Jap an . ^

However, Nissan later began to consider the possibility of assembling

Datsuns in the United States. One of the top managers of Nissan, U.S.A., told a reporter that his company felt the time was rapidly approaching when such a step would be economically feasible . ^ But, Toyota has never mentioned anything officially about the assembling of Toyota products in the United States.

The business climate in the United States has changed rapidly for

Japanese motor vehicle manufacturers, and it may be conjectured that the day for establishing assembly plants in the United States is approaching.

The climate for assembling their motor vehicles here has been favorable because of the Japanese favorable balance of payments and the huge amount of foreign exchange reserves. In addition, the Japanese level of techno­ logy can compete successfully with those of advanced countries, such as the United States. It is our conclusion, therefore, that, other things being equal, Japanese entrepreneurs w ill invest their capital in the 181

United States in the nineteen seventies, as American entrepreneurs invested their capital in Europe in the late fifties and the early sixties. Japanese entrepreneurs may react to American protectionism by direct investment just as American entrepreneurs did in Europe after the Treaty of Rome of 1957 > when a big market was affected by protectionism. More direct investment over there was a feasible alternative after the Treaty became effective at the beginning o f 1958.

There i3 already one good example of a Japanese firm in the United

States which has been led to establish a plant as a result of U.S. protec­ tionism. Nihon Seiko is the case.There was a strong movement against importing Japanese bearings and the company established a plant to produce bearings here in cooperation with the selling agent of Nihon Seiko in the

U.S. The venture had the advantage of utilizing a sales network already established in the United States.

The United States seems to encourage direct investment from Japan, seeing it as inevitable, whether Japanese businessmen like it or not, because the revaluation of the yen makes the export of Japanese goods more expensive and because the tendency towards protectionism could impose some kind of physical and psychological restriction on the importation of

Japanese goods. Japanese entrepreneurs must not only keep but develop their overseas markets, for they are becoming more significant for them in terms of overall profitability. If obstacles are" raised to their export of goods, an alternative is to make a direct overseas investment. There are, of course, other possibilities, such as licensing and the export of turnkey plants.

When the w riter interviewed several officials at the Department of

Commerce on December 5» 1972, they informed him that the Department would 182 sponsor a seminar, to be held in Tokyo from April to May, 1973, as one of a number of programs to stimulate Japanese businessmen to invest their capital in the United States. They said that the seminar would concentrate on explaining business conditions in the U.S. to hesitant Japanese business­ men. Specifically, it would orient the businessmen in the following areas: anti-trust law; federal, state and local tax structures; bank financing; site selection; and labor problems, including wages.^5 The United States has proposed to offer the assistance of labor experts and union leaders in handling tough labor problems for Japanese managers. There are per­ manent representatives of a number of states already in Japan, and some ambitious states have visited Japan and tried to persuade Japanese business­ men to establish their plants in their states.

Labor leaders who have objected sternly to the exodus of American capital to overseas markets have welcomed direct investment by Japanese motor vehicle companies. Douglas I’raser, vice president of the United

Auto Workers Union, for example, reacted favorably when he was questioned about the possibility of assembling Japanese motor vehicles in the United

States because it would increase employment opportunities among American w o rk e rs.

Many Japanese entrepreneurs have been hesitant, however, to involve themselves in direct investment in the United States even under these favorable conditions. There are three major reasons for such hesitation:

(l) the pattern of Japanese international business operation has been that of exporting, and many Japanese managers are not fam iliar with overseas direct investment, particularly in the United States; (2) Japanese entre­ preneurs are very much afraid of failure should they attempt to operate assembly plants in the United States; and finally, ( 3) Japanese entrepreneurs 183 are not very confident about their aptitude for becoming multinational entrepreneurs.

The pattern for international operation of Japanese enterprises has been trade oriented. The main task of trade oriented enterprises is to export and sell those products which are produced in Japan. This pattern of trade involves the fewest management problems in the host countries. Actually, it has been the overseas officers of Japanese trading companies who have managed the business of selling in many cases.

However, this is quite different from production management in a foreign c o u n try .

If Japanese firms make direct investments and run assembly or manufacturing plants in other countries, they w ill face new management problems that are strange to them. Japanese management practices are often different from those of host countries, especially the United

States. The work environment and work practices in the United States can differ greatly from Japan's. Japanese managers are not sure that they can run a profitable operation in such a strange and unfamiliar environ­ ment. They are not sure that the operation of a direct investment can be as successful as exporting. These are the main reasons why Japanese entrepreneurs are not confident of themselves in the management of assembly or manufacturing plants in the United States.

Profitable operation at the multinational level requires that errors or failures be kept at a minimum. Japanese entrepreneurs, including

Japanese motor vehicle companies are not yet convinced that they w ill not make such fatal errors in multinational management. Experience shows that

Japanese firms with overseas direct investment which have failed, have done so because of the following factors or events: 18U

a. Insufficient investigation of markets in the host c o u n trie s

b. Unproductive management policy in the head office

c. Change in policies or strategies at the home office

d. A cts o f God

Insufficient investigation of markets in host countries means in­ sufficient market research and demand forecasting. Insufficient investi­ gation of raw materials is also included here, for there may be a prohibition of the import of raw materials due to unfavorable foreign exchange reserves.

A prominent case in this category is the manufacturing venture of Sekisui

Chemical Co., Ltd. (Sekisui Kogaku Kaisha) in the U.S. In September, this company began to market polystyrene sheets and films manufactured in a plant in Hazleton, Pennsylvania, with the strong encouragement of both the state government and the local banks. However, the manufacturing venture failed very quickly. According to Mr. Sekino, president of the Sekisui

Plastics Company in Hazleton:

We came into the U.S. market because we believed styrene foam had a bright future. Actually we found Americans too conservative in accepting new products. Furthermore, the price of raw materials went up 20 percent while our product price declined.^7

Unproductive management policy includes improper sales networks, insufficient capital for operation, and excessive inventory or investment.

Maruzen Oil Co., Ltd. in Singapore is an example of improper sales net­ works. The company depended entirely on already established sales net­ works in Singapore and failed. Toyota in Brazil was a case of insufficient capital for operation, and the Seibu Department Store in Los Angeles exemplifies excessive investment in inventory. Management policy also includes problems of partners, labor disputes, and failure in obtaining support from the government of the host countries. 185

Changes in policies and strategies at the home office include the decision to withdraw from overseas business because of the unprofitable operation, or the establishment of new ventures in other countries.

Acts of God include political coups d'etat, nationalization of foreign business entities, and political and social instability. Also included are changes of policies in the host countries, and the division

(Bangladesh is a case) or newly won independence of host countries. Heavy damage by flood in a mine operated by a Japanese firm is another typical case of an Act of God. Almost any foreign investment can encounter one misfortune after another. These phenomena are not peculiar to Japanese firms in foreign countries.

But another thing that entrepreneurs are afraid of is the problem of cross-cultural management, where the Oriental (Japanese in particular) culture meets the Western (the United States in particular) counterpart.

Until recently, many Japanese businessmen insisted that the

Japanese management system, which is based on such practices as decision­ making by consensus (ringi system), promotion by strict seniority, and life-long employment, could not be adapted to a multinational operation.

In other words, they worried about cultural barriers. One American source phrases the attitudes of Americans this way: " The values and assumptions of the American culture, for example, involve decision-making and responsibility localized in an individual; the group is not a unity but an aggregate of individuals. In the U.S. there is an optimistic attitude toward change, a commitment to operationalism, action, and mastery over the environment, and lineal inductive thinking geared to the anticipation of predicted consequences.

The world is perceived mechanically as a series of problems in search of solutions. There is a habit of non-esthetic, comparative, and relativistic 186

judgments of events; and existence means simply action (doing)." 28

Values and assumption in the Japanese culture are very different from those of the American culture. The Japanese quite unconsciously sees him­ self as being part of nature and not something separate from his environment.

This means that he considers himself first and foremost a literal part of

Japan. Also, the concept of face-saving in Japan is very important. The

Japanese language is indirect to avoid embarrassment to another Japanese.

The Japanese almost never says "no." He is likely to say "maybe," which may be "no," but he dislikes being entirely negative because he thinks it discourteous. The Japanese w ill not make a decision as an individual, even though he may be in an authoritative position.' It cannot be over­ emphasized that all major decisions must be accomplished by complete consensus. There is no wonder that Japanese managers worry.

There are several choices in this cultural environment: one is to do business in the Japanese way; another is to do business in the American way; and there may also exist various combined patterns between them. If

Japanese managers seek to follow strictly Japanese patterns in the United

States and in their multinational business organizations, there may be complaints about reluctance to delegate responsibility or the overloading of foreign operations with Japanese staffs, about failure to learn the local language and customs, slows decision-making, no room for creativity, and few changes of promotion.^9 Resentment may be even more b itter due to coldness, poor organization, no communication, and a caste system that

Westerners cannot tolerate.30

The other extreme is to do business in the American manner, presum­ ably assuming that the Japanese way is not adequate. The Nippon Minature 187

Bearing Company is a good example of this. In 1968 NMB set up a wholly

owned subsidiary in California, and it became the first Japanese-owned

company with mostly U.S. management and with U.S. workers manufacturing a

complete product in the U.S.31 The Americanization of business procedure

by Japanese managers was the main concern here.

There is still another possibility for Japanese managers in doing

business in the United States. Many Japanese, particularly young managers

dispatched to work in marketing organizations abroad, have concluded that

it is not so difficult after all to apply Japanese methods in foreign

environments. They have seen their ability to penetrate markets abroad,

and they have confidence. If this possibility has merits and is acceptable

to many Japanese managers, it is not entirely impossible for Japanese

managers to develop into internationalists, particularly in the United

States, even though they have a unique cultural background little known

to Western countries. Prof. M. Yoshino has insisted that there were

occasions when cultural differences were exaggerated, when both Americans

and Japanese assumed that there were big differences. He warned, however,

that there were dangers and that it was important to keep them in

perspective.32

The Japanese have shown a unique talent in adopting advanced

Western technology and have utilized it to their benefit. We cannot

conclude, however, that the Japanese can adopt different cultural patterns

and utilize them to their benefit with the same talent they have shown

in the field of technology. Technology is one thing, and culture is another.

In summary, we may conclude that Japanese entrepreneurs are able to

establish assembly or manufacturing plants in the United States due to the 188 huge amount of foreign exchange reserves and the change in the values of both currencies, the Japanese yen and the American dollar, that they are under pressures from the protectionist attitudes in the United States, but that Japanese managers w ill face cross-cultural problems in the

United States. F o o tn o te s

1. "The Secret of Too Favorable Export," Shukan Toyo Keizai, February 12, 1972, p. 31*

2. Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan, 1972, p. 111.

3« Various issues of Automotive News.

1|. "Wangle Yourself a Wankel," Forbes, December 15, 1972, p. 27-

5 . I b i d .

6. The Japan Economic Review, June 15, 1972, p. 7*

7- The Oriental Economist, November, 1972, p. 7*

8. Asahi Shimbun, December 5> 1972, p. 9*

9* "Those Industries Which are Affected Slightly by the Revaluation," p . 98.

10. Business Week, February 17, 1973> P* l£*

11. "Devaluation Does Its Job on Imported Prices," Business Week, February 2i|, 1973> PP* 19-20, and New York Times, March 11, 1973> Section 3> p . 1 .

12. Automotive News 1973 Almanac Issue, p. 62.

13* Automotive News, February 7, 1972, p. 2. However, Asahi Shimbun of January 26, 1973> reported that Nissan had no plan of establishing plants in any country in 1973-

li;. "How Nissan Motor Deals With Competition and Devaluation," p. 69.

15. "Japan's Overseas Investments," The Oriental Economist, June, 1972, p. 20.

16. "Japan's Foreign Investment Machine," Business Week, March 2k, 1913, P- 52.

17. Richard D. Hays, Christopher M. Korth, and Manucher Roudiani, International Business, (Englewood C liffs: Prentice-Hall, Inc., 1972), p. 261*.

189 190

18. Endel J. Kolde, International Business Enterprise (Englewood C liffs: Prentice-Hall, Inc., 1968), p. 27-U-

19. "Japan's Foreign Investment Machine," p. $2.

20. "Japan's Overseas Investments," The Oriental Economist, June 1972, p . 20.

21. "The Pull Portrait of Overseas Advancing Enterprises," Monthly Statistics of To.yo Keizai, April, 1971, P* 3*

22. Asahi Shimbun, October 21, 1971> P« 9*

23* Automotive hews, February 7* 1972, p. 2.

2k' "The Full Portrait," p. 3.

25. Personal interview with several officials of the Office of International Business, Department of Commerce on December 5> 1972.

26. Asahi Shimbun, March II4, 1972, p . 8.

27. Abegglen, Business Strategies, p. 89* However, Americans reacted differently. The president of one competing company said that Sekisui had two problems: Their remote location caused insurmountable transportation problems and personnel-wise they relied too heavily on Japanese nationals for managers.

28. Edward C. Stewart, Jack Danielian, and Robert J. Foster, Simulating Intercultural Communication Through Role-Playing (Washington, D.C.: The George Washington University Human Resources Research Office, May 1969) , P* 23.

29- "Japan's Foreign Investment Machine," p. 53*

30. I b i d .

31. "The American Way," Forbes, April l£, 1973 j P* 82.

32. "Made in U.S.A. or Japan?," Industry Week, December 21, 1970, p . 30. CONCLUSION

The main objective of this study is to describe the achievement of the Japanese motor vehicle industry and the reasons behind such an achievement.

The achievement of the Japanese motor vehicle industry rests upon the following three factors:

1. The consistent and strong government policy to develop the Japanese motor vehicle industry.

2. The entrepreneurship of Japanese motor vehicle manufac­ tu r e r s .

3. External factors and events which have worked favorably toward the growth of the Japanese motor vehicle industry.

The consistent and strong policy of the Japanese government toward the motor vehicle industry was designed to develop the industry. This policy proved to be less effective at times. It was sometimes distorted by Japanese m ilitarism , and was ambiguous after World War II. However, the sincere hope of the Japanese government has been to have a strong

Japanese motor vehicle industry. This intense governmental desire was implemented through the interference or guidance of the industry by the government through import restrictions on foreign motor vehicles and by encouraging the export of Japanese motor vehicles.

The entrepreneurship of Japanese motor vehicle manufacturers also contributed to the development of the Japanese motor vehicle industry.

This entrepreneurship was, of course, encouraged strongly by the govern­ ment policy. This may be called the industry-govemment mix, or Japan,

Inc. However, if there had been no ambitious entrepreneurship, the

191 192

Japanese motor vehicle industry would not be as it is now, despite the

other favorable factors.

External factors and events have also played an important role in

developing the Japanese motor vehicle industry. They have been favorable

toward the industry in most cases. In other words, the industry has been blessed with good luck. These external factors and events, such as the

Kanto Earthquake of 1923> and World War II with Japanese m ilitarism , laid

the foundation for the Japanese motor vehicle industry. The Korean War

proved to be the springboard from which the Japanese motor vehicle

industry has leaped into the position of the world's fastest growing

industry. The protection of Japan under the American nuclear umbrella has also contributed to the Japanese motor vehicle industry because

Japan could invest huge amounts of capital which, otherwise, might have been used for military expense. American permissiveness has also

contributed to the development of this industry. It is best seen in

U.S. importation of Japanese motor vehicles without restriction, while

Japan has kept her door closed to American motor vehicles and their manufacturers.

We are now in a position to see that our first hypothesis has been v e r i f i e d :

M ilitary, political, and natural events of major historical importance have shaped the development of the Japanese motor vehicle industry as much as have economic f a c t o r s . They a r e : a. The Kanto Earthquake of 1923 b. World War II and the Allied Occupation c. The Korean War 193

Otar other interest in this study is the story of Japanese motor vehicles in the United States. What is their impact here? More specifi­ cally, w ill Japanese motor vehicles remain in the U.S. market? If so, how many of them w ill he permitted to continue? Can Toyota and Datsun, the two leading Japanese passenger cars, achieve as great a success as has Volkswagen? Or is there any possibility that Japanese imports will be driven out of the U.S. market shortly? We have discussed the proposi­ tion that they cannot be driven out of the U.S. market in the foreseeable f u tu r e .

The future trends of Japanese motor vehicles are not quite so predictable because Japanese imports to the U.S. market are influenced more by external factors. If Japanese manufacturers impose their voluntary restrictions on exports, the number of Japanese motor vehicles imported by the U.S. may not reach Japanese expectations. The floating dollar has made it difficult to forecast. Oil shortage may become our overriding problem.

The registration of imported motor vehicles for the twelve months of 1972 did show a decreasing trend relative to 1971 (see Appendix X IIl).

In 1972, the combined registration of Toyota and Datsun was more than k percent of the total motor vehicle registrations in the United States— almost equal to Volkswagen's market penetration of U.55 percent. The units of these major Japanese passenger cars, in terms of registration, are expected to exceed those of Volkswagen in the next five years, if we can assume that the present trend continues in the future. The trend of demand for these major Japanese passenger cars is increasing. 19b

However, the downward tendency of Volkswagen and the upward tendency of Toyota and Datsun may not go too long. The U.S. market is very important to Volkswagen, and managers of the Volkswagen company w ill try to keep their import in a stable position or to prevent a continuing downward trend through such strategies as promotion, change in styling, and the establishment of assembly plants in the U.S. On the other hand, Toyota and Datsun sales cannot be increased greatly because of political protectionism in the U.S. and

the effect of the changes in two currencies, the Japanese yen and the

American dollar.

Our second hypothesis has also been verified in our study:

Toyota and Nissan together have about equalled Volks­ wagen’s market penetration in the United States.

It is feasible for Japanese manufacturers to establish assembly plants here in the United States. As discussed earlier, most conditions

for such operation are very favorable; the value of the Japanese yen

is very strong, and Japan has accumulated a huge amount of foreign

exchange reserves (to the extent where such accumulation may disturb

the orderly operation of the world monetary system). The climate for assembly of Japanese motor vehicles in the United States is also favor­

able. In other words, major Japanese manufacturers can decide to

assemble their motor vehicles in the United States at any time. We

cannot, however, predict exactly when they w ill make such decisions.

They may need some transitional time period in order to switch to the pattern of direct investment in the form of assembly plants from that of trade or export. 195

It is a very risky estimate whether such an assembly operation can produce profitable results, because they w ill encounter non-economic cultural problems which are fully as important as economic factors, and these may distort otherwise profitable operations. Japanese managers understand that direct investment (such as assembly plants) is a pre­ requisite to transforming their enterprises into global ones. It will be one of the most difficult decisions for them to make. They are, therefore, very cautious, but they have to make their decisions sooner or later, and the writer expects that such decisions w ill be made.

Our last hypothesis is again proved from our study:

Japan's larger foreign exchange reserves make local motor vehicle assembly in the U.S. likely.

POLICY IMPLICATIONS

Mary R ic h ie s a id in h e r review o f THE PACIFIC RIVALS, A Jap an ese

View of Japanese-American Relations (by the staff of the Asahi Shimbun,

New York: W eatherhill/Asahi, 1972):

An alarming imbalance of information exists between our two countries. Americans would much rather read what we think about ourselves: We persist in trusting that we are our own best rivals. Perhaps we cannot accept the Japanese occupied, Americanized, pacified, as our serious rivals. The Japanese are also xenophobic, but they can see us as their rivals.^ 196

Our first recommendation is that Americans accept the image of rivalry between the United States and Japan. Acceptance of the status of Japan as an equal and friendly rival is important to the U.S.

Acceptance of friendly rivalry keeps the close relationship between

two parties involved not only through strong competition but also

cooperation for common objectives. Most of all, acceptance of the

Japanese as an equally capable automotive base would establish a

relationship of equal treatment between them. This new relationship would also produce mutual respect between them.

This logic may be applied to U.S. and Japanese motor vehicle manufacturers. Rivalry between these motor vehicle manufacturers w ill

induce competition in the best sense and cooperation for the promotion

of motor vehicles in the world. It may be hard for giant American motor vehicle manufacturers to recognize Japanese counterparts as

equal to them. In fact, American motor vehicle manufacturers had never paid much attention to the development of the Japanese motor

vehicle industry until the early sixties, and it may be justified

because the scale of the Japanese motor vehicle industry cannot be

compared to the huge scale of the American motor vehicle industry even

after the remarkable achievement of the Japanese. This is one of the

major reasons why the Japanese motor vehicle industry has been very

reluctant to open its doors to American motor vehicle manufacturers.

Once the Big Three invade the Japanese motor vehicle industry, they might swallow it up. 197

One of many advantages of the recognition of Japan's industry as a major capable competition w ill produce vigilance to the trends of the other party; valuable information must be obtained so that proper countermeasures or cooperations can be taken in time. E & D is a good example. The area of research is one of the most important. Here both Japanese and American motor vehicle manufacturers weigh their future. Honda Motor Co., Ltd., for example, unveiled early in 1972 the Compound Vertex Controlled Combustion

Engine which Honda claims can meet the 1975 EPA auto emission standards.

Ford seemed doubtful at first, but the company requested details on that engine later. The Environmental Protection Agency released test results and announced that it had passed the 1975 emission standards without a catalytic converter.^ The motor vehicle tested was the new Honda Civic, not yet imported into the United States, which weighs about 1,600 pounds.

The engine is a very small one and not yet being mass produced. The EPA has also revealed that two Mazda passenger cars have met 1975 standards.

Toyo Kogyo supplied two modified models for testing, and both were equipped with the Wankel engine and thermal reactors, as are the passenger cars

Mazda is currently marketing in the United States.

One president of a large Japanese corporation predicted several years ago that Japan would be sending industrial know-how to the United

States and Europe, instead of the other way around, within a few years.3

Although we might not want to agree with him wholeheartedly about the idea, U.S. manufacturers w ill reap benefits if they pay close attention to their major rivals, the Japanese motor vehicle manufacturers.

Technical tie-in between American manufacturers and their Japanese counterparts is one of the most desirable efforts of cooperation for the future of world motor vehicles. If manufacturers do not show their interest 198

in clear air or emission problems, both Americans and Japanese w ill face

great trouble in the near future. Both of them should try their utmost

to solve the problem, and common research is one of the most desirable

alternatives.

Our second recommendation is that Japan should actively respond

to American permissiveness. No one can deny the fact that the Japanese

economic miracle has owed American assistance and free trade policy very

much. Prom the end of World War II probably until the Nixon statement

of August 15, 1971» Americans had shown their great generosity and per­

missiveness toward Japan. In addition, Japan has been protected by the

American nuclear umbrella so that Japan does not have to worry about her

d efen se.

Many Japanese have recognized this generosity and permissiveness,

and some of them have expressed their gratitude. One such expression

came from Mr. Iwasa, vice-chairman of Keidanren, when he gave a lecture

in Portland, Oregon, on September 29, 1971*^ He stated that Japanese

business leaders would do their best to cooperate with American business­

men in improving the American balance of payments. Specifically, he proposed the following ideas:

1. Purchasing agents should be sent to the United States to investigate new products which can be imported to Jap an .

2. Japan should investigate the possibility of establishing a joint export venture in the United States.

3. Japan should establish a reciprocal Fulbright System to invite Americans to Japan.

Although these ideas have not fully materialized, the Japanese are trying

to implement such ideas. Imported goods from the United States are

increasing, and the Japan Foundation (Kokusai Koryu Kikin), a special 199

judicial organization designed to further international cultural exchange, was formally established on October 2, 1972.

Japanese manufacturers should also respond to American permissive­ ness. While American motor vehicles have been virtually nonexistent in the Japanese market, Japanese motor vehicles have been flooding into the

American market without any restriction. Some Japanese manufacturers may argue that they export their motor vehicles because American buyer-drivers like the Japanese product, or Japanese counterparts do not buy American motor vehicles because U.S. manufacturers do not make products suitable to Japanese conditions (for example, small passenger cars). Even though this rationale may sound reasonable, Japanese manufacturers should respond to American permissiveness more directly.

One of the most urgent responses for Japan and Japanese manufacturers is to achieve complete liberalization for American motor vehicles and to utilize the capital of American manufacturers. As the Japanese industry has now grown to maturity, it is almost meaningless to insist on over­ protection from the government. It is good news that Japan will soon reduce its motor vehicle tariffs from 30 to J4.O p e rc e n t down to 20 p e rc e n t, and th e

Japanese government may shortly permit 100 percent direct foreign investment in motor vehicle sales ventures. This is now limited to 50 percent for foreigners. However, as Japan has progressive tariff rates on engines, it w ill still discriminate against U.S. motor vehicles, which usually have large engines, even after Japan reduces tariff rates on motor vehicles.

Voluntary restrictions of Japanese motor vehicles in the United

States is another possible response to American permissiveness. Japanese manufacturers clearly understand that they cannot export their motor vehicles 200

to the United States without lim itation. They must estimate how many motor vehicles may be exported to the United States without disturbing U.S. manu­

facturers. To some degree, voluntary restrictions have already been employed by the Japanese.

S till another possible response is to establish assembly plants for

Japanese motor vehicles in the United States. This is a necessity for

Japanese motor vehicle manufacturers rather than a response to American permissiveness. It w ill bring benefits to both countries; employment increase in the United States, and income from royalties and motor vehicle parts export for Japan. However, the most desirable feature is the trans­ formation of the Japanese enterprise into world enterprise by having a direct investment in assembly plants and production facilities in the

United States. This assumes continued favorable foreign exchange rates and reserves in Japan.

Our third recommendation is to develop a European market for

Japanese motor vehicles. If the European Economic Community eases its nontariff barriers such as the quantity restriction on bearings (BTN 82+62) and motor vehicles (BTH 8702) in Italy until 1970,^ and take more of

Japan's goods, that would ease Japanese pressure on the United States.

There are two motives for Japanese manufacturers to export their products to the United States; one is profit-oriented, the other is closely re­ lated to prestige. If their motor vehicles are sold in the United States, it means they are guaranteed to the world for their quality. As Japanese motor vehicles are evaluated highly in the United States, they will also be evaluated to the same degree in the European market.

Japan sent approximately 10 percent of its total exported motor vehicles to Europe between 1966 and 1969* Exports to Europe began to 201 increase from 1970, and Europe accounted for 18.7 percent of the total exports of Japanese motor vehicles in 1972.^ This was the result of a change in strategy of the major Japanese manufacturers. After the Nixon statement, the Japanese actively sought a way to diversify their exports and the European market has become a major target market.

In the beginning, Japan penetrated those European countries which had no local motor vehicle industries, such as Switzerland and Belgium, and expanded from that base into other markets. The basic strategy is lower price, extra equipment such as radios and rear window deflectors, and greater margins (l 8 to 20% against 15% for most European makes).

However, it is much tougher for Japanese motor vehicles in Europe than in the U.S. because the Common Market has stiff quota controls on some

150 products.®

American motor vehicle manufacturers, through their European subsidiaries and in other ways, may persuade European authorities to import more Japanese motor vehicles by liftin g European import quotas, and at the same time, Japanese motor vehicle manufacturers should con­ centrate their efforts more actively on the European market. Toyota already took such a measure after the Nixon statement. In other words, the company expanded sales networks in Europe against the possible import restriction by the United States.

Our fourth recommendation is to enhance the efficiency or produc­ tivity in the United States to overcome various economic problems including

Japanese motor vehicles in the United States. It is the only way to com­ pete with them in the United States, not political protectionism or any­ thing else. However, we should also listen carefully to the alarming statement of a Japanese. Mr. Ikeda, vice-president of Mitsui Bussan once 202

said that both managers and workers of foreign motor vehicle manufacturing

companies seemed not to work hard as Japanese counterparts,9 and it is a

well-known fact that the Japanese people have given the world the impression

of working as hard as ants."*® The work ethic of Japanese workers can be

expressed as loyalty to their companies and lifetim e employment. In other words, they have a sense of identity with the company and its goals.

Traditionally, they have shown the worthiness of life through working

hard for their companies, and they take pride in the company's growth.

However, this Japanese work ethic has undergone a gradual change

in recent years among young workers. They are less interested in lifetime

employment and their loyalty toward their companies is not so strong as

older generations have shown. High turnover rates have proved that the

traditional Japanese work ethic does not work quite well. The main cause of the change is a shortage of workers and Japanese workers can find jobs

easily and they switch readily to more meaningful jobs. Wages are soaring with a rapid rate (l$% a year) and the comparative advantage in terms of low wage w ill disappear soon.

Regardless of such change in work attitude among Japanese workers, their loyalty and hard working are still challenging the work attitude of

American workers.

Our final policy suggestion is that, assuming no major change in international condition such as the oil crisis, American motor vehicle manufacturers should exploit the Japanese market as fully as they can.

So far, it has never been an attractive market to them because it has been almost closed to foreign motor vehicles and it was not a quite large market for foreign motor vehicles until a few years ago. However, the situation has been changed recently. It has become one of the greatest 203 markets in the world, and the Japanese government began to liberalize foreign capital and open her door for more imports.

Although these measures are not s till satisfactory to American motor vehicle manufacturers, it is not entirely impossible to penetrate successfully to the Japanese market. If the Pinto is priced at $5>500 in Japan, while the Volkswagen is priced at approximately $2,500, the

Pinto cannot be sold in Japan."'”* There are many reasons for such price differences. Some of them are: high mark-ups; improvements to meet

Japanese auto safety standards; and a lack of use of special motor vehicle c a r r i e r s .

However, it is the responsibility of American motor vehicle manu­ facturers to make those passenger cars which can satisfy Japanese driver- buyers in terms of price, quality and style, and to meet the Japanese regulations to export as many motor vehicles as they can.

It is worthwhile to recall a remark by an author:

Everywhere else in the world (except the U.S.) the American car is the most desired, most copied and its standards have led the way for all car manufacturers to fo llo w . 12 Footnotes

1. Washington Post. December 26, 1972, p. C7.

2. Automotive Hews. March £, 1973, p. 1.

3. Noel F. Busch, "Made in Japan" The Reader's Digest. February 1968, p . 167.

1+. Jerome B. Cohen, Japan’s Postwar Economy (Bloomington: Indiana University Press, I960), p. 138.

5. Asahi Shimbun. September 30* 1971» p. 1.

6. Kiyoshi Kozima and Eyutaro Komiya, Nihon no Hikanzei Shoheki ("Japanese W on-tariff Barriers") (Tokyo: Nihon Keizai Shimbunsha, 1972) p p. 203- ^ 7, passim .

7. Guide to the Motor Industry of Japan-1971. (Tokyo: Japan Motor Industrial Federation, Inc., 1971)» p. 37> Nihon Jidosua Kaigisho and Nikkan Jidosha Shimbunsha, Jidosha Nenkan 1972. p. I+ 89.

8. Business Week. November 11, 1972, p. 60.

9. Asahi Shimbun. December 27, 1972, p. 9.

10. Washington Post. December ll+, 1972, p. K2.

11. "The Feel of a Foreign Car Has Its Appeal to Owners," Business JAPAN. October, 1972, p. 119.

12. Automotive News. May 7, 1973, p. 2.

201+ BIBLIOGRAPHY BIBLIOGRAPHY

I . E n g lis h

A. Books

Abegglen, James C., ed. Business Strategies for Japan. Tokyo: Sophia University in Cooperation with Encyclopaedia Britannica (Japan) Inc., 1970.

Ballon, Robert J. Joint Ventures and Japan. Tokyo and Rutland, V t.: Sophia University in Cooperation with Charles E. Tuttle Company, 1967.

Bratt, Elmer C. Business Forecasting. New York: McGraw-Hill Book Company, 1958.

Chow, G regory C. S t a t i s t i c a l Demand F u n ctio n f o r A utom obiles and T h e ir Use f o r F o re c a s tin g : The Demand f o r D urable Goods. C hicago: University of Chicago Press, 1968.

Crandall, Robert Warren. Vertical Integration in the United States Auto­ mobile Industry. Unpublished Ph.D. Dissertation, Northwestern University, 1968.

Darbyshire, Leslie. The Competitive Position of Imported Automobiles in the American Market. Unpublished D.B.A. Dissertation, University of Washington, 1957.

Denison, M errill. The Power to Go: The Story of the Automotive Industry. Garden City, N.Y.: Doubleday & Co., Inc., 1956.

Dimock, M.E. The Japanese Technocracy. New York: Walker & Company, 1968.

Edwards, Charles Edward. Dynamics of the United States Automobile Industry. Columbia, S.C.: University of South Carolina Press, 1965-

E p s te in , R alph C. The A utom obile I n d u s tr y . Chicago & New Y ork: A.W. Shaw Company, 1928.

Georgano, G.N., ed. The Complete Encyclopedia of Motorcars. 1885-1968. New York: E.P. Dutton & Co., Inc., 1968.

Guide to the Motor Industry of Japan 1971. Tokyo: Japan Motor Industrial Federation, 1972.

205 206

Huang, David S. A Microanalytic Model of Automobile Purchase. Austin, Texas: Bureau of Business Research, University of Texas, I 96I4.

Hunsberger, Warren S. Japan and the United States in World Trade. New York and Evanston: Harper & Row Publishers, Inc., 1961+.

Jidosha Gijutsukai. Automobiles 1961. Tokyo: Society of Automotive Engineers of Japan, 1957*

Lent, Henry Bolles. The Automobile. U.S.A.: Its Impact on People's Lives and the National Economy. New York: E.P. Dutton & Co., Inc., 1968.

Lockwood, W. W. The Economic Development of Japan. Growth and Structural Change. 1868-1938. Princeton: Princeton University Press, 1954*

______. The State and Economic Enterprise in Japan. Princeton: Prince­ ton University Press, 1968.

______. Trade and Trade Rivalry Between the United States and Japan. New York: American Council. Institute of Pacific Relations, 1936.

Mac awl ay, Stewart. Law and the Balance of Power: the Automobile Manufacturers and Their Dealers. New York: Russel Sags Foundation, 1966.

Marshall, B. K. Capitalism and Nationalism in Pre-War Japan. Stanford: Stanford University Press, 1967.

Martyn, Howe. M ultinational Business Management. Lexington, Mass.: D. C. H eath and Company, 1970.

Nader, Ralph. Unsafe At Any Speed. New York: Grossman Publishers, 1965.

National Economic Development Office. Japan: Its Motor Industry and Market. London: Her Majesty's Stationery Office, 1971.

Northwood Institute. Corporate Policy and Ethics. Washington, D. C.: National Automobile Dealers Association, 1967.

OECD. The Industrial Policy of Japan. Paris: OECD, 1972.

Ohara, Keishi, ed. and Okata, Tamotsu, trans. Japanese Trade and Industry in the Mei.ii-Taisho Era. Tokyo: Obunsha, 1957*

Pashigian, Bedros Peter. The Distribution of Automobiles: An Economic Analysis of the Franchise System. Englewood C liffs, N.J.: Prentice-Hall, 1967.

Paulman, Henry. The Foreign Car Shoppers Guide. Chicago: Paulman Publications, 1965. 207

Rae, John Gell. The American Automobile: A Brief History. Chicago: University of Chicago Press, 1965.

Ray, John Philip. A History of the Motor Car. Oxford & New York: Pergamon Press, 1966.

Sheller, Roscoe. Me and the Model T. Yakima, Wash.: Franklin Press, 1965.

Smith, Philip Hillyer. Wheels Within Wheels: A Short History of American Motor Car Manufacturing. New York: Punk & Wagnalls, 1968.

Smith, T. C. Political Change and Industrial Development in Japan. Stanford: Stanford University Press, 1965.

Spencer, Daniel L. Technology Gap in Perspective. New York & Washington: Spartan Books, 1970.

______. M ilitary Transfer of Technology: International Techno-Economic Transfers Via M ilitary By-Products and Initiative Based on Cases From Japanese and Other Pacific Countries. Washington, D.C.: Air Force Office of Scientific Research, 1967 (AF0SR-67-0231).

The Tsuneta Yano Memorial Society, ed. Nippon 1971. Tokyo: Kuseisha, 1971.

U.S. Congress, Committee on Interstate and Foreign Commerce. The Auto­ mobile Marketing Practices Study. Report of the Subcommittee on Automobile Marketing Practices of the Committee on Interstate and Foreign Commerce. Washington, D.C.: U.S. Government Printing Office, 1956.

Wherry, Joseph H. Economy Car B litz. Westport, Conn.: Associated Book­ sellers, 1956.

White, Lawrence J. The Automobile Industry'- Since 19U5. Cambridge, Mass.: Harvard University Press, 1971.

Yamamura, Kozo. Economic Policy in Postwar Japan. Berkeley & Los Angeles: University of California Press, 1967.

Yoshino, M. Japanese Managerial System. Cambridge, Mass.: MIT Press, 1967.

B. Periodicals

"American Minicars Gain on Imports." U.S. News & World Report. January 17, 1972.

"Auto Industry Organization in the Face of Liberalization." Asia Scene. April, 1968. 208

"Auto-making Booms in Japan: (interview with P. H. Schweitzer)." Automotive Industries. January 15, 1963-

Beizer, J. and Williams, D. N. "U.S. Mini Cars vs. the Imports." Iron Age. April 9, 1970.

Bickley, B. "Japan Bounds Into Second Place." Automotive Industries. July 1, 1968.

"Can Japanese, U.S. Automakers Coexist?" Steel. August 26, 1968.

Chamberlain, J. "Big Shift: Compact Cars Have Brought Sweeping Changes to Motordom." Barrons. April 18, I960.

"Collision Coming For Japanese Cars (Toyota Co. and Other Companies Face Foreign Competition)." Business Week. June 27, 1961+.

Connors, Michael. "Better Cars For More People." Asia Scene. September, 1970.

"Detroit Gets a Toe in Japanese Waters." Business Week. June 19, 1971.

"Detroit Knocks the Edge Off Imports." Business Week. March ij., 1972.

Diron, J. M. "Toyota's U.S. Distribution System." Distribution Manage­ m ent. F e b ru a ry , 1 969.

"Ford Studies Assembly Site in Japan." Steel. June 22, I 96J4.

"Foreign Cars for American Tastes." Business Week. April 23, i 960.

"Foreign Cars Get A Fresh Look," U.S. Hews & World Report. May 21, 1973«

"How the Japanese Blitzed the California Auto Market." Forbes. September 15, 1971.

"How Nissan Motor Deals with Competition and Devaluation," Business Week. April 7, 1973

"How Profitable Are The Compacts?" Forbes. May 15, I960.

Imai, Yasunobu. "Parts For The World's Automobiles." Asia Scene. May, 1968.

"Imports Flood Has Detroit Thinking Small." Business Week. August 17, 1968.

Inabe, Hidezo. "Economic Recovery And Industrial Reorganization." Asia Scene. November-December, 1966.

"Is Detroit Losing the Small Car War?" Financial World. July li+, 1971.

Ishikawa, Motoyuki. "Japan's Auto Industry Rolls Ahead." Parts I and II, Asia Scene. July and August, 1968. 209

Ishikawa, Z. "Japanese EJye U.S. Parts Market." Steel. February 28, 1966.

"Japan's Auto Industry Is Not Threat Yet." Steel. December 3, 1962.

"Japan's Big Drive in Autos." Newsweek. May 3, 1971.

"Japan's Foreign Investment." The Oriental Economist. June, 1972.

"Japan's Foreign Investment Machine." Business Week. March 21+, 1973.

"Japanese Autos Move Out Into The World: Car Exports Are Rising Fast." Business Week. December 3> 19 66.

"Japanese Beetles (Country Comes Of Age As Major Auto-manufacturing N a tio n ) . ' 1 Fortune. May, 1966.

"Japanese Cars Drive Abroad." Economist. October 19, 1963.

"Japanese Cars Into Europe." Economist. January 30, 1965.

Jung, A. E. "Compact and Foreign Car Price Comparisons (in Chicago Area)." Journal of Retailing. Fall, i 960.

"Made in U.S.A. Or Japan?" Industry Week. December 21, 1970.

"The Minis Meets The Imports." Business Week. August 15, 1970.

Miwa, Yoshiro and Tsuta, Toshimata. "Toyota Motor Co., Ltd.: Japan's Industry King." Asia Scene. October, 1967.

Nomura, Masayuki. "Plant Exports Must Be Expanded." Business Japan. March, 1972.

Reed, Christopher. "Will The Japanese Play Fair?" Asia Scene. April, 1970.

Robards, S. M. "Here Comes The Japanese." Fortune. June, 1967.

Rukeyser, W. S. "World's Fastest-Growing Auto Company." Fortune. Decem ber, 1969*

Scott, D. "Japan's Motor Industry." Automobile Industries. February 15, March 1, April 1, April 15, May 15, June 1, July 15, August 1, August 15» 1968.

"S till Preaching Compact Gospel (American Motors Corp.)." Business Week. April 11, I 96J+.

"W Drops The Driver." Business Week. September 8, 1971.

"Volkswagenwerk: Special Report." Forbes. July 15, 196JL+.

"Wangle Yourself A Wankel." Forbes. December 15, 1972. 210

Yamada, Takeo. ’’Public Opinion And Its Influence On The Automobile Industry." Asia Scene. September, 1969.

Zalaznick, S. "Volkswagen of America: Today The Cheap Car, Tomorrow The Works." Fortune. March, 19&9-

C. Yearbook and Books of Statistical Bata

Automobile Manufacturers Association, Inc. 1968/1969 World Motor Vehicle Bata. Betroit: Automobile Manufacturers Association, Inc., November 1970.

Automotive News 1972 Almanac. Second Edition, Betroit: Marketing Services Inc., April 2I4, 1972.

Hundred-year Statistics of the Japanese Economy. Tokyo: Statistics Bepart- ment, The Bank of Japan, July, 1966.

Japan Economic Yearbook. 1971* Tokyo: The Oriental Economist, August, 1971. 211

II. Japanese Language

A. Books

Daiyamondosha, ed. Jidosha. ("Motor Vehicles.") Tokyo: Daiyamondosha, 1959.

Daihatsu Kogyo KK. Daihatsu Go.iunenshi. ("Fifty Year History of Daihatsu Kogyo KK.") Tokyo: Daihatsu Kogyo KK., 1958.

Eire, Sentaro. Jidosha. ("Motor Vehicles.") Tokyo: Yuhikaku, 1961.

Gendai Kigyo Kenkyukai, ed. Nissan Jidosha. ("Nissan Motor Co., Ltd.") Tokyo: Meiji Shoten, 1961.

Isuzu Jidosha KK. Isuzu Jidoshashi. ("History of Isuzu Motors.") Tokyo: The Editorial Committee of the History of Isuzu Motors, 1957* ,

Iwakoshi, Tadahiro. Jidosha Kogyoron. ("The Motor Vehicle Industry.") Tokyo: University of Tokyo Press, 1968.

Jidosha Buhin Kogyokai, ed. Nihon no Jidosha Buhin Kogyo. 1960-196U: Hatten to Doko. ("The Japanese Motor Vehicle Parts Industry, I 96O-6I+: Growth and Trends.") Tokyo: Jidosha Janarusha, 1969.

Kaihi, Dotaro. Jidosha Baibai. ("Selling and Buying of Motor Vehicles.") Tokyo: Yuhikaku, 1970.

Kameoka, Taro. Jidosha Senso - Bigu Three Tai Nippon. ("Motor Vehicle War: The Big Three vs. Japan.") Tokyo: Kodansha, 1969.

Kamiya, Shotaro. Jidosha. ("Motor Vehicles.") Tokyo: Daiyamondosha, 1951.

Keizai Hyoronsha, ed. Jidosha Sangyo 1970. ("The Motor Vehicle Industry 1970.") Tokyo: Keizai Hyoronsha, 1970.

______. Sekai wo Mezasu Nippon no Jidosha Sangyo. ("The Japanese Motor Vehicle Industry As World Enterprise." ) Tokyo: Keizai Hyoronsha, 1968.

Kimura, Toshio. Nihon Jidosha Kogyoron. ("The Japanese Motor Vehicle Industry." Tokyo: Nihon Hyoronsha, 1999*

Kodaira, Katsumi. Jidosha. ("Motor Vehicles.") Tokyo: Aki Shobo, 1968.

Koizumi, Michio. Jidosha no Hon. ("The Book of Motor Vehicles.") Sankaido, 1970. 212

Kondo, Yasuji. Sekai no Mini Car. ("Mini Cars in the World.") Tokyo: Nikkan Kogyo Shimbunsha, i 960.

Kumaki, Keisaku. Nippon no Jidosha Toyota Jidosha. ("Toyota Motor Vehicles: They Are Japanese Motor Vehicles.") Tokyo: Tenbosha, 1959.

Miki, Yonosuke. Honda Shoho. ("The Strategy of Honda.") Tokyo: Kobundo, 1968.

______. Nissan no Chosen. ("Challenge of Nissan.") Tokyo: Kobundo, 1968.

Nagare, Zentaro and Yamanaka, Hideo. Jidosha. ("Motor Vehicles.") Tokyo: Y uhikaku, 1966.

Nagata, Hiroji. Jidosha. ("Motor Vehicles.") Tokyo: Daiyamondosha, 1999.

Nakamura, Seiji. Nihon no Jidosha Kogyo. ("The Japanese Motor Vehicle Industry.") Tokyo: Nihon Hyoron Shinsha, 1957.

Nakamura, Yutaka. Nobiyuku Jidosha. ("Growth of Motor Vehicles.") Tokyo: Kotsu Mainichi Shimbunsha, 1993*

Nihon Jidosha Buhin Kogyo Kai and Oto Toredo Janaru, eds. Nihon no Jidosha Bukin Kogyo 1971. ("The Japanese Motor Parts Industry 1971.") Tokyo: Oto Toredo Janaru, 1971•

Nihon Keizai Shimbun Kogyokyoku, ed. Kokusansha wa Dokoe Yuku. ("Destina­ tion of Domestic Motor V ehicles.") Tokyo: Nihon Keizai Shimbunsha, 1969.

Nissan Jidosha Kogyo KK. Nissan Jidosha San.iunenshi. ("Thirty Year History of Nissan Motor Vehicles.") Tokyo: Nissan Jidosha Kogyo KK., 1969.

Okamoto, Tetsuji, Miyashita, Hujitaro, et al. Jidosha Juvo no Yosoku. ("The Forecasting of Motor Vehicle Demand.") Tokyo: Japan Productivity Center, 1968.

Okumura, Hiroshi, Hoshikawa, Junichi, and Matsui, Kazuo. Jidosha Sangyo. ("The Motor Vehicle Industry.") Tokyo: Keizai Shimposha, I960.

Okumura, Seiji. Jidosha. ("Motor Vehicles.") Tokyo: Iwanami Shoten, 199U.

______. Jidosha Kogyo no Hatten Dankai to Kozo. ("The Development Stage and Structure of the Motor Vehicle Industry.") Tokyo: Iwanami S hoten, i 960.

Ozaki, Masahisa. Jidosha Hanbai 0: Kamiya Shotaro Ten. ("King of Motor Vehicle Selling: A Biography of Kamiya Shotaro.") Tokyo: Jikensha, 1960. 213

______. Jidosha Jigyo Yon.iunen: Mitsumiya Gotaro Ten. ("Forty Years in Motor Vehicle Business: A Biography of Mitsumiya Gotaro.") Tokyo: Jikensha, i 960.

______. Jidosha Nihonshi. 2 vols. ("History of Japanese Motor Vehicles.") Tokyo: Jikensha, 1955*

______. Kokusan Jidosha wo Sotateta Hitobito. ("Those Who Have Developed Japanese Motor V ehicles.")Tokyo:Jikensha, 1968.

Takakishi, Kiyoshi. Anzenna Jidosha: Highway Jidai no Anzen Kagaku. ("Safety Cars:" Safety Science of the Highway Age.")Tokyo: Daiyamondo sha, 19 68.

______Kokuminsha: Sono Rekishi to Joken. ("People's Car: Its History and Condition.") Tokyo: Daiyamondosha, i 960.

Toyo Kogyo KK. Toyo Kogyo Yon.iunenshi. ("Forty Year History of Toyo Kogyo.") Hiroshima: Toyo Kogyo KK., I960.

Toyota Jidosha Hanbai KK. Toyota Jidosha Hanbai Kabushiki Kaisha no Arumi. ("History of Toyota Motor Sales Co., Ltd.") Tokyo: The E d itin g Commit t e e of the History of Toyota Motor Sales Co., Ltd., 1962.

______. Motarizeshon to Tomoni. ("With Motorization.") Tokyo: The Editing Committee of the History of Toyota Motor Sales Co., Ltd., 1970.

IJchiyama, Yoshihara. Stop Za VW. ("Stop the VW.") Tokyo: Toju Shinsho, 1963,

Ueno, H iroya. J id o s h a Juyo no B u n sek i. ("An A n aly sis o f Demand f o r M otor Vehicles.") Tokyo: Toyo Keizai Shimbunsha, 1961.

Yamamoto, Mineo, et a l., ed. Jidosha Hando Book. ("Motor Vehicle Hand­ book.") Tokyo: Asakura Shoten, 1962.

Yamamoto, Naokazu. Nippon no Jidosha: Toyopeto Seichoshi. ("The Japanese Motor Vehicle: History of the Toyopet.") Tokyo: Tokyo Sogensha, 1999*

Yamamoto, Soji. Nihon no Jidosha Kogyo wa Donaruka? ("What is the Future of the Japanese Motor Vehicle Industry?") Tokyo: Keizai Oraisha, 1991.

______. Nihon Jidosha Kogyo no Seicho to Henbo. ("Growth and Trans­ formation of the Japanese Motor Vehicle Industry.") Tokyo: Sanei Shobo, 1961.

Yoshida, Nobuyoshi. Jidosha Sangyo no Koto. ("Struggle of the Motor Vehicle Industry.") Tokyo: Tokuma Shoten, 1969- 211+

B. Periodicals

Aiba, Seiichi. "Destination of Motor Vehicle War Between Japan and the United States: The Big Three is Coming." Keizai Seminar- July, 1968.

Amaya, Shogo. "The Countermeasure by the U.S. Motor Vehicle Industry Against Imported Foreign Mini-oars. Reference. September, 19 69.

_____ . "Recent Trend of the Linkage of the Motor Vehicle Parts Industry." Reference. February, 1968.

Arakawa, Masashi. "Some Problems of Competition in Selling of Japanese Motor Vehicles." Kosei Torihikl. March, 1970.

Benibayashi, Jun. "Impact and Lesson of Defected Motor Vehicles." Keizai Seminar. July, 19&9*

"Competition in the Japanese Motor Vehicle Industry." Nihon Choki Shinvo Chosa Genno. September, 1968.

"Encouragement to Overseas Direct Investment: A Comparison Between Japan and West Germany." Anaristo. January, 1970.

"The Gloomy Prospect of the U.S. Motor Vehicle Industry." Sekai, April, 1970.

Hamada, Noboru. "Capability of International Competition of the Japanese Motor Vehicle Industry." Seisaku Geppo. October, 1968.

Hayashi, Masasumi. "Some Considerations on the Vision of Capital Export." Anaristo. September, 1970.

Higashi, Yoneo. "Liberalization of the Motor Vehicle Industry." Sekai Keizai Hjyoron, October, 1968.

Hirao, Osamu. "Roads in the Age of Motor Vehicles." Kosoku Doro To Jidosha. October, 1968.

Hori, Yukio. "Motor Vehicle War in Korea: The Confrontation Between Toyota and Ford." Economisto. June 16, 1970.

"How to Encounter with the Problem of Environment." Keidanren Genno. December, 1970.

Ikukosho, Makoto. "Sellers are Forced to Reorganize." Economisto. August 12, 1969.

Imamura, Hideo. "On the Trend of Direct Export of Manufacturers." Shogaku Honshu(Fukushima U niv.). vol. 39» No. 1+ (March, 1971)-

"Is the Japanese the Fox or the Tiger? Views from Americans." Seinen Mondai, February, 1971* 215

Ito, Fumio, "Intermediate Forecasting of Motor Vehicle Demand." Anaristo. July, 1969.

Iwakoshi, Tadahiro. "The Present Situation and Future Prospect of Motor Vehicles." Kosoku Doro To Jidosha. May, 1968.

"The Japanese: This Peculiar People (Special Issue)." Jiyu. September, 1970.

"Japanese Economy in the Age of Internationalization." Keizai Chosa (Taiwa Bank). October, 1968.

"Japanese Management (Special Issue)." Soshiki Kagaku. vol. 3> No. 1; (January, 1970).

"Joint Irresponsibility of the Industry and Government: The Problem of Defected Motor Vehicles." Asahi Janaru. June 22, 1969.

Katada, Fuzo. "The Changing Motor Vehicle Parts Industry." Zaikei Kanppku. M arch, 1970.

______. "The Problem of Safety and Pollution of Motor Vehicles: Its Cost and Impact." Zaikei Kansoku. November, 1970.

Kawamata, Katsuji. "Seventies and the Pressing Problem of the Japanese Motor Vehicle Industry." Keidanren Geppo. January, 1970.

______. "Some Remarks on the Japan-U.S. Motor Vehicle Conferences." Keidanren Genno. February, 1968.

Kiryu, Jiro. "Impatience of Motor Vehicle Salesmen." Gekkan Rodomondai. September, 1969.

Kitade, Heitaro. "Capital Structure of Japanese Business Firms." Chukyo Shogaku Ronso. Vol. 17, No. 3 (December, 1970).

Kobayashi, Yasuo. "Capital Liberalization and the Motor Vehicle Industry: A Review of the Cases of Great B ritain and EEC." Chusho Kigyo Koko Chosa J ih o . M arch, 1968.

______. "The Development of Cost Control of the Motor Vehicle Parts Industry." Kaikei, October, 1970.

Komemura, Junichi. "Farmers as the Target Market for Motor Vehicles." Kosoku Doro To Jidosha. August, 1970.

Komori, Ryoichi. "The Japanese Motor Vehicle Industry and the Accelerating Depreciation: A Study of Nissan and Toyota." Keizaigaku Ronso (Dojisha Univ.), Vol. 18, Nos. 1-3 (January, 1969). 216

Kuriyama, Morihiko. "Japanese Style of leadership in the Internationalized Management." Anaristo. December, 1970.

Matsubara, Haruyoshi. "Future Prospect of the Installment Plan for Motor Vehicles." Zaisei Keizai Koho. November 2k, 1969.

Matsumoto, Tadasuke. "Irresponsible System of the Industry and Government Against Defected Motor Vehicles." Komei, August, 1969.

Matsuzi, Kotsuhiko. "Jidosha: One of the Products in Liberalization." Chuo Koron. A ugust, 19&9-

Mikami, Heizaburo. "Problems of the Japanese Motor Vehicle Industry and Its Organization." Soshiki Kagaku. February, 19^9*

Mikami, Hidetoshi. "A Study of Japanese Passenger Cars." Kagoshima Keizai Ronshn. Vol. 9> Nos. 3-b (February, 1969).

Mikami, Yoshiro. "The Capability of Japan From the International Point of View: The Days of Foreign Capital Are Gone." Economisto. July 16, 1968.

Mukaibo, Takashi. "Future Prospect of Electric Motor Vehicles." Keizai Hvoron (Additional Issue), May, 1970.

Murabayashi, Hiroshi. "The Impact of Chrysler: A Noisy Reorganization of the Motor Vehicle Industry." Economisto. June 3> 19&9*

Murao, Manoru. "The Structure of Control for the Sub-contract Price by the Motor Vehicle Industry." Keizai Hvoron. May, 1971.

Nagano, Hirobumi. "The Japanese Motor Vehicle Market Is the Target: The Invasion Plan of U.S. Big Companies." Sekai Shuho. February, 1968.

Nakajima, Toru. "The Realities of Installment Plan of Motor Vehicles." Tosho, April, 1969.

Nezu, Toshizaburo. "A Comparison of International Management: An Analysis of the Japanese Capability of International Competition." Sangyo Keiri, January, 1971.

Noda, Masaho. "The Dream and R ealities of Nissan in Manshu." Chuo Koron. Special Fall Issue of 1965.

Numaguchi, Gen. "Japanese Foreign Investment: Its Historical Process and Management Factors." Chiba Shodai Ronso. li(.(B) December, 1970.

Ochiai, Junko. "The Guarantee System of Overseas Investment." Kaigai Ji.jyo. February, 1970.

Okata, Kenichi. "An Analysis of the Economies of Scale in Production of the U.S. Motor Vehicle Industry: A C ritical Review of Silberston Curve And Its Application." Kvoto Kvovuku Daigaku Kiyo (A. Humanity and Social Science), September, 19&9- 217

Okubo, Juhiko. "Safety Cars and Defected Cars." Kosoku Doro To Jidosha. October, 1969*

Ota, Shinichi. "The Business Linkage of Sub-contract in the Motor Vehicle Industry After the War." Shakai Kagaku, March, 1970.

Sabashi, Shigeru. "We Have a Request to the Managers of the Motor Vehicle Industry." Economisto. March, 1968.

Sakurai, Toshio. "The Motor Vehicle Industry." Kosoku Doro To Jidosha. January, 1971*

Sekino, Hiromiki. "Our Capability of International Competition of the Japanese Motor Vehicle Industry." Tsusan Chosa Genno. 133«

Sekisone, Takayasu. "Overseas Investment and the Involvement of our Business Enterprise." Takachiho Ronso. 1970.

Shimizu, Kohachiro. "The Age of Defects: It Is the Time to Restrict Motor Vehicle Production." Asahi Janaru. July 13, 1969*

Sugioka, Sekio. "The Age of Over-production for Motor Vehicles Has Gone: Chrysler Turmoil js Exaggerated." Economisto. July 29, 1969*

Suzuki, Toshio. "The Motor Vehicle Industry: The Only Strategy May Be the Raise of Price." Keizai Hvoron. April, 1970.

Suzuki, Yukio. "Industry-Government Mix Through MITI." Chuo Koron. September, 19&9*

Takashima, Setsuo. "It Is S till Too Early to Have an Open Door Policy for Motor Vehicles." Economisto. August 20, 1968.

Takatsuki, Hiroshi. "The Invasion of Big Three and the Destination of the Motor Vehicle Industry." Economisto. November 7, 1970*

Takeda, Shiro. "The World Strategy of the Japanese Big Business." Keizai Hvoron. July, 1971*

Takenishi, Nobukazu. "Reorganization of the Motor Vehicle Industry for the Pinal Action: Will It Be Settled Three Japanese and Two Foreign Capital Companies?" Economisto. February 17, 1970.

Takikawa, Yasu. "A Diagnosis of Motor Vehicle Expulsionism: The Strategy of Detroit to Japan." Economisto. July 16, 1968.

______. "Motor Vehicles and Restricting Conditions for Future." Keizai Hvoron. February, 1969*

______. "The Motor Vehicle Industry." Keizai Hvoron. January, 1970.

______. "Motor Vehicle Policy Is Far Behind: A Review of Anti-motor vehicle Movement." Anaristo. May, 1968. 218

______. "Oligopolistic Structure of the Japanese Motor Vehicle Industry." A n a ris to . Ju n e, 1969.

Tamai, Yoshitomi. "Limitless Hell of Motor Vehicles." Keizai Hvoron, January, 1970.

Tanaka, Kunio. "The Base of Toyota Kingdom: A Field Research of Laborers In and Around the Toyota City." Rodo Nomin Undo. July, 1970.

Tanijiki, Hiroshi. "Motor Vehicles." Keizai Seminar. July, 1968.

Tomiyama, Kazuo. "The Unshaken Position as the Major Industry for the Time Being." Economisto. November I 4., 1969*

Tsuda, Noboru. "Japanese Overseas Investment: Its Past Development, Present Situation, and Future Prospect." Kokusai Kinyu. June 1, 1970.

Tsuwa, Keiko. "The Capital Export of Japan: A Study of Southeast Asia." Kikai Keizai Kenkvu. February, 1971.

Ueno, Hiroya and Muto, Hiromichi. "The Motor Vehicle Industry: The Realities and Evaluation of Protection Policy." Chuo Koron Keiei Mondai, June, 1970.

______. "Long-term Forecasting of Motor Vehicle Demand." Kosoku Doro To Jidosha. July, 1969.

Uzawa, Hirobumi. "Motor Vehicle Policy Is Wrong: A Protection at the Sacrifice of Social Cost." Economisto. September 8, 1970.

Wada, Yoshiyuki. "Problems of the New Tax on Motor Vehicles." Keizai Hyoron. February, 1971*

Yamakuchi, Yoshiyuki. "Cooperation Between M itsubishi and Chrysler, and Its Background." Zenei. July, 19&9*

Yamazaki, Ryuzo. "The Trend of the Motor Vehicle Industry: The Turning Point of Passenger Cars Is Not Yet Seen." Nihon Keizai Kenkyu Center Kaiho, March 15, 1971.

Yoshimura, Hiroshi. "The Defected Structure of Motor Vehicles Should Be Rebuked: Industry's Predisposition and Government's Attitude." Economisto. July 1, 19&9*

Yoshioka, Ryuhi. "Reconsideration of the Motor Vehicle Industry." Economisto. July 28, 1970.

Yukizawa, Kenzo. "Labor Productivity of the Japanese Motor Vehicle Industry: An International Comparison." Kikan Riron Keizaigaku. August, 1969. 219

C. Yearbook and Books of Statistical Data

Kaisha Nenkan 1972 ("Yearbook of Corporations 1972") Tokyo: Nihon Keizai Shim bunsha, 1971.

Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, eds. Jidosha Nenkan 1972 ("Motor Vehicle Yearbook 1972") Tokyo: Nikkan Jidosha Shimbunsha, 1972.

Suzuki, IJtaya, ed. 1972 Nihon Kogyo Nenkan ("1972 Japanese Industry Year­ book") Tokyo: Nihon Kogyo Shimbunsha, 1972. APPENDIX APPENDIX I

MOTOR VEHICLE MANUFACTURERS IN JAPAN

(1900 - 1937 ) 1

A. The Pirst Manufactured Motor Vehicle in Japan

The first motor vehicle was made in Japan by Torao Yamaha, who owned

The Yamaha Electric Repair Shop (Yamaha Denki Shuri Kojo), on the seventh of May, 1901;. He had not previously seen any motor vehicle, hut received an order to manufacture an omnibus from two Japanese. After viewing two motor vehicles at a foreign importer's shop, he planned to manufacture a steam engine motor vehicle. The first work day was around the middle of

•September, 1903* His factory was approximately 6 tsuho or 213 square feet wide (l tsuho = approximately 35*5 square feet). His equipment consisted of only two foot-operated lathes: one was four feet long, and the other was eight feet long. His other tools were hammers and spanners. Welding was not known in those days. He worked with one apprentice and two other helpers. After seven months of hard work, he finally manufactured a motor vehicle. It had a two-cylinder 29 horsepower engine. He was given per­ mission to drive the motor vehicle, and received approbation from onlookers when i t ra n w ith a maximum speed o f te n m ile s p e r h o u r. He was p a id

12,000 yen (then $ 6, 000).

A Other motor vehicle manufacturing companies not discussed here are reviewed in the main context of this paper.

220 221

B. Assembly in Japan^

Shlntaro Yoshida brought two motor engines from the United States.

The reason for importing engines alone was simple enough; if they made

motor vehicles in Japan with imported engines, it would be less expensive

than if they imported complete motor vehicles. The task of assembling

was imposed on Komanosuke Uchiyama, an electric engineer. He made his

first assembled motor vehicle in 1902 in a month. However, it was made

too crudely to be considered a merchandised item. The second assembled

motor vehicle, with an 18-horsepower horizontal engine, was made in

three months. It was an omnibus of 12-seat capacity. The motor vehicle

was driven from Tokyo back to Hiroshima, its planned place of operation,

after nine days of driving. However, the tires of the motor vehicle, which

were designed for four-seat capacity, malfunctioned. As no other tires to

replace them were found in Japan at that time, they had to wait another

six months to get new tires from the United States.

C. Passenger Cars

In 1905» a member of the royal family gave an order to the Tokyo

Motor Works to manufacture one passenger car. The company was reorganized through the merger of the Sorin Shop (Sorin Shokai) and the Automobile Shop

(Ohtomobiru Shokai). After sketching an imported Ford passenger car, the

Works made a passenger car in thirteen months, supervised by Mr. Uchiyama ■ who assembled the first motor vehicle in Japan. This was the first gasoline passenger car in Japan. Imported tires, batteries, magnetos, and plugs were used for this passenger car. It was driven about thirty miles with great success. Since the second passenger car's parts were all Japanese-made

2 Assembled motor vehicles in this context are defined as those motor vehicles whose engines were imported. 222

except for tires, it may be said that the pure Japanese domestic car was

the second one. The Works produced seventeen motor vehicles. They were

unofficially known as Takuri which came from the word "gatakuri" (clatter

in English).

D. Motor Vehicle Manufacturing Companies

1. Tokyo Motor Works, Ltd.

Tokyo Motor Works, Ltd. (Kabushiki Kaisha Tokyo Jidosha Seisakujo)

was established in 1911 with a capital of 500,000 yen ($250, 000) o f w hich

125,000 yen ($62,500) was paid. A factory was established with a size of

approximately 11,715 square feet. The objective of the company was to

make four-cylinder passenger cars. Six passenger cars were produced and

branded as Tokyo-Car. However, as no buyers could be easily found, the

company switched to the manufacture of buses and trucks. During the Meiji

era, six passenger cars and two buses were produced, and four of them were

sold. After producing twenty more buses in the Taisho era, the company was

d is s o lv e d .

2. Kaishinsha Motor Co., Ltd.

Masujiro Hashimoto had a great ambition to make motor vehicles, and he set up a motor vehicle manufacturing factory of 1,775 square feet and named his company Kaishinsha Motor Co., Ltd. (Kaishinsha) in 1911. His

factory had one milling machine, a six-foot lathe, a German light lathe, a

tool grinder, a four horsepower gasoline engine, a furnace and some other

tools. In addition to manufacturing motor vehicles, the factory assembled

foreign motor vehicles, and operated as a repair shop. At the beginning, workers of the factory were seven, including Mr. Hashimoto. His first motor vehicle was manufactured in 1912. It was a passenger car with a two-cylinder,

12-horsepower engine, its wheel base was 2.03 meters. The passenger car 223 was branded as DAT^ according to the in itials of the names of Hashimoto's three co-operators. His second passenger car was exhibited at the Taisho

Exhibition in April, 1911+ and got a gold medal. It was a passenger car with a two-cylinder, 10-horsepower vertical engine. He manufactured six or seven passenger cars. However, Kaishinsha had financial problems: it was reborn as Datsun after several changes.

3. Hakuyosha Motor Co., Ltd.

Junya Toyokawa established Hakuyosha Motor Co., Ltd. (Hakuyosha) to manufacture small passenger cars under the name Otomo in 1921. He made a test car the following year with a two-cylinder, 850 cc. air-cooled engine.

His father was one of the top executives of the Mitsui zaibatsu and arranged financing one m illion yen ($1+80,000) for his son.

After making a test car successfully, he set up a policy for producing passenger cars as follows:

a. Prices of passenger cars should be 30 percent lower than foreign passenger cars.

b. To make inexpensive passenger cars, they should be small. These would be adequate for Japanese roads, the physical structure of Japanese people, and per capita income.

c. Passenger cars should be air-cooled and production should be 50 units monthly.

d. Well qualified technicians should be employed.

e. Capital should be one million yen ($1+80,000) to start with, and another two m illion yen ($ 960, 000) should be arranged.

Toyokawa had a guarantee from banks for money through his father, and he gathered topnotch technicians around him. The company produced 250 passenger cars up to the summer of 1923, and exported one sample passenger car to

Shanghai, China, in May, 1923, and another to Hong Kong in August

^DAT has the same pronunciation as a running rabbit and the passenger car was named, at one time, as DAT in Chinese character of running rabbit. Because some criticized the use of initials of persons' names, the firm tried to have DAT understood as Durable, A ttractive, and Trustworthy. 221+

of the same year. This was the first export of Japanese motor vehicles. The

reputation of Otomos was far beyond expectations both in Tokyo and Hong Kong.

However, the company was dissolved in 1927 because Otomos could not compete

in price with foreign passenger cars which flooded into Japan.

1+. Jitsuyo Motor Co., Ltd.

Jitsuyo Motor Co., Ltd. (Jitsoyo Jidosha Kabushiki Kaisha) was

established in Osaka with a capital of one million yen ($500,000) in 1919*

The company was in itiated by Kenshiro Kuboda, president of Kuboda Iron

Works, and other commercial capitalists who made themselves m illionaires

during World War I. The objective of the company was to manufacture Gorham's

three-wheeled passenger cars. The company paid 100,000 yen ($50,000) for the right to produce the passenger car and invited Mr. Gorham to give advice.

The company bought 1,860 tsubo or 1.29 acres (l tsubo = .0008 acre) and a factory was built. All machines needed to produce motor vehicles were provided and a card system for control was used in English, while iron, steel and other important raw materials were imported from the United States. The production strategy was to produce £0 units monthly. However, the company produced only 25-30 passenger cars monthly. They were too easily over­ turned and sales were not bright enough. As a result, the company switched to producing four-wheeled passenger cars. Approximately one hundred passenger cars were produced up to 1923* The company also began to produce

Lila, another four-wheeled passenger car. However, the company had a great financial difficulty at that time and merged later with Kaishinsha.

E. Motor Vehicle Manufacturing by Shipyards

1. Kobe Shipyard of Mitsubishi Shipbuilding

Mitsubishi & Co., Ltd. (Mitsubishi Goshi Kaisha) started study of the diesel engine at the Nagasaki Shipyard. This study was later transferred to the Kobe Shipyard. A factory was established in 1917» and ten test passenger 225

cars of Mitsubishi Model A were produced in that year. In 1918, four m ilitary test trucks of four tons and two trucks of three tons were started,

slated to be finished in 1920. They passed the test of the army. However,

they did not go beyond that stage. The Shipyard diversified its product

line to produce buses in 1930* The manufacture of Fuso superbuses of U)|)|

Model was started in 1931 and completed the following year. This was the origin of the present day Fuso.

2. Tokyo Ishikawajima Shipyard

After making great earnings during World War I, top executives of the Tokyo Ishikawajima Shipyard (Tokyo Ishikawajima Zosenjo) considered the manufacture of motor vehicles. The Shipyard decided that, due to lack of experience and preparation in the manufacture of motor vehicles, it would be beneficial to encourage technical cooperation with foreign motor vehicle manufacturers. The Shipyard made a contract with English

Wolseley offering 80,000 pounds (800,000 yen), while the company rejected the offering of Italian Fiat because it asked one million yen. The Ship­ yard became also sole agent for two kinds of passenger cars and Wolseley trucks in Asia.

A factory was designed by Wolseley and machines were bought from the

U.S. The amount of investment was 1+00,000-500,000 yen ($200,000-250,000) and projected production was 50 to 100 motor vehicles annually. With the assistance of a technical coordinator from Great Britain, a Wolseley A9

Model passenger car was completed in 1922. As the production cost of more than 10,000 yen ($1+,800) was too expensive to be marketable, production was suspended. 226

3. Kawasaki Shipyard

The Kawasaki Shipyard (Kawasaki Zosenjo) completed two m ilitary trucks in 1911 under encouragement of the Artillery.Arsenal. A new factory for motor vehicles was established in Hyogo in 1921, and th e

Motor Vehicle Division of the Shipyard was formed. A truck of one ton loading capacity was modeled after an American Packard truck at the new factory. The Division, however, switched to aircraft before the truck was completed. The Division was the origin of the Kawasaki Vehicle Co.,

Ltd. (Kawasaki Sharyo Kabushiki Kaisha).

P. Motor Vehicle Manufacturing Companies Under the M ilitary Motor Vehicle Subsidy Act

1. The Tokyo Gas & Electric Co., Ltd.

The Tokyo Gas & Electric Co., Ltd. (Tokyo Gas Denki Kogyo Kaisha) was founded in 1910 with a capital of one million yen ($1+96,000) of which

200,000 yen was paid-in capital. The main business of the company was electricity and later it became involved in the production of gas equipm ent.

In 1917, the company obtained an order to produce five m ilitary trucks of four-ton capacity from the Osaka A rtillery Arsenal. That was the original motive for the company to manufacture motor vehicles. The company applied for a subsidy from the army to produce its T.G.E. trucks according to the Subsidy Act, and got approval in 1918 as the first case under the Act. The test truck of Model A got an excellent evaluation from the army, and the company was established as a m ilitary subsidy motor vehicle manufacturer.

2. The DAT Motor Vehicle Manufacturing Co., Ltd.

Kaishinsha became incorporated with a capital of 600,000 yen

($306,000) in 1918. The manufacturing plant was moved to another lot in 227

Tokyo and the new plant covered 21,300 square feet in !(.. 8 acres of land. The plant also had approximately thirty machines, including those of the previous plant, and it employed E>0 to 60 persons.

However, as the company had difficulty in selling its passenger cars because of the economic recession after World War I, the company switched to the manufacture of 3/U "ton trucks to cover unsatisfactory sales of DAT

Model i+1 passenger cars since 1920. The truck participated in the test given by the Japanese army and got the following evaluation:

a. The rate of fuel consumption was excellent.

b. The capability of resistance on coarse roads was very s tro n g .

The DAT truck received subsidy as provided by the revised Subsidy

Act which permitted trucks of 3A "ton to get subsidy from the army. This was in 1923, and the company s till had much difficulty competing with imported motor vehicles at its price. After the company was absorbed by

The DAT Motor Vehicle & Co., Ltd. (Goshi Kaisha DAT Jidosha Shokai) of

Osaka in 192$, the company merged again with Jitsuyo Jidosha Kabushiki

Kaisha and formed The DAT Motor Vehicle Manufacturing Co., Ltd. (DAT

Jidosha Seizo Kabushiki Kaisha) with a capital of ij.69,000 yen ($219,000) in 1926. The merged company then produced Model 61 trucks which had one ton loading capacity and qualified for subsidy from the army. Lila of

Jitsuyo became known as Datson, the son of DAT.

3. The Ishikawajima Motor Works, Ltd.

The Motor Vehicle Division of the Ishikawajima Shipyard became a burden rather than a profit maker. As a result the company participated in the manufacture of m ilitary subsidy motor vehicles, and contracted with

Wolseley for the Wolseley CP Model truck with 1-1/2 tons of loading capacity in 1922. After the contract expired, the plant changed the brand name of 228

Wolseley to "Sumida*" Since the Shipyard incurred losses on the operation of its motor vehicle division, M. Shihusawa proposed to purchase the Division.

It became an independent business entity in 1929, known as the Ishikawajima

Motor Vehicle Works, Ltd. (Kabushiki Kaisha Ishikawajima Jidosha Seisakujo).

G. Motor Vehicle Manufacturers Under the Merger Movement

The Ishikawajima and the DAT Jidosha merged in December, 1932, to form the Motor Vehicle Industries, Ltd. (Jidosha Kogyo Kabushiki Kaisha) with a capital of 3,200,000 yen ($896,000) in March, 1933*^ The Tokyo Gas

& Electric established the Kyodo Domestic-made Motor Co., Ltd. (Kyodo Kokusan

Jidosha Kaisha) with the Motor Industries, Ltd. through the joint investment of one m illion yen ($250,000) in December, 1933* These two companies merged finally in April 1937 to become the Tokyo Motor Industries, Ltd. (Tokyo

Jidosha Kogyo Kabushiki Kaisha) with a capital of 27 million yen ($7,830,000) and Kyodo Kokusan Jidosha was also absorbed by this company.

H. Other Motor Vehicle Manufacturers

There were more pioneers who manufactured test motor vehicles; they were the shops of Sakurai, Haga, Handa, Mitsuda Machine Works, Tokyo Dento,

Terakura Pump, Kida Iron Works, and Murakami Brakes. Several companies were " also interested in manufacturing motor vehicles: Osaka Iron Works, Kishi

^The capital of DAT Jidosha was increased to one m illion yen through investment by the Tobata Casting Company. When Ishikawajima and DAT Jidosha merged, the former company increased its investment by 700,000 yen. This increased stock was taken by DAT Jidosha and the rights of manufacturing DAT subsidy motor vehicles and Datson were transferred to the new company, Jidosha Kogyo Kabushiki Kaisha. The plant of DAT Jidosha was bought by Tobata Casting Company for 700,000 yen with which DAT took over the increased stocks of Ishikawajima. However, the new company could not produce Datson because of the production of motor vehicles for m ilitary use. 229

Works, Okumura Electric Company, and Train Manufacturing Co. Orient

Jidosha Seisakujo of Osaka manufactured a test car of Simplex with ten horsepower in 192k. However, the company did not go beyond that stage.

Sukeo Ohta manufactured a small four-wheeled passenger car of O.S. four- cylinder. Unfortunately, this car was not sold, so he switched to Ohta, a sports car. This Ohta Motor Vehicle Works (Ohta Jidosha Seisakujo) became Ohta Motor Co., Ltd. (Ohta Jidosha Kogyo Kaisha) with the financial aid of the Mitsui zaibatsu until the motor vehicle was banished in 1955- 230

APPENDIX II

THE MILITARY MOTOR VEHICLE SUBSIDY ACT, 1918

A. A Summary of the M ilitary Motor Vehicle Subsidy Act

1. Qualification

Qualified manufacturers of the m ilitary subsidy motor vehicle are:

a. Individuals and legal corporations established by Japanese law whose capital and voting rights should belong to Japanese by more than half margin.

b. Most motor vehicle parts should be supplied from the inside. Chassis should be assembled and equipment to measure horsepower of engines should be provided. With all these facilities, more than one hundred motor vehicles should be produced annually.

c. Foreign made motor vehicle parts are limited to those specific items with permission. Generally, home made motor vehicle parts are recommended for use.

2 . Amount of Subsidy ______(yen)

Class of motor Manuf acturing A ddi­ P u rch a­ M ainte­ v e h ic le s su b sid y ti o n a l sin g nance su b sid y su b sid y su b sid y Loading S ta n d a rd capacity li-wheel ed 16-w h eeled

T rucks A \ - 1 to n I4OO 1,^00 300 1,000 400 B 1 - 1-k 730 1,730 300 1,000 500 C o v er lb 1,230 2.200 300 1.000 600

A p p lied D 3/4-1 ton 250 1,230 373 730 300 m otor E l - l i 500 1,300 373 730 300 vehicles F over lb 800 1.800 373 .150 300

Note: Manufacturing subsidy is the one given to manufacturers and additional subsidy is the one which manufacturers can use or they may let others use it. Purchasing subsidy and maintenance subsidy are those given to general purchasers. Manufacturing subsidy and purchasing subsidy are given only once per motor vehicle, while additional subsidy and maintenance subsidy are annually given for five years. Six-wheeled motor vehicles are added to m ilitary subsidy motor vehicles from March, 1930* Applied motor vehicles are those which can be used as trucks by reforming body or some other portions. 231

3« Implementation

The Ishikawajima Motor Works, Ltd. produced 1,043 motor vehicles during the six years from 1924 to 1929* Of these motor vehicles, 330 were subsidy motor vehicles, 80 of them were produced for the army, and 40 o f them were sold to the Tokyo City Electric Company.

The Tokyo Gas & Electric Co., Ltd. produced 270 motor vehicles during the eleven-year period from 1919 to 1929- The average annual production was 23 motor vehicles. The company had a production capacity of 330 motor vehicles per year. However, only 38 motor vehicles were produced in 1929 which meant 17 percent of capacity operation. No motor vehicles were sold for civilian use.

The DAT Motor Co., Ltd. had a production capacity of 200 motor vehicles a year, and 162 motor vehicles were produced during the five-year period from 1924 to 1928. Average annual production was 32 motor vehicles.

The production in 1928 was 63 motor vehicles, which was 31 percent of capacity operation. 232

APPENDIX III

THE MOTOR VEHICLE MANUFACTURING BUSINESS ACT OF 1936

A Summary of the Motor Vehicle Manufacturing Business Act of 1936

1. Those motor vehicle manufacturing companies which produce more than 3>000 motor vehicles annually or 250 motor vehicles monthly of over 75>0 cc. engine should he licensed.

2. More than half of capital, managers, stockholders, and voting rights of these companies should be or belong to the Japanese.

3. Those licensed companies are tax-exempted for five years, and machines, machine tools, and materials are exempted from import duties. Also, licensed companies are given special privileges for capital increases and loans.

I4. The licensed company should agree to supervision by the government. Specifically, those orders concerning m ilitary motor vehicle manufacturing and other orders which are closely related to m ilitary objectives should be obeyed.

9. Those companies which have operated before this law is enacted are given vested rights, and the first article of this law is not applicable to them. However, the vested rights are limited to the scale of business before Aiigust 9, 1935-

6. Whenever imported motor vehicles disturb the establishment of the Japanese motor vehicle industry, import restrictions w ill be imposed and/or £0 percent import duties w ill be le v ie d . 233

APPENDIX IV

REVISED TARIFF RATES ON MOTOR VEHICLES

______(December 22. 1936)

R ev ised P rev io u s Item s r a te s r a t e s

Motor vehicles 70. 00% 90. 00% Tires per 100 kin or 132.3 Its* 4*20 yen 3.90 yen Motor vehicle parts excluding motors and chassis (a) Wheel track with less than 290 cm. p e r 100 k in 19U.15 yen ad valorem (b) Others per 100 kin 44*4 2 Frame and wheel 14.17 F u e l ta n k 34*61 Front axle 30.26 R ear a x le 41.30 D ifferential gear 92.92 Transmission gear 138.30 Others not classified specifically 60. 00%

Source: Masahisa Ozaki, Jidosha Nihonshi ("History of Japanese Motor Vehicles") (Tokyo: Jikensha, 1999)> vol. II, pp. I 86- 87. 23k

APPENDIX V

PRODUCTION OP MOTOR VEHICLES, 1935-191*9

( u n its )

Y ear Total Production Toyota Nissan Total B/A (A) (B)

1935 9,09b 20 3,800 3,820 75.0% 1936 12,186 1, 11*2 6,263 7,405 60.1 1937 19,157 4,013 10,227 14,240 7 4 .3 1938 23,972 4,615 16,591 21, 206 88 .9 1939 33,242 11,981 17,781 29,762 8 9 .5 1940 46,145 14,787 15,925 30,712 66.6 1 9 U 1+6,1*68 14,611 19,688 34,299 7 3 .8 19k2 37,201 16,302 17,434 33,736 90.1 19k3 25, 11*0 9,827 10,753 20,580 81.9 19kh 21,808 12,720 7,083 19,803 90.8 1945 6,751* 3,275 2,001 5,276 7 8 .1

Sources Arranged from the data of Nihon Jidosha Kaigisho, ed., Nihon Jidosha Sangyo no Henso to Shorai no Arikata ("The Change and Future of the Japanese Motor Vehicle Industry"), and Katsumi Kodaira, Jidosha ("Motor Vehicles") (Tokyo: Aki Shobo, 1968), p. 100. 235

APPENDIX VI

THE RATIO OP TRUCKS AND PASSENGER CAftS OP TOYOTA AND NISSAN

M Y ear Toyota* . Nissan Trucks PasseJ*ger cars Trucks and Buses Passenger cars

193k „ 30.8 69.2 1935 100.0 31.0 69.O 1936 79.6 8-7 5 7 .5 1*2.5 1937 75.3 ll**3 60 .5 39-5 1938 8O.5 J l* 6 75.0 25.0 1939 91.1 • 8 92.3 7 .7 191*0 91.1 1 .8 92.8 7-2 191*1 98.0 1-1* 92.0 8 .0 191*2 99.8 .2 95.1 1*.9 191*3 99.5 •5 91*. 8 5 .2 191*1* 99.9 .1 99.9 .1 191*5 1 0 0 .0 100.0

Source: Arranged from the tables of Katsumi Kodaira, Jidosha ("Motor Vehicles") (Tokyo: Aki Shobo, 1968) , p . 105. 236

APPENDIX VII

POST-WAP MOTOR VEHICLE PRODUCTION IN JAPAN (Units)

P a sse n g e r T h ree- Y ear C ars Trucks Buses T o ta l W heelers

191+5 1 , 1+61 1 , 1+61 99 191+6 — ll+,911+ 7 H+,921 2,692 191+7 110 11,106 101+ 11,320 7,1+32 191+8 381 19,211 775 20,367 16, 8§2 191+9 1,070 25,560 2,070 28,700 26,727

1950 1,591+ 26,501 3,502 31,597 35,1+98 1951 3,611 30,817 l+,062 38,1+90 1+3,802 1952 l+,837 29,960 1+,169 38,966 62, 221+ 1953 8,789 36,11+7 1+, 81+2 1+9,778 97,1+81+ 1951+ ll+,l+72 1+9,852 5,71+9 70,073 98,081

1955 20,268 1+3,857 1+, 807 68,932 87,901+ 1956 32,056 72,958 6,052 111,066 105,1+09 1957 1+7,121 126,820 8,036 181,977 H l+,937 1958 50,61+3 130,066 7,591+ 188,303 98,877 1959 78,598 177,1+85 6,731 262, 811+ 158, 01+2 i 960 165,091+ 308,020 8,1+37 1+81,551 278,032 1961 21+9,508 553,390 10,981 813,879 22l+,595 1962 268,781+ 710,716 11,206 990,706 H+l+,167'; 1963 1+07,830 862,781 12,920 1 ,283,531 117,190 1961+ 579,660 1,109,11+2 13,673 1,702,1+75 80, oi+8

1965 696,176 1 , 160,090 19,31+8 1 , 875, 611+ 1+2,91+1+ 1966 877,656 1 ,3 8 7 ,8 5 8 20,885 2 ,286,399 33,361+ 1967 1 ,3 7 5 ,7 5 5 1 , 71+3,368 27,363 3, 11+6, 1+86 26,1+53 1968 2, 055,821 1,991,1+07 38,598 [+, 085,826 21,791+ 1969 2 , 611, 1+99 2 ,0 2 1 ,5 9 1 i a , 81+2 1+, 671+, 932 17,082

1970 3, 178,708 2 , 063,883 1+6,566 5,289,157 ll+ ,06l 1971 3 ,7 1 7 ,8 5 8 2 , 058,320 3l+,596 5,810,771+ 11,929 1972 [+,022,289 2 , 238, 31+0 33,809 6,291+, 1+38 1+,571

Source: Katsumi Kodaira, Jidosha ("Motor Vehicles") (Tokyo: Aki Shobo, 1968), p. 151+, Guide to the Motor Industry of Japan 1972 (Tokyo: Japan Motor Industrial Federation, 1973), p. 27, and Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, eds., Jidosha Nenkan 1973 ("MotorVehicle Yearbook 1973")(Tokyo: Nikkan Jidosha Shimbunsha, 1973), PP. 1+27-35. Note: The year 191+5 includes only four months (September-December). 237

APPENDIX VIII

POST-WAP MOTOR VEHICLE REGISTRATION IN JAPAN (Units)

S p ecial P a sse n g e r Ptqpose T h ree - Y ear C ars Trucks Buses V ehicles Total Wheelers

191+5 25,533 72,908 12,792 2,311+ 113,51+7 28,500 191+6 26,863 81+,579 12,060 6,678 130,180 33,598 191+7 26, 31+0 100,618 12,772 10,779 150,509 38,207 191+8 30,221 122,676 ll+ ,70l+ Jl+,022 181,623 5 7 ,5 9 5 191+9 36,265 137,876 16,1+67 15,51+1 206,li|9 89, 1+63

1950 1+2,588 152,109 18,306 12,1+91+ 225,1+97 111,888 1951 57,533 170,160 21,621 H+,836 261|,150 152,731+ 1952 88,351+ 191,317 2i+,307 21,701+ 325,682 213,027 1953 l l l | , 696 213,1+55 27,982 26,779 382,912 293,671+ 1951+ 138,518 231+, 598 31,530 ^l+,92i+ 1+39,570 367,1+1+1

1995 153,325 250,005 3l+, 187 36,215 1+73,732 1+29,1+91 1956 181, 071+ 29l+,213 38,050 1+1+,03!+ 557,371 1+93,839 1957 218, 521+ 372, 1+1+2 1+2 , 721+ 52,825 686,515 553,958 1958 259,631 1+51+,617 1+6,957 61,030 822,235 612, 31+2 1959 318,758 57l+,l+8l 51,030 70,306 i,o il|,5 7 5 71+2,31+0 i 960 1+57,333 775,715 56,192 70,235 1,359,1+75 882,159 1961 663,951 1,159,51+2 63,1+50 83,226 1,970,169 90I+, 262 1962 889,032 1,677,1+67 72,029 98,071 2,736,599 903,1+96 1963 1 ,2 3 3 ,6 5 1 2,337,21+9 81, 1+11+ 117,703 3,770,017 879,277 1961+ 1 ,6 7 2 ,3 5 9 3 ,0 9 0 ,9 6 9 93,011 11+0,789 1+,997,128 793,635

1965 2,181,275 3,865,1+78 102,695 159,858 6, 309,306 682,91+9 1966 2 ,8 3 3 ,2 5 3 1+,798,961 l l i +,289 l8 5 ,2 l|l 7,931,71+1+ 573,836 1967 3, 836,1109 5 ,8 5 6 ,1 9 1 129,217 207,207 10, 029, 021+ 1+72,075 1968 5 ,2 0 9 ,3 1 9 6 ,8 7 9 ,2 5 2 ll|8 ,2 8 6 21+5,1+09 12,1+82,266 388,291 1969 6 ,9 3 3 ,7 3 2 7,733,1+03 170,137 289,391+ 15, 126,666 317,702

1970 8,778,972 8 ,2 8 1 ,7 5 9 187,980 333,132 17,581,81+3 21+3,931+ 1971 10, 572,122 8 ,7 0 5 ,7 1 6 19l+,360 385,679 19,857,877 202,906 1972 12,531,11+9 9, 230,385 202,819 i+1+1+,160 22,1+08,513 167,671

Source: Japan Automobile Manufacturers Association, Inc., quoted in 1973 World Motor Vehicle Data (Detroit: Motor Vehicle Manufacturers Association of the United States, Inc., 1973)> P- 29, and Katsumi Kodaira, Jidosha ("Motor Vehicles") (Tokyo: Aki Shobo, 1968) , p . 153* 238

APPENDIX IX

POST-WAR MOTOR VEHICLE EXPORTS IN JAPAN ______(U n its )

P a s s e n g e r T h ree- Y ear C ars T rucks Buses T o ta l W heelers

191*6 ..__ 191+7 1 1 — 2 — 191+8 1 6 — 7 5 191+9 10 1+63 6 1+79 131+ 1950 7 5,1+09 93 5,509 l+l+o

1901 __ 6,580 153 6,733 31+9 1952 — 681 181* 865 16 1953 — 689 1+09 1,098 11+1+ 1951+ l 679 308 988 219 1955 2 907 322 1,231 169

1956 1+6 1,881* 517 2,1+1+7 1,837 1957 1*10 5 ,5 1 2 632 6,551+ 1+19 1958 2,357 7,51+0 31+6 10,21*3 1+89 1959 i+,881* 1 3 ,9 5 9 1+1+2 19,285 2,091+ i 960 7,013 31,028 768 38,809 11,261

1961 11,531 l+l+,529 977 57,037 2,252 1962 16,011 1+9,871 808 66,690 l+,269 1963 31,1+1+7 65,877 1 , 21*0 98,561* 1,007 1961+ 66,965 81,721 1,735 150, 1*21 1,1+61+ 1965 100,716 90,923 2,529 191*, 168 1,935

1966 15 3 ,0 9 0 100,900 1,71*1+ 255,731+ 2,600 1967 223,1+91 135,687 3,067 362,21*5 1+,513 1968* 106,250 201,290 1+.889 612,1*29 8,51+1 1969 560,1*31 290,872 6,765 858,068 7,361+ 1970 725,586 351,611 9,579 1,086,776 7,721

1971 1,299,351 1+69, 1*1+8 10,225 1,779,021* 7,01*7 1972 1,1*07,31+0 51+7,507 10,557 1,965,1+01* 1,701

Source: Katsumi Kodaira, Jidosha ("Motor Vehicles") (Tokyo: Aki Shobo, 1968), p. 155, Guide to the Motor Industry of Japan 1972 (Tokyo: Japan Motor Industrial Federation, 1973)» p. 30, and Nihon Jidosha Kaigisho and Nikkan Jidosha Shimbunsha, eds., Jidosha Nenkan 1973 ("Motor Vehicle Yearbook 1973”) (Tokyo: Nikkan Jidosha Shimbunsha, 1973)» pp. 1*78-81. 239

APPENDIX X

POST-WAR MOTOR VEHICLE IMPORTS POR JAPAN (Units)

P a sse n g e r Y ear Cars Trucks Buses Chassis Total

1952 15,1*13 1*12 122 1*1 15,988 1953 23,719 1,330 11*1 2,216 27, 1*06 1951* 11,620 1,257 71* 3,366 16,317 1955 5,186 1,329 29 201* 6,71*8 1956 6,681*. 2,309 101 9 9,103

1957 6,179 505 10 21* 6,718 1958 5,1*1*9 1,139 11* 100 6,702 1959 5,991* 1,01*5 3 69 7,111 i 960 3,51*0 692 91* 3 1*» 329 1961 1*,310 1,358 50 — 5,718

1962 5,61*6 6,1*57 51 15 12,169 1963 9,339 2,1*98 17 . 11*5 11,999 1961* 12,183 713 9 8 12,913 1965 12,881 1*61* 2 1 13,31*8 1966 15, 21*1* 502 3 5 15,751*

1967 11*, 352 505 13 2 11*, 872 1968 15,000 529 3 l+o 15,572 1969 15,71*8 359 5 23 16,135 1970 19,080 1*63 7 5 19,555 1971 18,551 •'493 l 1+6 19,091

1972 21*,759 559 3 3 25,321*

Source: Japan Automobile Manufacturers Association, Inc., quoted in 1973 World Motor Vehicle Data (Detroit: Motor Vehicle Manufacturers Association of the United States, Inc., 1973)> p . 25. APPENDIX XI

MOTOR VEHICLE IMPORTS FOR JAPAN FROM U .S.A . (Units)

P a sse n g e r Y ear C ars Trucks Buses T o tal

1958 l+,5l+6 1,133 11* 5,693 1959 5,376 i,ol+3 3 6, 1*22 i 960 2,679 678 91* 3,1*51 1961 2,892 938 1*1 3,831 1962 3,287 5,998 16 9,301

1963 3,666 1,71*7 1* 5,1*17 1961* 3,316 389 3 3,708 1965 3,168 11*1 — 3,309 1966 3,1*02 167 — 3,569 1967 2,798 268 1 3,067

1968 l*,0l*3 219 —— l+,262 1969 1+,133 90 3 l+,226 1970 5,281 236 5 5,522 1971 1*,633 21*1* — 1*, 877 1972 5,1*1*5 312 1 5,759

Source: Japan Automobile Manufacturers Association, Inc., quoted in 1973 World Motor Vehicle Data (Detroit: Motor Vehicle Manufacturers Association of the United States, Inc., 1973), P* 25. APPENDIX X II

UNITS OP MOTOR VEHICLES PRODUCED PER EMPLOYEE OP MOTOR VEHICLE MANUFACTURERS

1970 1965 1957

Toyota U2.S 21.1 1^.1 N issan 36.3 19.6 7 .4 Toyo Kogyo 1 6 .9 — — Isu z u 11 .8 9.7 2 .9 D aih atsu U l.2 — — F u ji Heavy 16 .9 — — Hino 8 .5 7.U 2 .5 M itsubishi Motor 21.8 12.6 — Nissan Diesel 1.7 1 .1 Suzuki 29 .3

Source: Calculated from the data of various editions of Jidosha Nenkan ("Yearbook of Motor Vehicles") (Tokyo: Nikkan Jidosha Shimbunsha).

Note: Motor cycle manufacturers which produce four-wheeled motor vehicles are excluded unless the sales are over 70 percent of the total sales. 2l\2

APPENDIX X III

TWELVE MONTHS REGISTRATIONS OF MAJOR IMPORTED MOTOR VEHICLES IN 1971 AED 1972

1972 Make 1971

10*7,313 (4.55%) Volkswagen 509,207 (5.23%)

297,098 (2 .6 1 ) Toyota 270,512 (2.78 )

172,882 (1 .7 6 ) D atsun 182,058 (1.87 )

80,628 ( -82 ) C apri 53,219 ( .55 )

60,473 ( -61 ) Opel 85,554 ( .88 )

5 l ,9 H ( .53 ) F ia t 42,621 ( .44 )

47,804 ( >49 ) Volvo 47,012 ( .48 )

47,495 ( .U8 ) Mazda —

37,564 ( -38 ) Mercedes-Benz 32,651 ( .34 )

30,989 ( -32 ) C o lt 26,503 ( .27 )

S o u rc e : Automotive News, March 5, 1973, p . 29. Note: This data shows only those motor vehicles of the top ten in 1972 and 1971. Registrations of following states are delayed: Oklahoma ( January-November, 1972 and April-November, 197l)» Pennsylvania (May-November, 1972), and Maryland (september-November, 1972). Figures in parentheses show the share of major imported motor vehicles of the total motor vehicle registrations.