On Japan’s auto-assembly lines, the feast of the 1980s has turned into famine. With Japanese buyers staying away and the strong yen undermining exports, companies that only yesterday made Americans fear and tremble are awash in red ink at home. But shrinking their way to profitability is proving even tougher for Japan’s carmakers today than it did for Detroit a decade ago. Closing plants and shedding workers – the tactics that restored Ford and Chrysler to health in the 1980s – is simply not the way Japanese employers are expected to behave. Instead, they’re cutting empty slots here and sharing a new model there in hopes that the problems will fade away. If that sounds like the General Motors of old, some GM executives think so, too. Warns one who saw overly cautious retrenchment lead to crisis in 1992, “The time lag [of cost-cutting in Japan] is too great.”
The mathematics are brutally simple. In the peak years of 1990 and 1991, Japanese factories assembled almost 10 million passenger cars each year. This year’s output may not reach 8 million. “We are going to see a further drop,” predicts Masaru Miyata, a top Honda Motor Co. executive. Imports, while still small, have grown to 6 percent of the market, and Ford Tauruses are no longer uncommon on the streets of Tokyo. Although quality remains high, exports are down by 1 million cars since 1991, and the skid shows no signs of ending. At 1992’s average of 126 yen to the dollar, another 10 million-car year would be improbable; at today’s rate of 100 to 1, it is impossible.
In large part, Japan’s carmakers brought the crisis upon themselves. Convinced of their own invincibility, they kept building factories at the height of the boom. Now the question of how to get rid of five or six good-size assembly plants and several dozen parts plants is one that executives would like to wish away. When Nissan Motor Co. announced two years ago that it would stop carmaking at its outdated Zama plant by 1995, the company was widely denounced for irresponsibility. Since then not even Honda, the only carmaker that admits to too much capacity in Japan, has openly broached the subject of plant closings. Japanese executives don’t customarily talk so frankly. “As the market recovers we expect production to increase,” says Tatsuro Toyoda, president of Toyota Motor Corp. Agrees managing director Kosei Minami of Nissan, the most troubled big carmaker and the one most aggressively seeking alliances with others, “I don’t feel that we need to reduce the facilities we have now.”
As the Japanese see it, the auto industry is taking draconian measures to shape up. Isuzu, the smallest of Japan’s nine carmakers, is cutting back car production to focus on trucks. If Suzuki’s new car looks a lot like a Honda, that’s because the company is saving money by putting its own nameplate on its competitor’s model instead of building its own. And jobs are disappearing by attrition, if not through layoffs. “Lifetime employment” notwithstanding, many factories rely heavily on temporary labor; Mitsubishi Motors, with 10,000 permanent assembly-line workers, has shed more than 2,000 temps, including farmers who have long worked the lines each winter. At Nissan 3,000 lifetime factory employees are peddling cars in showrooms, and others have been leased out to assemble cars for Fuji, whose four-wheel-drive vehicles are selling well. All told, 10,000 permanent jobs have vanished over the past year.
Big as they are by Japanese standards, those economies may be far from enough. Despite huge investments in automation the industry employs 20,000 more permanent workers than it needed in 1985 to turn out the same number of vehicles. In Tokyo office towers, armies of white-shirted salarymen sit desk to desk in neat rows, eating up profits as they pass papers back and forth. Computer networks and electronic mail don’t exist. So far, no automaker has dared to tackle the bureaucratic bloat. “What to do with the efficiency of white-collar workers is a major challenge,” says Tatsuro Toyoda. General Motors faced that issue in 1991 and 1992 by eliminating 20,000 white-collar positions. Toyota, by contrast, is counting on attrition to do the job.
Rather than fixing what ails Japan’s car industry, cost-cutting efforts to date have made it worse. Wages in Japan are closely linked to seniority; with little new hiring, average age is rising – and so is average pay. Recruitment of college graduates is at the lowest level in years, depriving design studios and marketing departments of fresh blood. And automakers are saddled with interest and maintenance costs for dozens of underutilized factories. Toyota’s two-year-old plant on the southern island of Kyushu is working at just two thirds of capacity. Even after Nissan closes Zama next spring, it will have enough Japanese plants to produce 1.7 million cars a year – but demand for only 1.3 million.
At another time, the Japanese industry’s crisis would have been an opportunity for U.S. companies desperate to build cars in Japan. Now, however, the Big Three show no interest. Although veteran cost-cutters from Ford recently took over management of Mazda, whose Japanese production is down by one fourth since 1992, Ford has refused to boost its 25 percent stake. “It’s an expensive place to build cars,” says one senior U.S. executive. Detroit would rather export to Japan while saving its investment dollars for China and Southeast Asia.
Don’t look for Japan’s famous makes to fade into history. Nor will big fish simply gobble up littler ones the way Chrysler swallowed American Motors in 1987. Killing off a large company just isn’t the Japanese way. Restructuring will be far less dramatic. With sales of Daihatsu-brand cars down by 40 percent since 1992, the company’s future depends on assembling cars for Toyota. Nissan has joint projects with Isuzu, Mazda and Fuji Heavy, and rumors swirl that it is seeking a close tie with a foreign automaker. Such alliances will slowly squeeze out excess capacity, even as the companies themselves survive.
Moving slowly to restructure avoids a Detroit-style trauma, with shuttered plants and lines of unemployed workers. But gradualism carries a different sort of cost. Expanding in Asia and Latin America, where markets are booming, will require billions of dollars in new investment. More losses at home would endanger those long-term growth plans. While Japanese carmakers hope against hope that minor adjustments will staunch the bleeding, the experience of its U.S. and European competitors in the past decade’s car-market turmoil offers a different lesson: postponing tough choices makes them all the more painful in the end.
