Japan’s Car Makers Having Boom Year Despite Decline in Exports to U.S.

TOKYO — In other times, a decline of 384,000 in the number of cars and trucks exported to the United States, such as Japan experienced in its last fiscal year, would have raised cries of agony here. It would also have lowered the U.S. trade deficit with Japan and eased protectionist pressure in the United States.

But none of these things has happened this year. Instead, a completely unexpected boom at home has removed the pain of any decline. Even as exports to the United States continue to drop, Japan’s 11 auto makers are seeing a record year take shape, in both production and profits.

The industry, however, is already worried that new trade friction will develop when 11 U.S. and Canadian factories wholly or jointly owned by eight Japanese firms produce between 1.6 million and 2 million vehicles a year by the early 1990s.

And capacity will be even greater. By 1991, it will nearly triple last year’s North American production to reach 2.14 million vehicles, 1.98 million of which will be passenger cars. That production, combined with planned imports by Detroit’s Big Three, will result in a 1.4-million vehicle surplus in the American market, the Industrial Bank of Japan predicts.

Although Japanese car exports are expected to decline, the U.S. Commerce Department estimates that there will be a net gain in sales in the United States of Japanese-made and Japanese-conceived cars of up to 924,000. The department, citing a study conducted jointly earlier this year with Ward’s Automotive Reports, foresees sales of more than 3.6 million such passenger cars and a 32.8% share of the U.S. market in 1991.

Japanese executives, union leaders and bankers foresee these cars taking more than 30% of the American market, compared to 26.1% last year.

Production by Detroit’s Big Three could fall by 531,000 cars in 1991, to 6.11 million, a 55% market share, compared to 6.64 million, a 64.1% share, in 1987, the joint study found.

Seeking New Restraints

Like nearly everyone else, the Commerce Department presumes that Japan will remove the voluntary quotas that it has put on car exports to the United States. But some American auto executives are already seeking new restraints, demanding that Japan reduce its exports, one for one, as its companies increase production in the United States.

Takashi Hoshino of the research group of the Long Term Credit Bank of Japan said Detroit’s Big Three are likely to create at least as much trouble for their own production as they face from the Japanese.

By 1990, he calculates on the basis of announcements the Big Three have made, they will be selling 1.76 million foreign-built or foreign-conceived cars, 640,000 of them supplied by factories wholly or jointly owned by Japanese in the United States and 1.12 million of them imported from Japan, South Korea, Canada, Taiwan, Mexico, Brazil, Australia and other countries.

General Motors, Ford and Chrysler will sell 1.33 million more foreign-built or foreign-conceived cars in 1990 than they did in 1987, Hoshino predicts. Sales of Japanese-conceived cars, he added, are expected to increase by 890,000 units--and General Motors, Chrysler and Ford will be selling 440,000 of them.

Tetsuo Chino, Honda senior managing director and former president of Honda America, criticized the Big Three for increasing their reliance on foreign sources even as the Japanese increase their American production.

“It’s a kind of scrap-and-build process for the Big Three,” Chino said, noting that GM has already announced plans to shut down “14 or 15 plants.”

“Lee Iacocca is always complaining about Japan,” he said, “but how much is Chrysler contributing to the U.S. trade deficit by its imports of cars and components? . . . American companies are complaining about the trade deficit but are increasing it with their own out-sourcing.”

Japan, he said, should not be subjected to protectionist penalties for Detroit’s decisions.

‘We Must Be Careful’

Tsutomu Oshima, an executive vice president of Toyota, said: “We must be careful about how we enter the American market so as not to cause trouble. If the number of cars made by the Big Three declines, misunderstandings will again occur.”

The Big Three, he said, might demand a cut-off of exports from Japan.

Tadashi Nakamae, a financial analyst and president of Nakamae International Economic Research, and Kenichi Omae, head of McKinsey & Co. in Japan, both predict a ceiling of 3 million cars a year in import-plus-local-manufacture sales.

“Beyond 3 million,” Omae said, “the Big Three will pull out their golden sword . . . and exercise their political clout.”

So far, declining exports and rising production of Japanese cars in the United States have yet to produce a dent in the massive imbalance in automotive trade.

11.3% Fewer Vehicles

A two-year doubling of the yen’s value against the dollar, which forced Japanese auto makers to raise sticker prices, resulted in 11.3% fewer cars and trucks--384,000 vehicles--being exported in the fiscal year that ended last March 31. A decline of 87,500 in the number of passenger cars left the Japanese short of their voluntary 2.3-million export quota for the first time since 1981, when the restraints began.

The number of cars exported was off 3.8%, to 2.2 million, and trucks were off 27.1%, to 797,000. Yet the value of exported passenger cars, trucks, parts and components fell by only $427.4 million, a minuscule 1.4%, to $30.4 billion, according to the Japanese Finance Ministry. Higher price tags, more luxurious models and more American-based production supported by parts from Japan slowed the decline in value.

American exports of 4,006 cars and other automotive products, valued at $149.2 million, left the automotive trade imbalance at $30.3 billion--more than half of the overall U.S. deficit with Japan last year of $59.8 billion.

When Honda, Nissan, Toyota, Mazda, Mitsubishi, Fuji Heavy Industries (maker of the Subaru), Isuzu and Suzuki get all their new American factories operating, and exports of parts surge, the American deficit could expand again, at least initially.

Building Trucks in the U.S.

Relief for the U.S. trade deficit might come from an often-overlooked segment of the automotive trade: trucks. Oshima said Toyota is thinking of building a truck plant in the United States, and he indicated that the decision will be to go ahead with it. If so, he said, Toyota will stop exporting trucks, which by itself could eliminate $1 billion of the American deficit. Last year Toyota exported 280,000 trucks to the United States.

According to Takayuki Imajo, manager of overseas public relations for the Japan Automobile Manufacturers Assn., such a decision by Toyota could induce other truck exporters to follow suit.

Unlike passenger cars, on which Japanese pay a tariff of only 2.5%, trucks enter the American market with a steep 25% duty that makes production in the United States clearly more economical than in Japan, Oshima said.

By increasing prices to cover about 40% of the yen’s appreciation, significantly boosting productivity and stepping up purchases of cheaper imported parts, Japan’s auto industry has adjusted to an exchange rate of 125 yen to the dollar--so much so that Toyota, Nissan and Honda executives say production costs here are still lower than in the United States. And they say they could overcome a further appreciation of the yen.

“If a 100-yen-to-the-dollar exchange rate came tomorrow,” Toyota’s Oshima said. “we couldn’t cope. But if it came in two years, that would be a different story.”

Japanese Worried

What worries Japanese is the impact on employment that declining exports to the United States may bring.

In a study of the possible impact of growing overseas auto investment, made public in May, the Confederation of Japanese Automobile Workers Unions found that a large decrease in exports is likely even though Japanese auto makers may enlarge their share of the American market.

Tadayoshi Kusano, the confederation’s general secretary, said a high executive of Toyota--he declined to identify him by name--reacted to the union’s analysis by conceding that passenger car exports could decline by 600,000 by the mid-1990s.

So far, no auto maker has publicly conceded that it has any intention of reducing its exports. As Kiyomi Takemoto, Mazda corporate communications director, put it: “Even if we did believe we would have to cut our exports, we wouldn’t tell you. That would be a declaration of surrender.”

Honda’s Chino, the only auto executive to make a concrete prediction for industry-wide cuts, said that “500,000 will be the minimum cut by 1995.”

‘Exports Will Drop’

Toyota’s Oshima predicted that “exports will drop,” but added the qualifying phrase, “if plants in the United States operate at 85% of capacity.” Cutbacks, he said, will vary greatly from company to company--some replacing exports completely with American production and others cutting exports only partially.

The auto workers union drew up three scenarios for production declines: of 500,000, of 1 million, and of 1.6 million, accompanied by an increase in imports of cars, parts and components. In the worst case, it said, employment at auto and auto parts companies could decline by 139,700 by the mid-1990s.

But it said that increased productivity will be the biggest factor in lowering the number of jobs.

“We have to start preparing for this likely drop in employment,” Kusano said, “but so far none of the auto makers has done anything.”

Kusano noted, however, that auto makers have provided themselves with “shock absorbers” in the form of seasonal workers who can be dismissed at will, and in the form of overtime work by regular employes. At Toyota, for example, overtime per worker is up to 34 hours a month. Meanwhile, however, the boom in domestic auto sales, Chino predicted, will help reduce resistance to cutting exports to the United States.

Car Sales Rise

After seven years of sluggishness, the industry suddenly experienced its first year of 6-million-plus car, truck and bus sales at home last year. Since last November, passenger car sales erupted, rising 16.9% in the first six months this year, compared to the same period last year. Large luxury model sales more than doubled.

Shoichiro Toyoda, Toyota’s president and chairman of the industry association, predicted that industry sales will rise by 400,000 cars, four times the amount he forecast in January. The boom, he said, will last “a few more years.”

Hoshino of the Long Term Credit Bank said auto makers, led by Toyota, are trying to boost sales at home to prepare for lower exports in the future. Toyota, he noted, had already enlarged its domestic market by 200,000 cars, exactly the planned production at its Kentucky plant that opened in May.

At Honda, a new line is being added that will increase production in Japan by more than 300,000 cars a year.

Except for a brief decline in Toyota’s exports for March, which Oshima said was brought about in order to meet demand at home, neither firm has shown any sign of reducing exports. Both are planning to expand their U.S. dealer networks.