REASONS FOR THE SUCCESS OF JAPAN’S AUTOMOTIVE INDUSTRY DURING THE 80S AND 90S OF THE 20TH CENTURY

Peter Dimov

 

/MP“History and contemporary Development of the countries from Eastern Asia“ , Sofia University “St. Kliment Ohridski“/

Abstract

Since the 50s of the 20th century, Japan’s automotive industry has been rising. Companies start manufacturing more and the government restricts the import of foreign cars, a policy that causes a lot of criticism toward Japan. Slowly through merges a lot of the smaller companies disappear. During the 60s the exported cars per year are over 10 000 and in the early 70s Japan is exporting more than 1 million cars abroad, mainly to the United States.

This report is exploring the circumstances in which the country becomes a leader in the car export and the reasons for that success.

 

Keywords: Japan, automotive industry, cars, import

I. Preface

After the end of World War II the Japanese automotive industry has taken heavy damages, with the passenger car sector suffering the most. The manufacturing of passenger cars has been forbidden until 1949. Only a small number of trucks are being produced in the country, while the rest of the required vehicles are overseas import. However, after the restriction is lifted the automotive industry in Japan starts rising and eventually steps in the leader position, for which it’s known nowadays.

Today this industry isn’t in such good health. The devastating earthquake and tsunami, which occurred in 2011, together with the ongoing global economic crisis are among the reasons, why the glory of the past decades is fading. Despite that however Toyota, Honda and Nissan still have some of the best selling cars in the USA.

This report is a look at the circumstances, under which Japan becomes a leading country in car exports and the reasons for the success of its automotive industry.

II. Foundations of the automotive industry

The automotive industry in Japan begins its rise in the 50s. The companies manufacture bigger numbers and the government imposes restrictions on the import of foreign cars, a policy for which Japan takes a lot of international criticism. The industry after the war and the national policy, that supports it can be used as an example for developing the industrial policy in other countries. After Japan regains its independency in 1952 the Ministry of International Trade and Industry (current Ministry of Economics, Trade and Industry) restricts foreign investment and the imports of cars, both new and second-hand. Since 1951 the Road Transport Vehicle Act was has been in effect and it determines the standarts for those vehicles, which results in the creation of the Automobile Inspection and Registration System.

Through merging lots of small companies are removed. By the end of the 60s the rapid economic growth leads to increase in the car sales. The Installment Sales Act is in effect since 1961 and thanks to it people with average income can finally afford passenger cars with their income. In 1967 the number of passenger cars is above 1 million and by the end of 1969 the number of cars in the country is nearly 7 million.

The 60s are the time when the foundations of the technical base of the automotive industry are established. In 1960 is introduced the kanban system, which is a just-in-time manufacturing system. This system has a big impact on the manufacturing technologies. Being developed on such a strong foundation the Japanese automotive industry continues its rise. In the early 70s Japan exports more than 1 million cars, mainly in the United States. The technology, developed in this decade is one of the important factors for the development and success of the industry. Among them is the CVCC (Compound Vortex Controlled Combustion) engine, which is the first engine in the world, build according to the Clean Air Act (Muskie Act), which passes in 1970 in the USA. The ecological standards in Japan are becoming more strict almost yearly and eventually turn into the most rigorous in the world with the Emission Control Standard (1978). The passenger cars in Japan are manufactured in accordance with every ecological standard. At the same time the cars, manufactured in the USA aren’t even built with the requirements of the Clean Air Act, which leads to the postponing of its implementation in the States.

III. Japan in the 80s and 90s of the XX Century

In this paragraph we’ll look at the situation in Japan in the 80s and 90s so we can have a clear picture of the environment in which the subject of this report is developing.

The 80s are a good period for the development of various technologies in Japan, which is important for the automotive industry. The economic growth in the country, which at the time is around 4% a year, is referred to as a miracle. In this decade the export of goods isn’t as important as it has been in the 60s and 70s. Instead the technological development is pushed by the needs of the Japanese people. They’re stimulated to seek and demand more innovations for their needs. This could explain why the Japanese cars are becoming more economical. In the 90s Honda introduces its VTEC (Variable Valve Timing and Lift Electronic Control) system, which improves the volumetric efficiency of a four-stroke internal combustion engine. The main reason for that is the new tax, which affects the size of the engines. Here we must take notice that as a country with scarce resources Japan always had to seek solutions about their deficit. In the USA cars with such engines arrive in the 90s. That’s also the period when Japanese technological standards start replacing the American. The japanese cars are outclassing the competition as some of the biggest factors are the high prices and the crisis, that affects both USA and Japan, making people prefer more economical cars.

IV. The crisis of 1973, 1979 and 1990

In this section we’ll take a look at the 3 petrol crisis (1973, 1979 and 1990). Their importance for the development of more economic cars is significant and a short review of the situation is necessary.

1. 1973

The crisis is caused when OAPEK (Organization of Arab Petroleum Exporting Countries) enforces an oil embargo. The reason is the support, offered by the united states to Israel, which was engaged in a conflict with Arabian countries. At the same time the petrol production in the USA is decreasing, which according to historians and experts is the biggest factor in the crisis.

2. 1979

The revolution in Iran (1979) deals a signifficant damage on the petrol production, which causes a halt to its export. After the government change the export is restored, but in smaller quantities, which leads to higher prices. The losses have been reduced to 4% thanks to the intervention of other countries. However the decision, made by president Jimmy Carter to stop the import of petrol from Iran, causes panic. This leads to another increase in the prices. In 1980 the Iran–Iraq War causes production to decrease again. After that a decrease in the petrol prices begins and even reaches 60% in the 90s.

3. 1990

The reason for this crisis is the Iraq invasion in Kuwait on August 2, 1990. It lasts only 9 months, however the shock it causes is considered the main reason for the recession from the early 90s.

V. The japanese cars in the USA

For the average consumer the most important things are the quality of the Japanese cars, the economical engines and the affordable prices. In comparison the American cars are seen as impractical with their big, uneconomical engines. Before the petrol crisis America’s love for big cars is undeniable, but in the 80s every fourth car is foreign import.

1. Japanese car export in the 80s and 90s

During the 80s Japan exports mainly cars, other motor vehicles, car parts.

In 1991 Japan becomes the world’s largest car manufacturer with 9.7 million cars. In comparison only 5.4 million cars are manufactured in the United States the same year. The car export in Japan during 1991 is 17.8% of the country’s total export.

2. Japanese factories in the USA

The 3 main exporting companies – Honda, Toyota and Nissan build factories on the territory of the United States in the 80s. The American companies hope that Japan will lose its advantage when the factories start working in the same conditions, in which theirs struggle at the moment. The Japanese companies however manage to introduce products, especially designed for the American market and with that they even manage to outsell some of the established models. Such products are Toyota Camry and Honda Accord, which hold the position of best-selling cars for a long period of time, until Ford Taurus manages to outsell them. UAW (United Automobile Workers) plans but doesn’t manage to interfere in the work of the Japanese factories. At the same time the cars, exported from Japan continue to generate profits, despite the export restriction, which will be mentioned later.

3. The luxury japanese cars

Since the 70s Japan has achieved the reputation of a country, in which the automotive industry is producing affordable and reliable cars and trucks. In the 80s this reputation is established and the companies decide to try and introduce luxury cars. In 1986 in the USA is introduced Honda Acura, which is based on the Japanese model Legend. Toyota and Nissan follow with their Lexus and Infiniti. One of the reasons for this decision is a contract, signed between Japan and USA, in which Japan agrees to restrict the number of cars, exported to the United States. At the time the luxury car market is dominated by BMW and Mercedes, which have established their models and the Japanese newcomers are met with doubt. Despite that over the years Lexus creates the image of a luxury car, desired by many. Its roots are in a sedan project (a type of passenger car), with many different versions being created subsequently, including coupe (closed two-door car) and SUV (Sport Utility Vehicle). In order to guarantee it’s place on the foreign market the company conducts all the necessary research. Various studies are carried as company employees are sent to the United States since 1985, in order to organise focus groups for research of the tastes of the luxury car consumers. Some designers even rent houses in California, in order to observe the lifestyle of the american high society. At the same time engineers are conducting tests on different terrain, varying from German autobans to American roads.

In Japan Lexus manufacturing is done in Toyota’s Chuubu (area in Honshu, the central Japanese island) factories and on the island of Kyushu. Foreign manufacturing stars in 2003 in Ontario, Canada with model RX 330.

VI. Conclusion 

We took a look at the circumstances, under which Japan manages to expand it’s automotive industry and car export. Decisive for that success is the ability of the Japanese companies to adapt to the market and offer cars, who are competitive.

Today, despite the damages done to it by the 2011 earthquake and tsunami, that industry is still in a good shape, although suffering serious damages. With the ongoing negotiations for free trade with the European Union the Japanese companies will probably once again demonstrate that ability to adapt.

 

VII. Sources

1. Books

Technological Innovation and Public Policy The Automotive Industry by Masayuki Sano, Masanobu Kii, and Hiroaki Miyoshi

Cars: Analysis, History, Cases by Karel Williams

Driving from Japan: Japanese Cars in America by Wanda James

Japan and the European Union: Domestic Politics and Transnational Relations by Atsuko Abe

Japan: The Burden of Success by Jean-Marie Bouissou

Japanese Distribution Strategy: Changes and Innovations edited by Michael R. Czinkota,Masaaki Kotabe

Japan’s Options for the 1980s by Radha Sinha

U.S. Automotive Industry: Policy Overview And Recent History by Stephen Cooney,Brent D. Yacobucci

Lexus: The Relentless Pursuit by Chester Dawson

2. Web pages

The 80s Car Importshttp://www.anythingaboutcars.com/80s-car-imports.html

The Eighties Club

The Politics and Pop Culture of the 1980s – http://eightiesclub.tripod.com/id291.htm

Taxes in Japan – http://www.japan-guide.com/e/e2206.html

The Rise of the Japanese Auto Industry and Auto Exports – http://www.crosscurrents.hawaii.edu/content.aspx?lang=eng&site=japan&theme=work&subtheme=INDUS&unit=JWORK065

The History of Japanese Autos – http://www.ehow.com/about_5318303_history-japanese-autos.html

European Comission – Trade – Japan – http://ec.europa.eu/trade/policy/countries-and-regions/countries/japan/

Japanese Carmakers Invade the U.S. Automotive Industry –

http://www.studymode.com/essays/Asian-Cars-Invade-Europe-95485.html

Wikipedia, the free encyclopedia

 1980s in Japan – http://en.wikipedia.org/wiki/1980s_in_Japan

1990s in Japan – http://en.wikipedia.org/wiki/1990s_in_Japan

VTEC – http://en.wikipedia.org/wiki/VTEC

1973 oil crisis – http://en.wikipedia.org/wiki/1973_oil_crisis

1979 energy crisis – http://en.wikipedia.org/wiki/1979_energy_crisis

1990 oil price shock – http://en.wikipedia.org/wiki/1990_oil_price_shock

Manufacturing in Japan; Motor vehicles and machinery –http://en.wikipedia.org/wiki/Manufacturing_in_Japan#Motor_vehicles_and_machinery

Lexus – http://en.wikipedia.org/wiki/Lexus