Japan's auto success fuels US trade
alarm By Hisane Masaki
TOKYO - The global automotive industry is
on the verge of a historic transition, as Japanese
auto giant Toyota, now reaping a massive payoff
from its prescient mid-1990s bet on hybrid
technology, is set to become the world's No 1 auto
maker in terms of vehicles produced, probably by
the end of the year.
For the US auto
industry, Toyota's move into the pole position is
particularly painful, coming at a time when
General Motors and
Ford,
the last remaining solely US-owned auto
manufacturers, are both in desperate financial
trouble.
The contrasting prospects of GM
and Toyota are ironic in view of previous
cooperative ventures between the two, such as the
joint-venture New United Motor Manufacturing Inc
(NUMMI), based in Fremont, California, which
produced various Toyota-designed models that were
then sold under GM nameplates. In addition, GM's
woes have ignited a new round of realignments in
the Japanese auto industry, while simultaneously
fueling concerns among Japanese policymakers and
auto executives about possible renewal of trade
friction between the world's two largest
economies.
The rising sun In the
latest monthly data, US auto sales edged up by
about 1.2% in February from a year earlier as
Asian and European auto makers' gains offset
declines at GM and Ford. The United States' No 1
and No 2 auto makers lost market share, to 23.6%
from 24.4% a year earlier for GM, and to 19.2%
from 20.2% for Ford, although DaimlerChrysler AG's
Chrysler Group saw its sales rise modestly and
market share move up to 16.5% from 15.9% a year
earlier.
Meanwhile, Toyota, Honda Motor Co
and Nissan Motor Corp all enjoyed continued sales
growth in the US, and their market share rose, to
13.2% for Toyota, 8.5% for Honda and 6.7% for
Nissan.
The February figures show that the
trend last year of Japanese auto makers faring
well in the world's single largest auto market at
the expense of their US rivals remains unchanged.
Increased fuel-efficiency awareness among American
motorists amid stubbornly high oil prices has
boosted sales of gasoline-thrifty Japanese cars in
the US.
In 2005, the combined US market
share for GM, Ford and the Chrysler Group fell to
an unprecedented low of 56.9%, down from 61.7%
three years earlier. At the same time, Toyota,
Honda, Nissan and other Asian brands saw their US
market share climb to 36.5%. Japanese auto makers
alone grabbed a record-high market share of 32.2%
in the US.
Toyota's sales were up 10% last
year over 2004, with the company's popular
gasoline/electric hybrid cars lifting its sales.
US drivers' interest in hybrid cars has been
stimulated by heightened interest in fuel costs as
well as environmental concerns.
Of the
approximately 5.47 million autos Japanese makers
sold in the US in 2005, roughly a third were
shipped from Japan. Led by resurgent exports to
North America, Japan's auto exports also rose for
the fourth consecutive year. Japan exported 5.053
million autos last year, up 1.9%, marking the
first time in 12 years that it had shipped more
than 5 million autos abroad. Exports to North
America, where a little more than one-third of
Japanese exports are shipped, grew for the first
time in three years, totaling 1.854 million units,
up 7.4%.
Japanese auto makers still
assemble almost all their hybrids at domestic
plants. In the North American market, Toyota's
hybrid sales soared 170% to 151,000 units in 2005,
while Honda's rose 60% to 44,000 units. Toyota's
operating profit for the October-December period
rose 14% to US$4.05 billion, as continued demand
for such cars as the Prius hybrid, coupled with a
weaker yen, boosted overseas earnings.
Meanwhile, US auto makers were stalling.
GM's sales fell 4% for the year. Ford's sales also
dropped 4% in 2005, as consumer demand for trucks
and sport-utility vehicles (SUVs) fell in the face
of high gasoline prices. Higher material and labor
costs, as well as a loss of market share to
Japanese rivals and a drop-off in demand for SUVs,
all contributed to the malaise.
GM posted
a jaw-dropping net loss of $4.8 billion for the
October-December quarter, a severe deterioration
from its loss of $99 million a year earlier. In
November, GM launched a restructuring plan
involving 30,000 job cuts and nine plant closures
in North America.
Following in GM's
footsteps, Ford also announced in January that it
would close 14 plants in North America, resulting
in the loss of up to 30,000 jobs, nearly a quarter
of its North American workforce. Ford's share of
the US auto market slumped to its lowest level
since the late 1920s, to 17.4%.
Credit
ratings of GM and Ford have been downgraded to
junk status. GM and Ford plan to cut back on
vehicle production for the April-June quarter,
with GM churning out 3.7% fewer vehicles and Ford
rolling out 2% fewer, compared with the same
period last year.
The contrast with Toyota
could not be more telling. Toyota is poised to
step on its accelerator further in the US and
elsewhere, planning to boost its global production
to a record high of 9.06 million vehicles this
year, putting it on a solid course to overtake GM
as the world's largest auto maker in terms of
production volume some time this year. Taking
subsidiary brands into account, Toyota overtook
Ford to become the second-biggest car maker in
2003, and is now zeroing in on GM.
Some
Japanese industry officials say that US auto
makers have only themselves to blame for the
current situation, citing Detroit's failure to
develop attractive vehicles as well as the heavy
burden of employee health-care costs. In fact, for
many years, US motorists have had a well-known
penchant for Japanese autos. Japanese models
dominated the list of best cars in Consumer
Reports magazine's annual vehicle guide, released
recently. For the first time, all the magazine's
top picks were made by Japanese auto makers.
Meanwhile, in Toyota City
... Nagoya, the capital of Aichi prefecture
in central Japan, is now the most economically
vibrant region in Japan. It is also close to
Toyota City, home to Toyota headquarters.
Nagoya's ascendancy was shown off by the
Aichi Expo held last year; the fair followed the
opening of Central Japan International Airport
(Centrair) in the prefecture, situated halfway
between Tokyo and Osaka, as Japan's third major
international airport. Toyota's stellar
performance has fueled local economic growth, and
the ratio of job offers to job seekers in Aichi is
even higher than in Tokyo.
The area in
front of the JR Nagoya Station is turning into
what has been dubbed the "Nagoya Manhattan", with
skyscrapers standing together in large numbers.
Among these highrise buildings is the new
247-meter-high, 47-story Midland Square, which is
scheduled to open in October and will house the
sales headquarters of Toyota. Some 3,000 Toyota
staff, including 200-300 foreign-sales staff now
based in Tokyo, will move to Midland Square.
Analysts say the tower will be seen by foreign
visitors as well as locals as the symbol of
Toyota's success - and its expected status as the
world's top auto maker.
Locating Toyota's
international sales division in Nagoya will
greatly change the itinerary of visitors to the
company: where previously they had flown into
Tokyo, then were taken on the bullet train to
Nagoya on the way to Toyota City, from October,
they will generally fly into Centrair and conduct
their business at the company's new offices in
Nagoya.
In the driver's seat A
variety of moves have paved Toyota's way to the
top spot.
The company has been heavily
investing in plants in the United States, and it
began production of the Prius hybrids in China in
December - marking the first time that Toyota had
produced hybrids abroad. Toyota's surging US sales
have stretched its US capacity to the limit,
leading to new US investments for the firm; Toyota
said recently that it will assemble its
best-selling Camry sedans at an existing factory
of its compatriot partner Fuji Heavy Industries
Ltd, the maker of Subaru-brand cars, in Lafayette,
Indiana. The Camry has so far been produced in the
US at Toyota's plant in Georgetown, Kentucky.
Camry production in Indiana is to begin in the
spring of 2007.
Toyota plans to invest
$230 million to install Camry production processes
at Fuji's Indiana plant and hire an additional
1,000 workers to increase Camry production by
100,000 units a year. The move will enable Toyota
to use freed-up capacity in Japan to assemble more
Prius hybrids. Toyota is also looking for a site
in the US to produce four-cylinder engines; a
final decision is expected within the next several
months.
Early this month, Toyota rolled
out a hybrid version of the Lexus GS luxury sedan.
This followed the introduction of the hybrid Lexus
RX SUV, which hit the US and European markets last
spring. Toyota also plans to add a hybrid version
to the Lexus LS by the spring of 2007 after the
luxury brand's flagship sedan is fully redesigned
this autumn. The Lexus GS450h will go on sale in
North America as well as in Japan next month, and
in Europe in May. The 3.5-liter GS450h has a fuel
economy of 7 liters per 100 kilometers, which is
equivalent to that of a 2-liter vehicle, according
to Toyota. The global sales target through
December is 5,700 units.
In Japan, Toyota
has spent about 30 billion yen ($254.6 million) to
build a new plant on the southernmost major
Japanese island of Kyushu to produce engines for
Lexus luxury cars and parts for hybrid engines.
The new plant went on stream in December.
Hybrids lead the way Toyota and
its domestic rival Honda have both had a head
start over their foreign rivals in developing and
launching hybrid vehicles, an advantage that has
become a key to present success. Toyota led the
way with the launch of the Prius in 1997, and now
offers five hybrid models, excluding the Lexus
GS450h model to be launched next month.
For Honda's part, it launched the Insight
two-seater hybrid in 1999, and now sells the
Insight and hybrid versions of the Civic and
Accord. Toyota sold 235,000 hybrid cars in 2005
globally, while Honda sold 48,000 such cars.
Demand for hybrids, driven by high
gasoline prices, is expected to continue growing
sharply in the coming years, with one estimate
putting the global market for such cars at about
1.5 million units in 2010, nearly ninefold from
about 168,000 units in 2004. The US has been, and
is expected to remain, the biggest market for
hybrid cars. Toyota hopes to see worldwide Prius
sales of 1 million units a year by 2010.
US and European auto makers have been
belatedly jumping on the hybrid bandwagon. Ford,
for example, launched the Escape Hybrid SUV at the
end of 2004, beating GM and Chrysler to the hybrid
market. However, Ford sells only a fraction of the
hybrids in the US, with Toyota and Honda still
accounting for about 90% of such cars. Ford built
19,000 hybrids for the North American market last
year and sold 17,000. Ford aims to roll out at
least seven more hybrid models and to have an
annual capacity to build 250,000 such cars by
2010.
This month Ford has launched a
three-week 0% financing program on its Escape
Hybrid SUVs in California and the District of
Columbia, where people traditionally embrace
hybrid cars, to spur sales there. Ford is offering
as much as $1,000 in rebates and discounts in the
rest of the country.
A new era of
consolidation In the last round of
consolidation in the Japanese auto industry, seen
from the late 1990s to the early 2000s, major
domestic and foreign auto makers placed one weak
Japanese maker after another under their
umbrellas.
In 1999, Renault purchased
36.8% of the then-struggling Nissan for 643
billion yen to become the latter's biggest
shareholder. Renault's stake in Nissan has since
been raised to 44%. Ford has been the biggest
shareholder in Mazda Motor Corp, owning 33.4%
since 1996.
In 2001, Toyota made Hino
Motors a subsidiary by increasing its stake in the
truck maker to a little over 50%. In 2003,
Mitsubishi Fuso Truck & Bus Corp was spun off
from Mitsubishi Motors Corp and then placed under
the wing of DaimlerChrysler. DaimlerChrysler now
owns 85% of Mitsubishi Fuso.
GM's current
crisis has had the spill-over effect of ushering
in a new era of consolidation in the Japanese auto
sector, as the company ended or reduced to a
negligible level its equity relationship with two
Japanese auto makers - Fuji Heavy and Suzuki Motor
Corp - since last autumn. In a deal symbolizing
the contrasting fates of the biggest US and
Japanese auto makers, Toyota acquired an 8.7%
stake in Fuji Heavy for $315 million and became
Fuji Heavy's top shareholder last October, when GM
announced it was ending its alliance with Fuji
Heavy and selling its entire 20% stake in the
company.
Early this month, cash-strapped
GM also sold 85% of the 20% stake it had in
Suzuki, mostly to Suzuki itself, for about $2
billion, although both firms said at the time that
their partnership would continue, such as their
joint-venture production plant in Canada, Suzuki's
11% stake in GM's South Korean subsidiary, GM
Daewoo Auto & Technology Co, and cooperation
in fuel-cell technology. Thus GM has kept a
minuscule 3% stake in the Japanese maker of small
cars. Suzuki, which has fared far better than GM
lately, expects a 61 billion yen profit for the
fiscal year ending March 31.
In a press
conference announcing its buyback of the 17% stake
GM had held, Suzuki chief executive Osamu Suzuki
said he wanted to lend a helping hand to the
longtime partner.
"We have been under
[the] support of GM for a long time, and this time
it's our turn to help GM," Suzuki said, adding: "I
don't think the partnership is in deep trouble.
It's just that GM needs help."
Now that GM
has sold all or most of its shares in Fuji Heavy
and Suzuki, speculation is rife in the industry
that the US auto maker might sell its 8% stake in
Japanese truck maker Isuzu Motors Ltd. Isuzu is
jointly producing buses with Hino, in which Toyota
has a majority stake. Toyota also owns a majority
of Daihatsu Motor Co, a maker of primarily small
cars.
Most recently, Swedish auto maker
Volvo agreed on March 21 to buy 13% of Japanese
truck maker Nissan Diesel from Nissan for $196
million. The deal will make Volvo the biggest
shareholder in Nissan Diesel. The firms already
have close ties as both are affiliated to French
auto maker Renault, which owns 44% of Nissan and
about 20% of Volvo.
Growing fears of
friction To be sure, Japan's trade surplus
with the United States has been eclipsed lately by
China's much larger surplus - China replaced Japan
in 2000 as the single country with which the US
has the biggest trade deficit.
In 2005,
the overall US trade deficit topped $700 billion
for the first time, totaling $725.8 billion, of
which a quarter, or $201.6 billion, came from
trade with China. The focus of US criticism has
been on China's alleged unfairly undervalued
currency, insufficient protection of intellectual
property rights and failure to comply with
market-opening obligations as a member of the
World Trade Organization. China was admitted to
the WTO at the end of 2001.
But Japan's
trade surplus with the US is still so huge - at
$82.6 billion in 2005, of which about 60%, or
$50.6 billion, came in the autos and auto-parts
trade - that it could turn into a politically
charged issue at any time, as even the specter of
GM or Ford going belly-up has loomed over the
horizon. This is a particularly worrisome year for
Japanese government officials in charge of US
policy as well as Japanese auto executives. Auto
trade could spark political tensions in the run-up
to mid-term US congressional elections this
autumn. The auto industry is symbolic of the
United States and different from other industries,
many analysts agree.
The tenacious US
demand - and Japan's rejection - for Tokyo to set
numerical targets for imports of US auto parts
brought the two countries to the brink of an
unprecedented tit-for-tat trade war in 1995. The
US decided to slap a prohibitively high tariff of
100% on imported Japanese luxury vehicles under
Section 301 of the Trade Act of 1974, and Japan
filed a complaint with the WTO against the US
measure. Japan and the US saw tensions in
bilateral trade relations rise to their highest
point between the 1980s and the mid-1990s.
Bowing to US pressure, Japan imposed
voluntary export restraints on US-bound autos from
1981 to 1994. But now fierce Japan-US trade
friction is a thing of the past, although some
more minor problems pop up occasionally.
Amid the protracted beef dispute, however,
the US Congress has begun to take a harder look at
Japan over trade. In a meeting with Japanese
Foreign Minister Taro Aso in Sydney, US Secretary
of State Condoleezza Rice accused Japan of
reacting to the issue of US beef imports in an
excessive manner.
US Ambassador to Japan
Thomas Schieffer also warned Japan soon afterward
that if the two countries cannot settle their row
over Japan's new ban on imports of US beef, the
situation could grow into a trade war. "If we are
not able to resolve this issue very soon, I'm very
concerned that the United States Congress will
lose its patience and we could set off a trade war
as a result of this issue," Schieffer said.
As a consequence of such statements, there
is growing alarm among Japanese policymakers and
auto executives that protectionist pressure could
mount over US trade with both China and Japan,
which together account for nearly 40% of the
overall US trade deficit. This alarm has been
fueled by a continued sharp rise in Japanese auto
exports to the US so far this year.
However, after assiduously moving
production facilities to the United States to cope
with the stronger yen and trade friction since the
1980s, Japanese manufacturers now employ many
people locally. Toyota, for example, boasts more
than 200,000 people on its payrolls in the US,
including workers employed by parts suppliers. The
increased number of workers hired locally by
Japanese companies has also contributed to an
easing of trade tensions between the two
countries. Toyota has accelerated such efforts in
an effort to preempt any further rising of trade
tensions.
Toyota's decision last year to
build its seventh North American plant in Canada
was one example. The new plant in Woodstock,
Ontario, just 40km from Toyota's existing Canadian
assembly plant, will produce 100,000 RAV4s
annually beginning in 2008, the firm said at the
time.
Toyota has also announced that it
will begin to produce hybrid Camry sedans at its
plant in Georgetown, Kentucky, this year and that
capacity will allow for 48,000 hybrids a year,
just a few thousand fewer than total Prius sales
in the US last year. As noted above, Toyota is
looking for a site in the US to produce
four-cylinder engines and transmissions, and
Michigan has emerged as a leading candidate to
host the plant.
But the potential for
friction remains evident. In a move seen by some
pundits as aimed at indirectly holding Toyota's
aggressive sales offensive in check, the US
International Trade Commission (ITC) said last
month that it would investigate a complaint filed
by Florida-based Solomon Technologies Inc that
Toyota's popular Prius and Highlander hybrid
models infringed on Solomon's patent related to
motor and transmission systems.
Toyota is
evidently keen to avoid stoking US resentment amid
the deepening woes of GM and Ford.
"We do
not want to be focused on whether we are the No 1
seller in the world," Toyota president Katsuaki
Watanabe said. "There are still lots of problems
we need to fix to do our job."
This month,
Toyota chairman Hiroshi Okuda, who concurrently
serves as chairman of the Japan Business
Federation, the country's biggest business lobby,
reiterated a willingness to lend a helping hand to
the ailing GM, although he did not elaborate. "We
would like to do whatever we can," he said.
Toyota has sought stronger business
relations with GM in hopes of averting another
auto-trade war. But in a step in the opposite
direction, GM announced early this month that it
would end its research collaboration with Toyota
on hydrogen fuel-cell technology at the end of
March, although it will continue to work with the
Japanese auto maker on technology related to
safety, collision mitigation and traffic
congestion.
Hisane Masaki is a
Tokyo-based journalist, commentator and scholar on
international politics and economics. Masaki's
e-mail address isyiu45535@nifty.com.
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