By 1985 Japan, the leading producer of automobiles, was at a crossroads. Threatened with protectionism in almost all its main markets, Japan needed to change its export strategy. The major industrialized countries as well as developing states demanded that an increasing number of cars be assembled locally. It was estiimate as early as 1985 that 3.5 million Japanese cars would be sold in the United States in 1990 - a 50% increase over 5 years- and this prediction naturally provoked a number of reactions. Among them was that Japan must no longer export unemployment. If Japan did not accept the demand for local manufacturing willingly, it would be forced. Either way it entailed a huge strategic risk, because it would be extremely difficult to achieve its domestic level of productivity in manufacturing plants abroad. Both Mazda and Honda maintained that their principal goal was for overseas-made cars.
Yet the Japanese manufacturers were doing well. Although world demand had more or less stabilized at 40 million vehicles since 1973, the Japanese increased their global production by about 60% from 7.1 to 11.4 million vehicles. In 1985 they once more broke all records with an output of 8 million cars. Honda, for example, was the leading profit-maker in Japan and has invested a billion dollars in 1985. Another characteristic of the Japanese
automobile industry was its dependence on American manufacturers. Ford owned a quarter of Mazda, Chrysler had increased its stake in Mitsubishi from 15% to 24%, GM had its foot in Isuzu's door with a 34% ownership, along with 5% of Suzuki, and had signed a memorable agreement with Toyota for the production in California of 210,000 Chevrolet Novas - alias the Toyota Corolla.
There was no doubt the American way of unlocking the secret of Japan's record productivity. Clearly, automation was only part of the secret, the rest lay in the social aspect of the Japanese system and in labour relations. The GM Saturn project for a small car to compete against Japan was indicative of the American strategy. Despite this, the United States was making increasing demands for the Japanese to build locally, because the big marketing studies showed that if the situation did not change quickly, the American manufacturers would lose 20% of their market share and, more importantly, 100,000 jobs between 1985 and 1990. This explains Japan's production strategy in the United States, a goal of building more than a million vehicles locally by 1990. Among the Japanese manufacturers who were obliged to accept this strategy were:
Toyota: Apart from a parallel production line in the GM plant with a capacity of 50,000 cars in 1987, Toyota had two other factory projects: 200,000 cars a year from 1988 in the States, and 50,000 more in Canada. This was a relatively new development for the world's then number three vehicle manufacturer, which used to export directly 56% of its output.
Honda: In contrast, Honda had been established since 1982 in Ohio, where annual production levels were about to break the 300,000 barrier. It would open a plant in Canada in 1987.
Mazda: Following the announcement of a South Korean plant which would feed the American market with cars marked "Ford", Mazda revealed plans for a Michigan plant to produce 240,000 cars a year from 1988.
Mitsubishi: Thanks to its closer links with Chrysler, Mitsubishi was set to produce as many as 180,000 cars in the United States from 1988.
The Americans, with an eye to weakening their Japanese rivals, sought to improve their own manufacturing methods through contact with Japanese techniques. In Europe, the Japanese were making steady progress, despite closed markets like Italy, or restricted markets like France. Their spectacular penetration of countries with no domestic
automobile industry had helped them achieve more than 10% of the European market. Here too, the Japanese knew that their progress in the market could only happen through joint-ventures. The trouble was that they were being fobbed off with firms in severe financial difficulties.
But the biggest threat to Japanese automotive domination came from a much closer neighbour. South Korea had usurped Japan as the biggest exporter to the Canadian market. General Motors, in association with Daewoo, was set to build 170,000 cars in Korea from 1987, and the burgeoning Korean industries would be turning out more than a million cars in 1988 at increasingly competitive prices.
