Japan Becomes the World’s Largest Automobile Producer

In 1980, Japanese automobile production for the first time exceeded that of the United States. In order to compete, American companies were forced to revamp according to the Japanese model.


The news that Japan had become the world’s leading automobile manufacturer did not come as a surprise in Detroit, where the American companies were in disarray. In 1980, all four major manufacturers lost money: General Motors lost $762 million, Ford lost $1.5 billion, Chrysler lost $1.7 billion, and diminutive American Motors lost $156 million. Automobiles;manufacture

All these companies had programs in place geared to alter this situation. In the autumn of 1979, GM’s chairman, Thomas Murphy, announced a five-year, $40 billion program to completely revamp the company’s offerings. Soon thereafter, Ford and American Motors American Motors Corporation came out with similar statements. Chrysler, headed by Lee Iacocca, hovered at the edge of bankruptcy. The company was saved only when the federal government made $1.5 billion in loan guarantees and the United Auto Workers United Auto Workers made important concessions in labor contracts. Iacocca told the press that his company would downsize, cut back on its lines of cars, and, like the others, present new models. He also complained about unfair Japanese competition, a theme he would return to often throughout the decade.

In March, 1981, Japanese Foreign Minister Masayoshi Ito arrived in Washington for trade negotiations centering on automobiles. Some in the administration, including Commerce Secretary Malcolm Baldrige Baldrige, Malcolm and Transportation Secretary Andrew Lewis, Lewis, Andrew argued for tariffs on Japanese cars, whereas Secretary of State Alexander M. Haig Haig, Alexander M. and Treasury Secretary Donald Regan Regan, Donald opposed them. In the end, President Ronald Reagan came out for “voluntary restraints” self-imposed by the Japanese. In April, MITI chairman Rokusuke Tanaka proposed that exports of Japanese cars to the United States be limited to 1.68 million units per year for a two-year period. This was equal to the average number of Japanese cars exported to the United States in 1979-1980 and was a reduction of 7.7 percent from the previous year’s exports. A clause in the agreement permitted increases should the domestic U.S. industry revive; another clause provided for an extension of the agreement if necessary. This move, together with the Chrysler bailout, indicated just how serious Washington thought Detroit’s ailments were and the lengths to which it was prepared to go in offering assistance.

These activities had several intended and more unintended consequences. The limitation on Japanese imports enabled American companies to raise their prices in the hope of restoring profitability. At GM, there was an average increase of $617 for the new 1982 models. GM promoted its new X-Cars while raising their prices almost 20 percent. At Chrysler, the new K-car chassis was used as the platform for autos ranging from compacts to high-priced sedans. Ford’s new Tempo/Topaz was a hit, as were the revamped Thunderbird and LTD. These cars, like the GM models, had higher prices.

Relations between American and Japanese companies became closer. Toyota and GM entered into a $300 million agreement to manufacture 200,000 Corollas a year in a GM facility in California. As part of the agreement, GM would study Toyota’s manufacturing techniques. GM invested another $200 million in Isuzu and imported that country’s small sedan. Chrysler became more dependent on Mitsubishi for small cars. Ford entered into further arrangements with Toyo Kogyo.

For their part, the Japanese companies—fearing further restrictions, perceiving the growth of a “Buy America” sentiment, and realizing that American labor costs were falling to near Japanese levels after currency adjustments—set up factories in the United States. Nissan went to Tennessee, and most of the other Japanese companies set up their own American factories. By 1992, the best-selling American-produced car in Japan was a Honda manufactured in Ohio.

The export agreement limited the number of cars that Japan could sell in the United States, so Japanese companies responded by entering the higher-priced (and higher-profit) area and playing down their economy cars. The Infiniti, Acura, Toyota Camry, Lexus, Mazda 929, and others now challenged BMW and Mercedes, while the Honda Accord became the best-selling model for a number of years.

By then, the American companies seemed to have learned their lessons: They revamped according to the Japanese model. This meant strong quality control, “lean” manufacturing, and close worker-management cooperation. The result could be seen in the Saturn, one of the American success stories of the period. The Saturn was sold on a one-price basis and received high scores on quality. The Saturn Corporation stressed customer service and attempted to win brand loyalty. As a result, there were waiting lists for some Saturn models. Saturn received high scores from rating agencies. Ironically, some surveys showed that a large number of customers who liked the car thought it was Japanese. Automobiles;manufacture
Japan;automobile production
Toyota Motor Corporation
Nissan Motor Company

Further Reading

  • Cole, Robert, ed. The Japanese Automotive Industry: Model and Challenge for the Future? Ann Arbor: Center for Japanese Studies, The University of Michigan, 1981. A collection of papers on the subject submitted at a conference in 1980. Contains several provocative essays on the nature of the Japanese industry.
  • Halberstam, David. The Reckoning. New York: Morrow, 1986. A study of the Japanese strategy for capturing a large share of the American market, along with its consequences.
  • James, Wanda. Driving from Japan: Japanese Cars in America. Jefferson, N.C.: McFarland, 2005. Chronicles the success of Japanese car manufacturers in the United States since the 1950’s.
  • Maynard, Micheline. The End of Detroit: How the Big Three Lost Their Grip on the American Car Market. New York: Random House, 2003. Demonstrates how foreign companies were more innovative and strategic than their American counterparts in winning over American consumers.
  • Rae, John. Nissan/Datsun: A History of Nissan Motor Corporation in the U.S.A., 1960-1980. New York: McGraw-Hill, 1982. A study of how Nissan entered the American market, with a brief background on the history of the company in Japan.
  • Sanders, Sol. Honda: The Man and His Machines. Boston: Little, Brown, 1975. An early study of the idiosyncratic Japanese automobile manufacturer.
  • Sobel, Robert. Car Wars: The Untold Story. New York: E. P. Dutton, 1984. A study of the Japanese invasion of the American market, with chapters on the evolution and growth of the Japanese industry.
  • Womack, James, Daniel Jones, and Daniel Roos. The Machine That Changed the World. New York: Rawson Associates, 1990. An invaluable work, based on a study by the Massachusetts Institute of Technology, that illustrates Japanese “lean” production methods.

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