JEI's Spin on the News

Japanese Carmakers Head In Different Directions

Monday, April 19, 1999

The worldwide consolidation and reorganization of the car industry appears to have provoked various responses among Japan's carmakers, who also are contending with a protracted slump in their home market.

Nissan has gotten most of the news of late, primarily because of its tie-up with French carmaker Renault after talks with Daimler Chrysler were unsuccessful. The major consequences of that action appears to have been a greater frankness on Nissan's part regarding its condition as well as a willingness to take some tentative steps to restructure. On April 16, it said losses have been larger than it had predicted. On a consolidated basis, it now says it had net losses of ¥30 billion ($250 million at ¥120=$1.00) in the period that ended March 31. It also said it would cut one-ninth of its administrative jobs over the next year or so and reduce production capacity by one fourth over the next four years. It also said it would skip a dividend in the period that ended March 31 for the first time since the firm went public in 1951. While these are bold moves compared to past actions, compared with those of American firms they seem remarkably timid, especially in light of Nissan's chronic red ink in many of its markets.

Like Nissan, Mazda and Mitsubishi are grasping for foreign life lines. Mazda has a deep and long-standing involvement with Ford, but Mitsubishi so far has failed to connect. Like Nissan, Mitsubishi has heavy debt levels that reduce its allure to foreign suitors.

The two most successful Japanese car companies of the moment, Toyota and Honda, are adopting different approaches. Toyota is replacing its chief, arguably because he tried to push restructuring too hard. Toyota's parts making subsidiaries, many of which are said to be inefficient by global standards,are being brought into a closer relationship with Toyota. Daihatsu, a carmaker, has been made a wholly owned subsidiary. Whether the affiliates like these changes or not is not clear. The motives for the consolidation are a bit murky, but one possibility is that Toyota fears it will not remain competitive if the subsidiaries do not shape up. Another, related possibility is that the firms could become targets of foreign takeovers if Toyota were to leave them as they were.

The tightening of the keiretsu ties leaves Honda in a tough spot. To a greater extent than most carmakers, it depends on free access to the products of parts makers. It does not like the idea that Denso, a Toyota company, is being brought into the fold of the Toyota family since Denso is an important supplier to Honda as well as most other car companies on either side of the Pacific. At the moment, at least, Honda has neither a a large foreign partner nor an extensive keiretsu system whose wagons it can circle. These unsettling developments notwithstanding, Honda is prospering. It apparently will built another assembly plant in North America within the next few years. Inadequate capacity to meet booming demand is said to be the reason.

JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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