The Rise and Rise of the Japanese Automotive Industry

A Japanese car was first exhibited in a European show at the Paris Salon of 1957, and was a Prince Skyline Deluxe made by Fuji. The United States discovered Japanese cars with Toyota's Toyopet Crown Deluxe which was first exported in 1957. A year later, Toyota showed four models, including a Crown and a Land Cruiser, at an exhibition of imported cars at Los Angeles, California. In 1958, Nissan marketed its Datsun 1000 in the USA and in 1960 the 310 model first appeared in Europe. Subaru's appearance in the European market dates back to 1965. The first model exported by Fuji was the Subaru 1000. Toyo Kogyo waited until 1966 before presenting the Mazda 1000 coupe and the Mazda 1600/1800 simultaneously in Europe and the United States of America.

Honda attacked the European markets in 1968 with the N360. 1980 was the turning point for the Japanese car industry. That year, it became the world's biggest motor vehicle manufacturer, a title it never relinquished in the following 30 years. Back in the 1980's, the Japanese Automotive lead over the Americans in terms of passenger cars was fairly small (3.5 million), but the gap became wider and more crushing when private cars and commercials were combined (5.5 million). That gap would only grow even wider in subsequent years to come. Today we take it for granted, but back in 1980 it seemed pretty amazing, given the Land of the Rising Sun had not even been considered as a vehicle manufacturing country as recently as 1950!

TQC - Total Quality Control

The growth of the Japanese car industry was the result of one strategy, pursued with an implacable will: expand, build on that expansion, and continue to expand. A strategy the Japanese carried out with almost military efficiency and great adaptability served at all times by an exact appreciation of the situation on the ground. It was understandable then that both American and European competitors were being sent into a state of panic by Japan's headlong progress. Overwhelmed on the economic battlefield, they sought government protection, rather than attempting to raise their own standards and price competitiveness. Of course the buzz word back then was "TQC", or "Total Quality Control". And again, the Japanese were masterful exponents.

The Japanese were also masterful tacticians, and knew early on that to sustain growth, they would need to establish industrial forts outside their national territory. It was around 1950 when the Japanese government decided to create an automobile industry. On paper, the idea seemed pretentious. The country had no background in car manufacture - production in 1938 was a mere 4690 vehicles, 85 per cent of which came from Nissan-Datsun, whilst Ford had produced the Model T in huge numbers at the beginning of the century, and Europeans were familiar with volume production.

A Lack Of Natural Resources Makes Export Essential For Economic Survival

In fact, Japan had no choice: without raw materials, the country was condemned to export if it wanted to develop. So it chose a number of areas where it was felt there was opportunity to break into international markets - ship building, consumer electronics, and, not least, automobiles. Why automobiles? With the American occupation forces, the Japanese had discovered the consumer society. The powerful Ministry of Commerce and Industry, in close collaboration with the world of business, was convinced that the country would take to wheels as the standard of living rose, thus providing a springboard for an assault on the rest of the world's markets. In so far as technical knowledge was concerned, the Miti placed its faith in the Japanese ability to copy foreigners as a starting point for the industry. The whole strategy was conceived as a long-term project. It progressed almost exactly like a computer programme.

The 1950's: Apprenticeship.

Laws were passed to encourage small-capacity cars and the Miti even went so far as to promote, without success, an extremely low-priced 'people's car'. Imports were banned to protect the home industry, but on the other hand licensing agreements with foreign manufacturers were encouraged; Nissan signed with Austin, Isuzu with Hillman. In addition, the industry's engineers tore apart current models from other manufacturers (much as Korean, and more lately Chinese manufacturers do today). Sales policy followed the American pattern - marketing was as important as technical merit. From a zero figure at the beginning of the decade, production had reached 165,000 units in 1960.

1960-1970: The Market Explosion.

The Japanese economy developed at a speed which was discussed in terms of 'miracles' and the population rapidly turned towards car ownership as their wage packets grew. Registration figures rose from 165,000 to 2.4 million, a fifteen-fold increase. The products were by no means brilliant, but nevertheless Japan began to export them.

The first targets were the developing Asiatic countries and Oceania, followed quickly by a move into the United States. The industry's best-selling models were the small-capacity minicars and the mid-range models between 1500 cc and two litres. Their sales progress was so spectacular that Japan had become the world's third-largest producer by the end of the decade and took over second place by 1971.

1970-1980: The Export Offensive.

Overseas sales soared from 726,000 in 1970 (23 per cent of production) to 3.5 million in 1979 (50 per cent), with three-quarters of total exports going towards the strong consumer markets - half to the U .S. and a quarter to Europe. During that period, production of the very small-engined models was progressively abandoned to concentrate efforts on the one to two-litre range.

By the end of the period of expansion, the car capital of the world was no longer Detroit but Tokyo. The dazzling success owed nothing to chance. Japan had concentrated on the most effective weapon in the economic war, the low price tag, because the different social conditions and Japanese productivity meant that manufacturing costs were from 15 to 30 per cent lower than those of its competitors.

A Worker For Life

The way of life in industrial Japan during this era was the stuff of which western industrialists' dreams were made. The Japanese worker, usually well-qualified, was linked to his employer for life. The link was not just the reflection of a strong social conscience, but rather due to the financial sanctions which 'deserters' brought upon themselves. A worker who left one employer had to start from scratch with his new one, with obvious effects on his pension. Assured of the fidelity of their employees, companies sustained the company spirit with a song, a uniform, and other, more tangible, benefits such as cut-rate housing. The result is less absenteeism - 3 percent against what was usually around 10 to 15 percent in Europe and the U.S.A. - and an almost complete lack of strikes.

Middle management was often ready to sacrifice even holidays for the company. On the shop-floor, all suggestions aimed at improving production or efficiency were rewarded. The result, according to reports we have read from the German vehicle manufacturers' society, was that the Japanese worker worked for 2000 hours a year against 1600 for his German counterpart. In any other place, such a style of life could easily lead to a conservative attitude. In Japan, however, it had been turned to the service of productivi ty - a productivity which was unequalled because of the volume of vehicles produced, the level of automation, and the organisation and control of that production. Mass production.

Long before the Europeans, the Japanese - like the Americans - were thinking in terms of mass production. In 1979 they had ten models in the world's twenty-five best-sellers, excluding the U.S. Number one was the Toyota Corolla with 638,000 produced. Ovbviously VW's Golf, with 616,000, was a very close second. The Datsun Sunny occupied third place with 506,000. By comparison the 127, Fiat's biggest-selling model, sold only a total of 366,000, and Peugeot-Citroen-Talbot's 305 reached sales of only 246,000, despite being the group's most popular vehicle in sales terms.

Mass Procution and Automation

By the 1970's autornarion, "Japanese Automation", had become legendary. By 1979 Nissan's Zma plant near Tokyo had around 6500 employees working on the production-line in two teams, the factory building 465,000 Sunny and Gazelle models a year. Welding was almost completely automated; robots mounted wheels and doors, and filled oil and water reservoirs. Zama was soon imitated by other Japanese manufacturers, and by 1980 there were around fifteen thousand automated robots working on Japanese production lines, whilst Detroit, Birmingham, Halewood, and Turin were only just discovering the new techniques. Figures for 1980 indicate Japanese production of 41 cars peryear per man, against 11 in Detroit and 17 at Renault.

The goal of the Japanese was clear: to replace man by machine wherever there was a repetitive task to be carried out. The idea seemed strange to western manufacturers, particularly in view of the low price of labour compared with those of America and Europe, but the oriental industrialists were convinced that the advantage would continue to diminish as living standards improved in Japan - and they were right on the money. An additional advantage was that since they were free of the remnants of an industrial history, they had been able to build the most modern factories possible.

Japanese Production Planning

The golden rule of the Japanese constructors was the minimum of integration within the manufacturing unit (30 percent compared with the 50 to 70 per cent of their competitors). A little like the west's aerospace industry, the car manufacturers of the east occupied themselves only with the manufacture of major components such as engines, gearboxes and the like, final assembly of the car, and sales. The majority of the thousands of components were made by sub-contractors working under close control. The pyramid structure gave great adaptability, and the constructors gained two major advantages from it: components were obtained at the best possible price because wages were lower in the smaller component factories, and financial strains were shared with the multitude of sub-contractors. The reliance on outside suppliers explained the comparatively low pay-rolls of the Japanese manufacturers - 45,000 at Toyota, 57,000 at Nissan in 1979.

The Obsession With Cost Control

The obsession with cost-control led to an interesting development in the way stocks were held: instead of maintaining stocks of components sufficient for two or three days' production, they are replenished on a more-or-less continuous basis. The system, developed by Toyota in the 'fifties, reduced charges and investment in component stocks. On the other hand it required perfect stock-control and planning, plus totally reliable suppliers. Producing at a low price is one thing, but finding customers is another. In that aspect, the Japanese became masters, monopolising their home market - the second largest in the world - and by the mid 1980's they were attracting one buyer out of every five in America, as well as one out of every ten in Europe. These were the rewards of a marketing policy aimed at giving the car buyer what he or she wanted. Detroit had only dreamed, with profit in mind, of selling bigger and bigger cars; in Europe the planners saw the automobile as little more than a status symbol and concentrated on technological innovation.

Without the benefit of pre-conceived ideas, the Japanese were convinced from the start that there would be a breaking-away from the banality of cars being sold in the wealthier countries. In America, as Volkswagen had proved, a large slice of the market could be interested in small cars. In Europe, more and more drivers were looking for something that was more than a mere 'driving machine'. The basis of that marketing policy was that of de-mystification of the car and the building of miniaturised versions of Detroit's monsters. Hence the minimum of emphasis on the aesthetic aspects, the rear-drive, stiff suspension, and poor road-holding at speed. There was no aiming for a technically sophisticated top-of-the-line car. The main preoccupation was with scoring as many direct hits as possible in the target area of the most popular engine sizes.

As the years have passed the position consolidated in the area between 1.5 and 2 litres. Below those sizes lie the cars for the poor, low in production volume and profit, and above stand the mere status symbols. With the energy crisis, the results of the policy were easily seen in the United States, but their effect on Europe was not so obvious until you looked at the situation in a country like Belgium. In the first four months of 1980, the results were impressive. In 1979, Japanese cars accounted for 20 per cent of Belgian registrations in total but held 28.5 per cent of the market in the important 1100 to 1300 cc bracket. In the first third of 1980 the 28.5 per cent had jumped to more than 40 per cent indicating the wisdom of offering the right product at the right time. After the planning, the sale of the vehicles was a matter of simple tactics. In Japan, everything was wide open to conquest and demand was drummed up by visits to potential customers. Elsewhere it was a different matter; the American and European markets were in the grip of tightIy-knit distribution networks. After some notable setbacks to Toyota in America during 1960 and Honda two years later in Europe, the Japanese constructors learned that the secret of success was a solid after-sales service.

Conquering The United States of America

The first major offensive was, naturally enough, against the biggest market in the world, the United States. The Japanese constructors invested enormous sums in setting up efficient distribution and service networks, and then in publicising their existence. Between 1972 and 1979, their market penetration rose from six to 22 per cent to be greater than that of Ford.

The tide of change was largely due to the American motorists' rush to buy smaller cars. Shocked by the headlong rise in fuel prices, the drivers of Los Angeles and New York had turned away from the traditional cars, which had become too thirsty and too big. Detroit had started on a massive conversion programme, but time was needed before the manufacturers could develop a range which fitted the new tastes.

Whilst they waited, they paid the price with a recession the like of which had never been known before (production fell by 38 percent in the first half of 1980), record deficits, ultra-high unemployment and a near disaster for Chrysler. On the other hand the Japanese, with 80 per cent of imported car sales, made a killing.

The Japanese tactics in Europe were of encircling the continent and nibbling away at the sales of existing manufacturers. First came investments in one after another of the 'free' - that is without a domestic motor industry - markets around the periphery. Thus they came to sell one car in five in Norway, Finland, Holland, and Belgium. In Switzerland the figure is one in ten, and in Great Britain they profited from British Leyland's troubles to take 10 per cent new vehicle registrations.

The last step of the progression was Western Germany, the most important market in Europe. The invasion started in 1977, and progressed with implacable. efficiency. The Japanese market share rose from 3.7 to 9 per cent between 1978 and the first half of 1980. Only two countries were able to stave off the oriental invasion, for a time anyway: Italy, with an annual quota of 2000 cars, and France, where there was the threat of retaliatory action if Japanese market penetration rose above 3 per cent. And that was only America and Europe.

Wherever there were vehicle buyers there were Japanese. They held sway over the roads of Bangkok in Thailand as they did over those of Abidjan on the French-speaking Ivory Coast - even the taxis of Canton came from the Land of the Rising Sun. Price was not the sole explanation for the Japanese success. There was also the quality of the cars: sure, the early cars were a long way from being considered "quality", but over the coming years the concept of TQC, or "Total Quality Control", meant that "Made in Japan" stood for reliability.

Tokyo soon learned that the buyer of one of their de-mystified cars wanted trouble-free motoring from their car. The customers did not like to be worried by mechanical problems or disagreeably surprised by the running costs of their cars. With that realisation, production control was tightened up as a matter of urgency. It cost money of course, but Japanese productivity meant that the costs could be carried whilst remaining competitive. The effort had a considerable effect on the image of Japanese cars - what better sales argument could there be for Toyota and Honda than to head the listings prepared by the German safety organisation? Particularly if the cars were offered in the typical Japanese fashion, with a host of standard features found only as extras in other ranges.

The Astonishing Diversity Of Japanese Automotive Manufacturers

While writing this article, we have spoken of Japanese cars as if they were one single, cohesive unit, ruled by the iron hand of the Miti. Certainly there was no other country in the world where there existed such a close link between the industry and the seat of political power. Nevertheless, there were nine constructors: Toyota and Nissan-Datsun (the two giants, second and third in the world), Honda, Toyo Kogyo, Mitsubishi, Fuji, Isuzu, Daihatsu, and Suzuki. The structure was the fruit of a well-considered strategy: the best means to achieve a set objective - in this case that of growth - as a result of rivalry between a number of firms. However, the apparent homogenity of the Japanese automobile industry hid what was in reality an astonishing diversity - as these potted histories of Toyota, Nissan Datsun, Honda and Toyo Kogyo will show.

Killing Competition With Quotas

At the beginning, only the Japanese had faith in themselves. Detroit rested on the base of its traditional models, and the European constructors looked down on the 'unskilled copyists'. By 1980 conditions had changed, and the initial disdain turned to outright hostility against the Japanese. The anti-Japanese campaigns were to become even more vehement as American and European markets contracted. It is understandable that in those conditions the local industries were not prepared to lie down in front of the rising tide of heavy competition from Toyota, Nissan, Honda, and the others. Their demands were for protectionism against Japanese imports - in short, for quotas.

In the United States it was the United Auto Workers Union (U.A.W.), the powerful automobile industry union, which lead the crusade. Douglas Fraser, its president, had been to Japan and had brought pressure to bear on Congress in Washington. In July 1980 he received the backing of Ford. There was no such unanimity in Europe. Fiat and the French, even though protected by their own barriers, were the first to make their voices heard. In the middle of the year they received the support of the West Germans, but there was no unified voice. The non-manufacturing countries were naturally un-concerned, and Great Britain negotiated a gentleman's agreement fixing Japanese imports at a level of 11 per cent.

For their part, the Italian and Spanish authorities looked to their own problems and sought to solve them by signing agreements with Japanese partners. The concerted cry from the anti-Japanese elements was that of 'unfair competition'. Certainly there were no allegations of dumping, as there were in the past, but it has to be said that the rules of the game favoured the Japanese. Firstly, Japan had benefited from free international trade whilst having a completely protected home market: in 1979, Japan imported only 1 car for every 53 vehicles it exported. Next, the yen's value had been manipulated in order to promote the sales of Japanese goods abroad without any consideration of its effect on the competition. In spite of it, both the White House and the European Community had tried not to succumb to the attractions of protectionism, for reasons which were at the same time diplomatic, commerical, and economic.


On the diplomatic front, a breakdown in its automobile industry, which provided 20 per cent of the country's exports and employed 630,000 people, would seriously weaken Japan, the free world's major bastion in Asia. Commercially, there was a fear of the retaliatory measures which protectionism would bring, and from an economic point of view, the problems posed by Japan were primarily those of competitiveness, problems which could be overcome by investment and a rethink of automobile production methods.

Always sensitive as to just how far they may go, the Japanese remained unmoved by their critics. Nevertheless, they were worried. They know that their future lay, even more than before, in exportirrg their products. Although there remained territories to conquer, such as the Eastern bloc and the even more important potential market of their close neighbour China, the Japanese fully appreciated that for a long time yet America and Europe represented their two main markets outside their own country.

Therefore, since they were no longer seeing the increases of the past, the advance of one must signify the retreat of others. In other words, every Japanese success gave rise to stronger and stronger anti-Japanese pressures. The Japanese argued that their home market was open to everyone, and in theory this was true, since no legal measures existed to oppose the entry of foreign vehicles.

In fact, the barriers were more subtle, mainly those posed by the anti-pollution regulations, and the Japanese mentality was a more effective barrier than any customs legislation according to Japan's competitors. As far as setting up footholds abroad was concerned, the Japanese laid down the markers for a new approach by forming links with other manufacturers and industrial operations outside their fron tiers. In the case of the United States, there was a simple alternative - to export or manufacture within the territory.

Honda, particularly dependent on its U .S. markets, was to become the second foreign manufacturer (Volkswagen was the first) to build a factory in the States. An investment of 200 million dollars was made in a factory at Marysville, in Ohio, which started out by producing 130,000 Civics and Accords by 1983. With the entry price so high, one can understand the. hesi tation of Toyota and Nissan, who have also studied the possibilities of setting up production facilities in the U.S. The Japanese knew well enough that they could not simply transpose their traditional production techniques to the home of automobile production, and at the same time they feared that higher production costs would be accompanied by a fall in quality in comparison with the Japanese-produced article.

Starting in 1981, British Leyland began assembling 85,000 examples a year of a new model, code-named 'Bounty', designed by Honda and fitted with engine and transmission units made by them. B. L. were responsible for sales of the vehicle in the European Community whilst the rest of the world were supplied by Honda. The same procedure was organised between Alfa Romeo and Nissan. The Italian company would build 60,000 units a year of one of its Japanese partner's models using bodies supplied by Japan.

Perhaps the Japanese competition was not such a bad thing. Newly conceived models, built in huge numbers in ultra-modern factories allowed the US manufacturers to develop competitive production costs for a new generation of front- drive 'world cars'. The Europeans made the most of their abilities to stay in the race, concentrating their efforts on fuel economy and technical innovation. The battle was fierce and there were casualties, and in the case of the British automotive concerns, it turned out that they were their own worst enemy.

Honda were a pioneer in mass-produced front wheel drive with the Accord Coupe introduced in 1976. Mitsubishi followed with the Colt, Nissan the Cherry, Mazda its Familia (323), and Toyota the Tercel; a group of cars which showed the astonishing ability of their manufacturers to adapt. In 1976 the European constructors were of the opinion the Japanese would need at least ten years to catch up, but the task was accomplished in half that time. They proved very adaptable and innovative too, such as Mitsubishi who employed independent Italian stylist Aldo Sessano to design the Lancer.