Monday, June 9, 2008

Japan's De-deindustrialization?

BusinessWeek published an intriguing article about Japanese automakers boosting domestic investment to expand production in Japan, even though the Japanese market is declining. The Japanese plants will have a competitive edge because they are more flexible and have fewer defects. German companies are also ramping up Japanese production, presumably for similar reasons.

What US companies are following a similar strategy rather than adopting a race-to-be-bottom approach?

Rowley, Ian. 2008. "Facing an Auto Slump, Japan Lifts Capacity: Carmakers Are Expanding at Home, Where Nimble, High-Tech Plants Offer More Flexibility." Business Week (29 May): p. 64.

"In the midst of a dramatic earnings slump, Toyota, Nissan, and Honda are ramping up production fast. Not in the U.S., their most profitable market, but back in Japan, where domestic auto sales just hit a 25-year low. Every major Japanese automaker is building plants at home or adding capacity to existing ones. A Toyota subsidiary is constructing a 120,000-car plant in Miyagi, north of Tokyo. It's Toyota's first such plant in Japan since 1993. Nissan, which not so long ago was slashing production in the country, is expanding capacity by 22% at its Kyushu factory. Honda is spending $1.5 billion on a new factory and engine plant in Saitama, just outside Tokyo. "The time has come for our Japan operations to once again take the initiative," Honda President Takeo Fukui told reporters on May 21."

"Why all the outlays? After all, Japan's carmakers have long had a policy of opening plants in overseas markets to avoid import duties and to hedge against currency gyrations. Japan remains an expensive place to make cars, with wages 10 times higher than in China. A shrinking population is causing labor shortages. The yen's recent 15% surge against the dollar makes Japan-made cars even pricier. Throw in contracting domestic sales, and the moves seem to defy business logic."

"One explanation is the flexibility that the investment brings. Japan's high-tech plants excel at switching production from one model to another. That's especially useful when auto demand is sinking or flat in mature markets but surging in the Middle East, Russia, China, and India. Nissan's Kyushu plant, for example, exports to 160 markets and produces eight different models on a single production line."

"Anxiety over quality is another factor in the increase of production back home. In recent years, Toyota has had to issue numerous recalls, while Nissan's Canton (Miss.) plant became notorious for its defects during a production speedup. Executives are loath to admit that one plant is better than another, but Japanese makers' domestic factories score higher on quality than equivalent plants overseas."

"Japanese engineers and workers, while more expensive than their counterparts in developing markets, are still a good deal. One reason is that Japan's wage levels, after barely rising in a decade, are not as high as they once were relative to other developed countries. According to consultant AlixPartners, Japanese industrial workers in 2006 made around $22 an hour, just two-thirds the level in Germany. Moreover, it's still rare in Japan for workers to switch from one automaker to another, so a well-trained, seasoned workforce is a given. "It's not so expensive in Japan, and when you consider the quality, motivation, and diligence with which people work, the value-for-money is unbeatable," says Markus Schädlich, president of Karmann Japan. In December, Karmann, a German company that makes convertibles under contract for Audi, Mercedes, and Nissan, will begin production at a factory in Japan."

"The notion of mother plants, which test new technologies that later filter out to plants worldwide, remains strong. Fukui predicts Honda's Saitama plant will set an example for its plants globally. Labor productivity is expected to be 20% higher than in existing plants, thanks to greater automation and advances in welding and painting. Honda aims to cut the amount of energy used to produce each car by more than 30%. Honda and its Japanese rivals are not abandoning their plan to make cars around the world. But they are strengthening Japan's role as the essential benchmark."


Myrtle Blackwood said...

The news in Australia today was that the Rudd federal government is directing $35 million of taxpayer money to Toyota to build 10,000 new hybrid vehicles that will use approximately 30% less fuel than previous models.

This money will be supplemented by the Victorian State Government.

There was no tender process for this money and Rudd has visited Japan in the last week. Obviously some wheeler-dealing going on.

I heard on the radio that Australians purchase 1 million cars per year. One million??!! Out of a population of 20 million people? Sounds way too far fetched.

The Government also has tariffs in place on imported vehicles. I think the level is 10%.

Questions: why is the Government bailing out a big multinational corporations for its very bad commercial decisions? Why are they only going to produce a mere 10,000 cars? What help is a 30% reduction in fuel consumption when the price of fuel is skyrocketting to levels way beyond anything imaginable 3 months ago? Is the Rudd Government going to use our resources to bail out other vehicle manufacturers?

Michael Perelman said...

$3,500 per car, or car per year?

In the US corporations promise jobs & all sorts of things, collect subsidies and then thumb there noses and their benefactors.

J.Goodwin said...

Which US companies?

The ones owned by the Japanese.

Myrtle Blackwood said...

MP: "$3,500 per car, or car per year?"

Don't know. Actually the total subsidy to Toyota is $70 million for 10,000 cars. ($35m from the Australian federal government and $35m from the Victorian government). That's $7,000 per car. In addition to this the cars will cost an extra $4,000 to the consumer.

[My bet goes on purchasing a kit to convert an ordinary car to a petrol-hydrogen hybrid. An old Ford falcon then uses 5.32 litres of petrol to travel over 100 kilometres. Professor Harry Watson from the University of Melbourne, Victoria Australia has more info on this.]

I heard today also that the total Federal government subsidy to the auto industry is $2 billion over 5 years and there's another $500m in another kitty related to new eco-friendly technology. (How much of the latter is directed to the auto industry I just don't know).

General Motors in Australia actually built a hybrid car - 10 YEARS AGO - using virtually identical technology to the proposed now by Toyota. It was used to promote the Olympic games in Oz and as soon as the games were over they stopped making them. [GM has announced earlier this year the re-manufacturing of hybrids, btw].