Japanese Carmakers Are Coddling Their U.S. KidsJames B. Treece and David Woodruff and Karen Lowry Miller
In the recession year of 1981, Honda Motor Co. prospered. Newly imposed import quotas cut the company's U. S. car sales by 1%, but market share rose. And the carmaker built a plant in Marysville, Ohio, that would circumvent future quotas. In the 1991 recession, Honda is facing much tougher going. Its sales fell 22% in January, despite a new $300 dealer rebate on the Accord and Acura Integra.
Honda isn't alone. Japanese carmakers, which as a group breezed through previous U. S. slumps, are now taking it on the chin. "This is the first true recession test for the Japanese, and frankly they're shocked by it," says Furman Selz Inc. analyst Maryann N. Keller.
As they retrench, the Japanese car companies face a complication they have never had to confront before: their multimillion dollar U. S. assembly plants. Those eight "transplant" factories represent a massive commitment of money, management, and political goodwill. With the U. S. market in a recession and output cuts virtually guaranteed, Japanese carmakers are grappling with how much of the pain those factories and their American workers must bear.
EASY CUTS. So far, the American operations have been largely spared. In most cases, Japanese carmakers have decided to cut back exports from Japan, not U. S. output (chart). It has been a fairly easy decision. For one, personnel cuts are risky at companies that are trying to keep American unions away. Says Harley Shaiken, a University of California-San Diego labor economist: "Laying somebody off is like signing them up for the UAW." Toyota Motor Corp. clearly had public relations in mind when it announced its recent export cutbacks: President Shoichiro Toyoda said he was cutting back in Japan, not the U. S., because he wanted to go easy on the American economy.
The fact is, it's easier and more cost-efficient for the auto companies to make their cuts back home. With their Japanese factories running full-out amid a labor shortage, most carmakers have merely trimmed overtime. Nissan Motor Co. had been working two hours of overtime plus Saturdays at most of its Japanese factories. That's likely to end in April. Honda has already pared production by 20,000 in Japan by canceling six Saturday sessions. And fewer exports to the U. S. need not mean across-the-board production cuts. Toyota expects one-third of its 10,000-unit reduction in U. S.-bound vehicles will go instead to Japan and other markets.
Not that U. S.-based factories aren't feeling any pinch. Honda, Mazda, Subaru-Isuzu Automotive in Lafayette, Ind., and a Chrysler-Mitsubishi Motors joint venture in Normal, Ill., have cut back. Mazda Motor Manufacturing (USA) Corp. in Flat Rock, Mich., is stopping about 45 minutes early each shift. Idled workers, members of the United Auto Workers union, attend training classes or handle housekeeping chores, such as tool maintenance. The plant also slashed its unionized "temporary" work force to about 50 from a peak of over 300 in 1988-89.
At Honda, dealers' inventories of unsold U. S.-built cars have ballooned from a manageable 70-day supply at the end of December to a disturbing 88-day supply by the end of January, according to Ward's Automotive Reports. Honda took a hard look at which factories built which cars. Only the company's Marysville plant, which has grown to become the highest-volume assembly line in the U. S., makes the two-door Accord. With sales of that model slowing, Honda is canceling overtime to cut back February and March production of the Accord by 5,000 units. "We started with the sales figures and worked backwards," says Isao Suzuki, general manager of the North America Div. "It was a business decision."
HUGE INVENTORIES. Those decisions aren't going to get easier anytime soon. Inventories of North American-built Subaru, Isuzu, and Suzuki vehicles at the end of January stood at a huge 190-, 221-, and 363-day supply, respectively. As a group, Japanese importers had a 100-day supply of cars, up from 75 a year ago. By contrast, American carmakers have an average supply of 91 days. Meanwhile, cars are beginning to stack up on U. S. docks, waiting to pass through customs. The New York Port Authority says 80,000 Japanese and European cars are parked mn property it leases to car companies--twice the norm.
U. S. carmakers are watching those cars, worried the glut could ignite a costly incentive war. Besides Honda's new Accord rebates, Toyota is offering up to $1,000 back on its Kentucky-built Camry, and Nissan will expand current rebates beyond the Stanza and certain trucks. But so far, the Japanese have mainly chosen to build fewer cars, not sell the same number for less money. Still, this is a new experience for them. If the recession lingers or deepens, all bets may be off.