Buy Our Car Seats, Japan, Or It's War

For weeks, Japanese and American officials have been exchanging fightin' words in their trade spat over autos. Now, unless negotiators unexpectedly patch together a deal in a last-ditch round of talks in Geneva on June 22 and 23, Washington will impose stinging tariffs on 13 Japanese luxury models in late June. Japanese carmakers and their U.S. dealers--facing layoffs and possibly billions in lost sales--are fuming. But the fireworks obscure the core issue in the dispute. Says Economic Strategy Institute President Clyde V. Prestowitz Jr.: "This is really a parts issue, not a car issue."

That's right: The U.S. is about to enter a trade war over car seats and shock absorbers. Moreover, U.S. parts makers, predictably, are divided about the wisdom of the government's tactic. Some, like Sean Traynor, CEO of Garden State Tanning Inc. in King of Prussia, Pa., say they would rather the U.S. stayed out of their business. The company laid off 650 workers when Toyota Motor's Lexus division, citing the looming tariffs, canceled its leather upholstery contracts. Other suppliers applaud Clinton's stance, arguing that in the long run it will mean more business. "I think the U.S. government is doing the right thing," says Borg Warner Automotive Inc. Chief Executive John F. Fiedler.

Why are auto parts the central issue? The Clinton Administration knows it can do little to ensure higher U.S. car sales in Japan until the Big Three produce more of the right-hand-drive models that sell there. But that doesn't apply to U.S. parts. Even though U.S. companies build plenty of components that easily could be used in Japanese cars, U.S. imports account for less than 2% of Japan's $107 billion parts market for new cars and only slightly more of its $23.3 billion aftermarket. Especially given the dollar's fall vs. the yen, says Kaiser Aluminum & Chemical Vice-President Robert E. Cole, "we ought to be getting more business than we are."

The Administration could get a quick win by forcing open the Japanese aftermarket. The target: complicated regulations hatched by the Transport Ministry that force consumers to use parts manufactured by Japanese companies. Tenneco Automotive figures such rules have reduced its sales of Monroe shock absorbers by $135 million over the past decade. Indeed, despite 30 years of effort, Monroe's share of the Japanese aftermarket remains stuck at 5%, compared with 24% in Thailand, a market it entered in 1987.

TARGET MET. The Japanese argue that Americans are simply greedy. After all, back in 1992, Washington extracted a commitment from Japanese carmakers to nearly double their purchases of U.S. parts, to $19 billion, by March, 1995, a target both sides agree they hit (chart). But Japanese imports of U.S. parts have stayed low, while Japan's parts exports to the U.S. grew 16% in 1994, to $14.3 billion, despite the high-flying yen. "It just doesn't make any sense," gripes a senior U.S. parts executive.

Not all U.S. suppliers are so critical of Japan. "We're getting more opportunities on some Japanese vehicles," says Marvin L. Isles, executive vice-president in charge of GenCorp Inc.'s automotive operations, who opposes sanctions. Many suppliers argue that the high yen eventually will force Japanese companies to start buying more U.S.-made parts for their U.S. factories. But just short of a trade war that spirals out of control, most only see an upside to the Administration's hard-line tactics. Giving Japan a strong nudge, they figure, can't hurt.

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