01/10/1994

Japan's Automotive Industry Searches for New Strategies

Masaki Masuda 

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Summary
  1. A mini-boom may be in store for the slumping automobile market in the mid-1990s as the children of the baby boom generation enter the market, and as replacement demand surfaces for cars bought during the 1980s peak. But over the medium term, Japans's automobile market will follow the cyclical structure of the U.S. market, which is influenced by trends in model changes and repurchasing cycles.

  2. Burdened with excess capacity, Japan's automakers are cutting costs by standardizing parts and reducing the number of car models. Moreover, they are increasingly forming alliances with other automakers, both domestic and foreign. Recent alliances are characterized by their broad scope, ranging from development to production and sales.

  3. This growing trend in OEM arrangements among automakers is affecting auto parts suppliers and altering the keiretsu vertical structure that gave Japan's automobile industry its competitive edge in the past. Not only are parts suppliers expanding their transactions beyond traditional Keiretsu affiliations, but major suppliers are merging together to supply complete systems. By playing an increasingly important role in automobile manufacturing, Japan's technologically advanced parts suppliers may become world leaders in the future.

  4. In Asia, where motorization is about to occur on a full scale, national car projects are being modeled after Japan's mini-vehicles and 1,000cc cars. Japan's automakers are under pressure to expand their sales channels from markets in advanced countries to those in developing countries, where low-cost competition from newcomers such as South Korea and Malaysia may put Japan at a price disadvantage. Meanwhile, regulations for ultra-low fuel consumption and low emissions are expected to spread swiftly throughout the region to alleviate global energy and environmental problems. The extensive experience of Japanese automakers in developing fuel-efficient engines gives them an edge. Moreover, Japanese suppliers also excel in providing stable supplies of replacement parts, a critical factor in developing countries since automobiles are kept in service longer.

  5. In advanced countries, aging populations and the "sameness" in automotive hardware resulting from OEM arrangements will cause automakers to differentiate their products by focusing more on "soft" aspects such as safety, comfort, etc. Development of sensors and other equipment to assist the driver in decision-making will become increasingly important. As a result, cooperative tieups will increase with companies in electronics and other industries.

  6. For Japan's automakers, doing what they do best--developing smaller cars that burn less fuel and cause less pollution--will not only be a wise business decision, but one way of fulfilling Japan's responsibility as an advanced nation in easing global environmental problems and contributing to developing nations.

Masaki Masuda

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