Taking quotas off Japanese cars might not flood US market
American consumers in the market for Japanese cars have had their share of frustrations over the past few years: waiting lines and high prices, to name two. If only import restrictions weren't in place, they lament, then Americans could buy all the Japanese cars they wanted.Skip to next paragraph
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From a series of statements made by US Trade Representative William Brock last week, it appears that Japanese voluntary import restrictions could fall by the wayside in 1985. But instead of sending a navy of cheaper imports across the Pacific, Japan would only gradually increase market share here and would stick with its high-profit-margin cars, analysts predict.
In a Washington Post interview last week, Mr. Brock said that ''our reluctance (to extend the quotas) is a mile wide and a mile deep.'' He was irritated by the recent announcement of large bonuses paid out by General Motors and Ford to groups of its executives. If the industry is healthy enough to pay these bonuses (totaling $262.3 million), he asked, ''then why does it need protection?''
A spokeswoman with the trade office said Mr. Brock was expressing a personal opinion. So was Malcolm Baldrige, secretary of commerce, when he also recently questioned the necessity of Japanese auto restrictions. Mr. Brock is the chief trade negotiator, but trade decisions are discussed among the President's Cabinet members, with ultimate policy approval made by Mr. Reagan, a strong advocate of free trade. No definitive statement supporting Brock's remarks has come out of the White House yet.
But ''it is Brock's style to check with other people before he talks, so I'm sure he consulted with several Cabinet people and members of the Senate Finance Committee,'' says Harald Malmgren, a former US trade official in Washington. ''Let's say it reflects a Washington mood at this time.'' All of this discussion is a bit premature, though, he says, since the voluntary restrictions won't run out until next spring, after the election, and many other trade issues will be important topics around election time. In Mr. Malmgren's opinion, Brock's comments are ''a shot across the bow''' to test reaction.
Detroit is divided on the import issue. While Chrysler chairman Lee Iacocca, along with the United Automobile Workers union, vigorously supports continued restrictions, General Motors, which has plans to import 300,000 Japanese-built cars next year, would be better off without them.
Whether or not the Japanese volunteer to extend the quotas, and whether or not the administration encourages them to, Japanese strategy won't change very much, analysts say. They will continue to concentrate sales on their high-value cars and pursue manufacturing and assembly in the United States.
Even without import restrictions, ''we don't see a real fundamental change in the products available,'' says Alan Cohen, an auto analyst at Data Resources Inc. ''All we see is a slightly loosening market.'' Without restrictions, DRI still forecasts Japanese market share here at 30 percent by the end of the decade. Last year it stood at 26.1 percent.
David Cole, who heads the Office for the Study of Automotive Transportation at the University of Michigan, says there are ''some very good reasons why Japan might not try to dramatically expand its market share.'' (It has the potential to capture 40 percent, some analysts say.)
* Restrictive legislation: A fast increase in market share in the first year of freedom could step up unemployment in the US auto industry and prompt some kind of permanent protectionist legislation in Congress. ''The Japanese are just scared to death of any kind of legislative restraint,'' says Mr. Cole. They are thinking in the long term and want to avoid tariffs, domestic-content legislation, or other restrictions more damaging than voluntary quotas.
* Profits: Right now, ''the US market is a very profitable one for the Japanese,'' Cole explains. Strong demand for a limited supply allows them sizable profit margins. Cars arrive here loaded with options, and Japan's original specialty - basic, cheap, small cars - is fading fast. ''They know it's better to sell upper-scale cars here than it is to sell the minis. There is a real value in terms of restricted supply. There's a mystique associated with that which I think is very important,'' he continues.
* South Korea: Korea is gearing up for the small-car business. With it's cheap labor costs, it can afford to. According to Cole, South Korea has plans to export a million cars a year by the end of the decade. Japanese automakers would like to build up their stake in upper-scale cars here to ''put more distance'' between their cars and the basic subcompacts rolling out of Korea, he says.
What could ease Japanese car prices here would be serious infighting between the ''cartel'' of large automakers in Japan and the smaller ones that also want a slice of the American pie. Because of Japan's cost difference (it has about a could use import freedom to grab market share with lower prices.
Some of these companies, like Suzuki, have their foot in the door through agreements with Detroit. General Motors plans to import 300,000 Suzuki-built, subcompact cars next year. Analysts say that because US automakers cannot make very small cars profitably, deals like this will continue, internationalizing the business.
Even if import restrictions fade, it's likely that Japan will keep investing in American manufacturing and assembly facilities. Nissan and Honda have done so. Mazda may be next, and then there is the GM-Toyota joint venture planned for 1986. Conveniently, Japanese plants in the US address the local-content issue by producing cars with parts made by American workers.
With quotas off, some incentive for investing here would vanish. But there is still long-term incentive. We may be on a car-buying upswing now, says Mr. Cole, but a downturn will inevitably come. When it does, Japan will be here and won't be shut out of the market again.