Japan considers a damper on giddy auto expansion

Like Alice in Wonderland, the Japanese car industry just keeps on growing and growing. Not everyone in Japan, however, feels this is necessarily a good thing.

The Japanese industry produced only 500,000 vehicles in 1960. Last year it turned out well over 10 million, surpassing the United States for the first time.

But now, with auto manufacturing riding high with its remarkable achievements , both government and the industry are feeling uneasy about the future. Both are very much aware that carmakers now represent 10 percent of the country's manufacturing industries, employing directly or indirectly almost 5 million people.

"It has literally become the heart of the Japanese economy, its biggest employer and greatest generator of foreign exchange," an experienced observer comments. "But as a result, if it begins to ail, the whole body will suffer."

There is growing evidence the government would like to hold production at present levels.

In the short term, there is the friction being generated in the US and Western Europe by Japan's deep penetration of local markets. In the longer term , there is expectation of extremely severe and costly worldwide competition to meet the growing need for cars that burn less gasoline per mile or even run on some other fuel source.

In reaction to sentiment in Washington, government officials here are working behind the scenes to restrain US-bound car shipments to something modestly below last year's level, which is yet to be announced but expected to be somewhere in the region of 2.4 million units.

As a modest beginning, the ministry of International Trade and Industry is lobbying for first-quarter shipments this year to be held at a maximum of 450, 000 units, compared with 461,000 shipped in the same period last year.

These moves were afoot before news was received from Washington of a fresh congressional intiative to give the president powers to control car imports. The last effort was killed by the Senate late last year.

But leading carmakers here believe market forces will achieve the desired results without any government tampering.

"We will be governed by market demand as always, . . . and in the United States that is depressed," said a spokesman for toyota, the no. 1 manufacturer. "We certainly anticipate a decline in shipments this year."

The yen's sudden sharp appreciation against the dollar, if sustained, as economists expect, will also hurt the industry internationally.

This coincides with a sharp drop in domestic demand as inflation eats further into household spending power.

Talk has surfaced recently of the need to reorganize the entire Japanese auto industry to enable it to tide over both a slump in demand and international trade friction, as well as cope with the intensive competition that is expected from American and European makers in the fuel-efficient subcompact market that has long been the Japanese strong point.

Informal proposals have been put forward for grouping the present 11 manufacturers into four major groups.

Toyota and Nissan (Datsun) would be left alone, befitting their status as the top two manufacturers, producing almost two-thirds of total vehicle output.

But the smaller company would be encouraged to join forces to pool their investment potential and avoid unneccessry competition, and to make it easier for the government to exercise export restraints.A Toyota official, however, doubted this would occur in the foreseeable future.

"The industry was drastically overhauled in the 1950s and 1960s and I doubt it will happen again so soon," he said.

"Anyway, many of the smaller firms are already affiliated with either ourselves or Nissan, so the groupings being proposed in certain quarters already exist to some extent."

Informed sources say the government is keen to curb new industry investment in equipment that will expand production capacity, believing this will unnecessarily antagonize the US and Europe.

The Japanese government is also watching closely as various companies maneuver for international partners to help them cope with the challenge of the '80s. The government hopes to ensure that these tie-ups, which have moved forward at a rapid pace in the last few months, are in Japan's economic best interests. In a few weeks, Ford and Toyota will pick up the threads again of their prolonged negotiations on joint subcompact production in the US.

One of the smaller manufacturers, Isuzu (in which General Motors has a 34 percent stake), is expected to contribute its diesel motor expertise to GM's subcompact "S" car project.Mitsubishi, however, is scaling down its cooperation with Chrysler, because of the Us company's financial problems.

Nissan in recent months has signed agreements for joint production in Europe with Spanish interests and Alfa Romeo of Italy. And it also has an agreement with Volkswagen to build a German-designed subcompact in Japan.

In the US, Nissan is going it alone on a truck assembly plant in Smyrna, Tenn., that could be adapted later for passenger cars if circumstances demanded. Honda, meanwhile, expects in 1983 to begin producing 120,000 cars annually at a expanded Marysville, Ohio, plant. Up to now the plant has been turning out motorcycles.

All these ventures tend to complicate the government's task of keeping a tight rein on the country's most powerful industry, informed observers say.

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