Industry Report: Honda Chairman Vows to Keep Production High and Use More U.S. Parts and Labour

Why Are Japanese Automakers So Concerned about North Americas Big 3?

Whats with Japanese benevolence in the U.S. auto industry lately? First it was Toyota Motor Corp.s Chairman Hiroshi Okuda who offered to help save the ailing Big 3 by increasing the prices of U.S.-bound Toyota vehicles and sharing some technological research, both of which, if licensing fees were involved, would only make the Japanese giant wealthier in the process, and now Honda Motor Co. CEO Takeo Fukui wants to keep production levels high and purchase more U.S. parts to "help support the U.S. economy and its floundering auto industry," or so says an Associated Press report.

Fukui commented that such measures would be preferable to raising prices. This scenario would at the very least be more preferable to Honda. While the plan appears generous at first glance, it would involve increasing production, which basically means selling more Accords and Civics, among other Honda and Acura models, and in so doing reduce the number of Big 3 sales. While jobs would go to North American workers, profits would still be siphoned off to Japan.

Of course, being that Honda currently produces approximately 80 percent of its North American-destined cars components in the U.S., it would difficult for this percentage to increase substantially. If Honda manages to find ways to increase U.S.-made componentry, the effects on the industry will be nominal, but the goodwill that could be achieved by trying to do so might be priceless.

Priceless? Absolutely. While Okudas idea was quickly dismissed by Toyotas North American executives, the question as to why he said it in the first place, and why Hondas Fukui is offering to increase U.S. parts and labor, remains.

Chrysler aside, which has seen incrementally increasing sales, Toyota and Honda rivals General Motors Corp. and Ford Motor Co. have been pummeled by Asian competitors in recent years. GM experienced a $1.1 billion loss for the first fiscal quarter of 2005 which ended March 31, while Toyota Motors Corp. recorded 291 billion yen or $2.8 billion in profit over the same period.

In other words, Ford and GM have been watching their North American market share erode by an alarming rate. Job losses are incurring and more are immanent, making the problem as much of a problem for politicians as it is for Big 3 CEOs. It only makes sense then, especially when considering the alleged unfair trade practices some analysts, politicians and domestic brand executives complain are in place to keep foreign cars out of Japan, that the largest Japanese automakers are worried about a protectionist backlash by the U.S. government, if not directly from the populace which keeps buying new Hondas, Toyotas, Nissans and Mazdas.

Japanese execs certainly dont want to revisit the "Japan-bashing" 1980s, when the Asian countrys burgeoning automakers were blamed for stealing vehicle sales and jobs from domestic manufacturers, which resulted in some American auto workers vandalizing Japanese cars in "symbolic protest".

This situation is deemed so critical to Japanese interests that earlier this month Japanese Prime Minister Junichiro Koizumi met with U.S. Chamber of Commerce President Thomas Donahue about the U.S. auto industry, and made specific references to General Motors.

"The auto industry is a symbol of the United States, and we wish the best for GM," Koizumi told reporters after the meeting, adding that U.S. and Japanese automakers must coexist and prosper together.

Japanese media has picked up on the story too, with daily Asahi Shimbun commenting recently, "The decline of the once invincible American auto industry in the face of Japanese competition could set off a nationalistic backlash among American consumers... There is every reason for Japanese automakers to work hard to avoid unnecessary conflict."

The need for cooperation goes beyond Honda and Toyotas welfare, mind you, in that the U.S. is Japans most significant political and military ally. The fact that protectionist U.S. politicians, backed by powerful lobby groups, have threatened to disrupt the flow of Japanese auto imports in the past weighs heavy on the Japanese government and auto execs, making the need to address alleged unfair trade practices on one side of the Pacific, and the potential of anti-Japanese sentiments in America.

It is important to note, however, that despite the claim by some groups that Japan is unfair in its trade policies, the Big 3 make few vehicles suitable for Japanese consumption. Not only have perceived quality levels among Big 3 products been lower than those of their Japanese rivals in past years, although improvements have been made recently, their less sophisticated drivetrains, lackluster styling and much larger overall size makes them uncompetitive in a techno-savvy populace.

Truly, by Detroits own admission, most domestic cars dont measure up to their Asian counterparts. Significant strides have been made with regards to reliability and other areas of quality control, but it will be a hard sell to turn around perceptions among North American consumers, taking time and also a great deal of ad money to get the message out.

And with Toyota gaining six new customers for every one it loses, and Honda managing to pull in four new buyers for every single loss, the tide doesnt seem to favor GM and Ford, with Chrysler Groups long-term competitiveness still in question.

But the number three domestic should be commended for taking bold steps to remedy the problem. While Chrysler Group sells fewer units than either GM or Ford, the one, two domestic players respectively, it has recognized that it needs to be different in order to survive against the Japanese. Rather than building Camry clones, a criticism GM has been labeled with, Chrysler Group has brought out new cars, such as the 300C, Dodge Magnum and new Charger, that have turned the market on end, stirring up passion among North American buyers, as well as some Europeans, while doing their part to revitalize national pride in the auto sector - a job

previously relegated only to Chevys Corvette and a few Cadillacs.

Truly, as witnessed by Chrysler Groups recent success, the only thing that will save the U.S. auto industry, meaning the Big 3, is a return to building new cars people actually want to own. GM, Ford and Chrysler Group are still managing to keep hold of the large light truck market, but its effectively lost grip of the car segment. New models, such as the Chevrolet Cobalt and Pontiac G6 show that GM can still show up at the party, while Fords 2005 Mustang has seen a whirlwind of sales activity and new Five Hundred is a much better car than any previous Ford sedan, but much is needed if the bowtie and blue oval brands expect to put a stop to its sliding market share, let alone gain any back.

On that note, both Ford and GM are said to be developing Chrysler 300C fighters to replace, or bolster their current mid-size to full-size offerings. Many outsiders question why the two automakers arent as aggressive as Chrysler Group. Each create enticing concept cars, such as Fords 427 concept from 2003 and Bronco concept from 2004, Lincolns Continental concept that debuted a year earlier, Chevys daring SS concept from the 2003 Detroit show and Buicks gorgeous Centieme concept from the same event, a natural replacement for the slow-selling Rendezvous, but nothing remotely close to these cars never seem to materialize.

On the other hand, Chrysler Group experienced positive feedback for its Pacifica concept, built a production version that appeared very similar and has enjoyed sales success ever since in a segment that it hadnt previously entered. The Auburn-hills automaker followed the same pattern for most of its new

entries, 300 and Charger aside, which showed up in New York and Detroit respectively, unannounced, shocking everyone in attendance.

Hopefully, for the sake of the North American auto industry and GM and Ford especially, something will be learned from this lesson, and there will be fewer cries for protectionism, which would only reduce quality standards and competitiveness issues in the long run. GM and Ford know that they need to produce more cars consumers want to buy, and not rely on profit-eroding incentives to desperately hold onto market share. After all, the Japanese can play that game too, if needed, and Toyotas pockets are a lot deeper than GMs, Fords and DaimlerChryslers combined.