After World War II, Japan gradually rejoined the
international economic community, for example by setting an exchange rate of
360 yen to the dollar. It also selectively brought in foreign investment and
technologies while keeping external trade under strict control. Then, in 1952
when the San Francisco Peace Treaty came into force, Japan joined the
International Monetary Fund (IMF1) and also gained provisional membership in
the General Agreement on Tariffs and Trade (GATT2) in 1953. However, Japan was
still recovering economically and was not yet in a position to completely
fulfill the obligations required by the IMF or GATT. Therefore, special
conditions were attached to its membership that allowed Japan to restrict
imports and control the yen exchange rate based on its international balance of
payments.
Subsequently as the major European nations gradually
restored the exchangeability of their currencies and trade and exchange within
Europe began to be liberalized, pressure began to mount on Japan to also
liberalize its trade and exchange. Therefore, in January 1960, the Japanese
government established the Trade and Exchange Liberalization Promotion Cabinet
Conference, through which it drew up a basic policy for trade and exchange
liberalization, and developed the Trade and Exchange Liberalization Plan in
June of the same year.3
As part of its major move toward a more open economic
system, Japan liberalized imports of completed trucks and buses in April 1961.
The timing for liberalizing imports of completed passenger cars was delayed
because Japan's production volume was much smaller than those of foreign
automakers and Japanese automakers lacked price competitiveness, among other
factors.
Meanwhile, in May of the same year, with the goal of
strengthening the international competitiveness of Japanese-made passenger
cars, the Ministry of International Trade and Industry (MITI) set down its Plan
for Organizing Passenger Cars into Three Groups4, which divided Japanese
passenger car manufacturers into the following three groups:
1.Mass-produced car group
2.Sports car and luxury car group
3.Minivehicle passenger car group
Each group was to consist of two or three automakers. The
announcement of this plan carried a profound impact, heightening motivation for
reassessing Japan's industrial structure itself.
Against this background, the Industrial Structure
Investigation Committee, established as an advisory body to the MITI minister,
created a passenger car subcommittee in April 1962, which began surveying and
researching future demand for passenger cars and international competitiveness.
Based on the resulting research, a passenger car policy special subcommittee
was also established as a specific policy evaluation body, which returned the
following recommendations in December of the same year:
1.It is essential to establish mass production structures
before liberalization occurs, and therefore partnerships and mergers must be
promoted.
2.The Japanese government must provide funds to automakers
that can be expected to derive benefits of economies of scale.
3.The prices of domestically produced cars must be lowered
and their performance must be improved.
Separately from these moves by the Japanese government (including
those by MITI), most Japanese automakers felt that they would rather go as far
as they could on their own to strengthen the international competitiveness of
their passenger cars. Therefore, they hurried to expand their plants dedicated
to the production of passenger cars and twice reduced their prices-in September
1963 and June 1964 (with some more in September of that year)-for a total
reduction of around 10 percent. They also made strenuous efforts to improve the
performance of their passenger cars through numerous redesigns.
These efforts by Japanese automakers clearly paid off. The
import quota for foreign cars was increased beginning in the second half of the
Japanese government's 1963 April-March fiscal year and a system was adopted
beginning in fiscal 1964 of unrestricted allocation (with the exception of
exports from just a few countries). Nevertheless, the number of imports
increased only slightly from 11,703 units in fiscal 1963 to 13,577 units in
fiscal 1964, accounting for less than 3 percent of the total Japanese car
market.
Witnessing this healthy growth of the Japanese automotive
industry, the Japanese government took the bold step of liberalizing imports of
completed passenger cars on October 1, 1965, despite having some concerns about
Japan's passenger car production volume and the sizes of its automakers.
Capital
Liberalization and Automotive Industry Reorganization
The passenger car import liberalization implemented in 1965
nearly completed trade liberalization related to automobiles, leaving only a
few items restricted such as engines and their parts. Thus, trade and currency
exchange liberalization was nearly complete, but the issue of capital
liberalization still remained before Japan's economy could become truly open.
The need for liberalizing capital transactions in Japan
became a real issue when Japan joined the Organization for Economic
Co-operation and Development (OECD1). Giving Japan high marks for its
extraordinary economic growth rate and the liberalization of its trade and
currency exchange, the OECD decided at its directors meeting in 1963 to invite
Japan to join. Japan became an official OECD member in April 1964 and enjoyed
such benefits as the elimination of import restrictions by European nations. At
the same time, however, Japan was obliged to liberalize capital transactions
according to the general principle of capital liberalization.
Facing the challenge of foreign capital liberalization in
Japan, Japanese automakers were striving to establish mass-production structures,
increase their owned capital, and strengthen their technology development
capabilities. As these efforts to enhance corporate structure progressed,
competition among the companies intensified and the differences between them
became noticeable, making the time ripe for a reorganization of the Japanese
automotive industry. Then in 1964, a merger proposal with Prince Motors was
brought to Toyota Motor Co., Ltd. Eiji Toyoda, as Toyota Motor Co., Ltd.
chairman, recalled the event as follows:
This was brought up by Shojiro Ishibashi, founder and former
chairman of Bridgestone, in 1964, the year of the Tokyo Olympics. ...
We turned down the offer. Ishibashi had made it clear that
'if things don't work out with Toyota, we'll have to go elsewhere.' So we foresaw,
more or less, that Nissan would take over Prince if we didn't. And that's
exactly what happened. ...
When Nissan and Prince merged, the Fair Trade Commission
gave its official sanction, citing as justification that 'the Nissan-Prince
merger results in a market share smaller than that of Toyota'. What this meant
was that, as the top automaker, Toyota was not free to merge with anyone.
The August 1966 merger between Nissan and Prince paved the
way for accelerated regrouping of the Japanese automotive industry, with the
goal of strengthening its international competitiveness.
Meanwhile, the domestic automotive industries of the United
States and Europe had already matured and therefore were being forced to
explore new overseas markets. As noted, in 1967, Japan surpassed West Germany
to become the second largest car-producing nation in the world. As such,
American and European automakers were eyeing Japan as a promising market and
began to strongly demand liberalization of foreign capital in the Japanese automotive
industry.
The first country to demand liberalization of foreign
capital in the Japanese automotive industry was the United States. In January
1968, at a subcommittee meeting of the Japan-U.S. Trade and Economy Joint
Committee, the U.S. side strongly demanded liberalization of foreign capital in
the Japanese automotive industry. The negotiation surrounding capital
liberalization remained difficult, but soon a position promoting liberalization
began to gain momentum, even within Japanese financial circles and the Japanese
government. The reasoning was that since the Japanese automotive industry had
climbed to the second place in the world in production volume and was
increasing exports, it was sufficiently competitive to withstand
liberalization. Japanese automakers, on the other hand, experienced the massive
corporate power of the U.S. Big Three as a major threat.
Japanese car exports in 1969 had grown by 40 percent from
the previous year to 860,000 units. Because exports to the United States
amounted to 340,000 units, accounting for 39 percent of total car exports, the
demand for capital liberalization from the Big Three continued to intensify
with every passing day.
Meanwhile, in May of the same year, Mitsubishi Heavy
Industries, Ltd. (MHI) announced a partnership with Chrysler Corporation, and
began preparations to form a joint venture, with 65 and 35 percent of its
capital to be provided by MHI and Chrysler, respectively.
Against this backdrop, in October 1969 the Japanese
government made a cabinet decision to implement capital liberalization in the
Japanese automotive industry beginning in October 1970. It also decided that
the foreign capital ratio must not exceed 50 percent when a new joint venture
is formed, and that capital participation in existing automakers would be
individually examined.
In response, then-President Eiji Toyoda, made it clear both
internally and externally that Toyota was committed to remaining a 100 percent
Japanese-owned corporation and would establish an annual production capacity of
2 million vehicles as quickly as possible:
“What Toyota must do in preparation for the imminent capital
liberalization is solidly establish our mass production system. By the time
liberalization is implemented-that is, by 1971-we hope to have established an
annual production capacity of 2 million vehicles. For Toyota, our basic
philosophy of protecting Japan's national capital has not changed. Furthermore,
capital liberalization will rekindle the issue of industry regrouping. I
believe regrouping will be promoted but will not go as speedily as expected.
We will continue to increase the subcontracting of
production to Daihatsu and Hino Motors over the long term. In any case, we must
establish an annual production capacity of 2 million vehicles as quickly as
possible, including that of our affiliates. For this reason, we are currently
building a new plant and are also looking to purchase land for other plants.”
Toyota's policy during this period could be condensed into
the following two goals:
1.Enhancing the model lineup to establish a complete product
lineup in response to the diversifying demand in the Japanese market
2.Establishing a 2 million-unit capacity as the immediate
goal and achieving cost reduction as a result, in order to cope with capital
liberalization
Since Toyota's production volume had just reached 100,000
units per month and 1 million units per year in 1968, 2 million was a distant
goal. Back then, only General Motors and Ford Motor Company had achieved annual
production volumes exceeding 2 million units.
Source: Toyota Motor Corporation
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