Impacts of Japanese Competition on US auto industry

Impacts of Japanese Competition on US auto industry

The US auto industry is structured on the invention of the automobile by Henry Ford. In fact, the US auto industry has dominated the world’s production of vehicles for about a century since the invention in 1890s. Over these years, peak production levels have surpassed 14 million units and hit low levels of 5 million units during the crisis in 2009. The industry has braced harsh times including the Great Depression and was dominated by mainly three companies: Ford, General Motors and Chrysler. In the 1980s however, US production of automobiles was overtaken by Japan and is now the second largest in the world. The entry of Japan, with its low cost vehicles is the main reason for the dip in sales of US made vehicles and subsequently the production in the auto industry (Kawahara, 1998). Consequently, the competition from Japanese firms has negatively affected the US auto industry.

The economic impacts of Japanese competition on the US auto industry are wide and diverse and have affected not just the industry but the country’s economy at large. One of the notable consequences of Japan’s entry in the production of vehicles is the collapse of auto companies in the US. From the onset of automobile production, the US had hundreds of small companies that were involved in the production of vehicles. Although, the industry was dominated by the big three companies of GM, Ford and Chrysler, smaller companies still managed to keep afloat. However, starting in 1970s, the companies were dealt a big blow by the emergence of foreign competition and high oil prices. Needless to say, most of the foreign competition was from Japan which had started production companies in the US. During that period of high competition, even large companies like General Motors and Chrysler applied for bankruptcy reorganization. Luckily enough, the government was there to bail the companies out with loans and grants. Despite the bail outs, smaller companies had to pave way due to intense competition.

The increased competition from Japan is not only a worry for the auto companies but the country in general. Particularly, the country’s balance of trade is negatively affected by the competition from Japanese companies (United States, 1980). Most US citizens are importing Japan-made vehicles that Japanese are importing US-made vehicles. The result is a large deficit in trade balance that negatively affects the United States. Even in the US, the Japanese companies still dominate over the homegrown companies. Since the 1980s, the US trade deficit in motor vehicles has been on an increase largely due to the increasing in US imports of motor vehicles and parts from Japan. Even when the trade deficit began improving, it was due to the establishment of Japanese firms in the US meaning the US citizens still used more Japanese vehicles. Although US motor vehicle sales improved ion 1993, the exports were outpaced by high imports from Japan and therefore increasing the trade deficit on the part of the US. The US auto companies have over the recent years focused on the global market for motor vehicles leaving the domestic market to the invasion of companies such as Toyota.

The entry of cheaper vehicles from Japan including from Toyota and Honda companies has rendered most employees jobless. The reason for this is because Japanese companies work on the structure of cheap labor thereby driving other companies out of business due to lower costs of production. It is a common occurrence to have retrenchments in the US auto companies due to the ailing sector. In 2003, 9.8% of the total US job losses were attributed to the automobile industry (Cooney & Yacobucci, 2006). Largely to blame for the loss of jobs is the huge losses that the US auto companies have made in many years. Unsurprisingly, all these losses are results of the high competition that Japanese companies impose on the US auto companies. In 2012, for instance, the umbrella union for auto workers in the US agreed to part with some health and wage benefits in an effort to help the ailing economy band cut the losses. In this regard, the union agreed to concessions and contract negotiations.

The dominance of the US auto industry by Japanese companies poses a risk of the industry being monopolized by the Japanese firms. Already, three of the major companies in Japan have started production in the US. The three companies are Toyota, Nissan and Mitsubishi all of which have large volumes of production. In addition, the companies have entered into joint-ventures with homegrown companies. One such example involves Mitsubishi and Chrysler. Without government regulation, the foreign companies could dominate the local market and end up controlling the entire market at the expense of other companies. In so doing, the companies could form cartels that can set high prices for vehicles therefore exploiting the American citizens.

The Japanese competition is also to blame for a majority of the bankruptcy reported amongst US auto companies. Many times, the federal government has stepped in to bail out US auto companies from bankruptcy. During 2008 and the years preceding it, there was a crisis in part due to the fuel crisis. In response to the crisis, Japanese companies such as Toyota strategized on how to entice the reluctant customers by making fuel efficient vehicles. The US companies on the other hand stuck with their normal models which faced intense competition from The Japanese models. Ultimately, most US citizens settled for the small and more fuel efficient Japanese models. The crisis was so bad that it forced majority of the US companies into debt. Eventually, General Motors and Chrysler filed for bankruptcy but the government was there to bail them out. There has been a growing debate as to whether the federal government should use money from taxpayers to bail out private companies whose profits does not extend to the general public.

The Japanese companies also pose a risk to the US auto industry through the numerous acquisitions that may arise. Due to the failing US companies, larger Japanese companies may end up acquiring the US auto companies and dealing a big blow to homegrown companies. Although no such acquisition has occurred yet, there is much to worry because many offers have been extended. Many Japanese companies such as Toyota and Nissan have expressed their desire to buy out and acquire US companies especially in the times of low profits. In addition, joint ventures are a common occurrence in the US auto industry. Japanese companies have formed joint ventures with US companies in a bid to penetrate the market further (Berger, 2001). One such venture involves the one involving Mitsubishi, a Japanese company and Chrysler which is a US company. Although the venture increased the number of shares that Chrysler had in Mitsubishi, it commits the capital of US companies to the production in Japanese companies thereby limiting their ability to expand.

The US auto industry represents the American identity and has for a long time represented the ideals of the American culture. Ford, for example, has shaped the auto industry on the basis of the traditions of the American people and their way of doing things. For instance, the US auto companies respects the rights of workers and their dignity. As thus, their wages are kept at par with the commensurate work that they produce. However, that is subject to change owing to the entry of many Japanese companies in the US market. For instance, the notion that workers be paid for the number of hours worked is fast losing track and nowadays, workers are paid in general, regardless of the number of hours worked. If the domination of these Japanese companies is left unchecked, then America’s identity and values risk being washed down the drain by companies that do not focus on such values. The emphasis on profitability of the company at the expense of the workers’ well being is one other value that is being washed down the drain due to the emergence of these Japanese companies.

Due to the increased importation of Japanese vehicles in the US, there is a challenge in the maintenance of such vehicles. The parts for these vehicles’ repair are not readily available within the American market. In contrast they have to be shipped from Japan where most of the vehicles are made. This practice has largely inconvenienced the US citizens because they are used to delivering heir car for maintenance at that firm’s plant. However, this challenge has been reduced with the establishment of Japanese companies in US soil and their opening up of large plants in the US. That notwithstanding the maintenance of the vehicles still remains a problem since the parts cannot be replaced with the parts from companies such as General Motors or Chrysler.

The US auto industry is largely dependent on advancements in technology and new cars are continuously fitted with the most recent technology. However, with production of vehicles set on a decline due to the competition from Japanese companies, there is little chance that this trend will go on. Most of the US companies have little profits and they therefore set little or no money for research and development (Rubenstein, 2001). The result is that most companies in the US are left behind in technological advancement as they pave the way for Japanese companies that are much more aggressive. In general terms, the level of technological advancement in the US is on a decline due to the importation of foreign technology through the Japanese companies.

In addition to the above challenges and negative impacts, Japanese competition is also to blame for the poor quality of vehicles in the US today. Most of the Japanese companies have concentrated on smaller and fuel efficient cars that are relatively cheaper and affordable to the US citizens. However, this is usually done at the expense of the quality of the vehicles therefore exposing the US citizens to vehicles of low quality. Since the entry of Japanese companies in the US, the average life span of the vehicles has reduced owing in part to the low quality. The emphasis on low cost vehicles that is driven by Japanese companies has rendered the quality of these vehicles to be poor. Customers are forced to spend much more on maintenance of the vehicles than they would have spent had they bought vehicles of higher quality.

Despite the availability of cheaper vehicles for the US market, the entry of Japanese companies in the US auto industry has spelt more doom than good on the country as a whole. Moreover, it is not just the auto industry that is at a loss from this competition but the entire economy. Large sectors of the economy have been affected as a result of this invasion by Japanese auto companies. There has been collapse of auto companies and the loss of jobs among US workers. In addition, the American identity has been scarred and technological advancements stalled. The impact has been much harder on the US auto companies that have been rendered bankrupt over the years. The government should therefore work towards reversing these negative impacts by strengthening the US auto companies.



Berger, M. L. (2001). The American automobile in the 20th century: A reference guide. Westport, CT: Greenwood Press

Cooney, S., & Yacobucci, B. D. (2006). U.S. automotive industry: Policy overview and recent history. New York: Nova Science Publishers.

Kawahara, A. (1998). The origin of competitive strength: Fifty years of the auto industry in Japan and the U.S. Tokyo: Springer

Organisation for Economic Co-operation and Development. (1987). The Costs of restricting imports: The automobile industry. Paris, France: Organisation for Economic Co-operation and Development.

Rubenstein, J. M. (2001). Making and selling cars: Innovation and change in the U.S. automotive industry. Baltimore: Johns Hopkins University Press.

United States. (1980). World auto trade: Current trends and structural problems : hearings before the Subcommittee on Trade of the Committee on Ways and Means, House of Representatives, Ninety-sixth Congress, second session, March 7, 18, 1980. Washington: U.S. Govt. Print. Off.

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