Domestic auto industry must adapt to survive
Contributed by: Mr. Hiroyuki Sakai
Researcher of Asian economies
Member of JTBF
This is to introduce an article of Mr. Hiroyuki Sakai. The article was originally contributed, in English, to Herald-Asahi OPINION （The Asahi Shimbun December 24-25, 2007）.
I went to the 40th Tokyo Motor Show in October. In the early years, the show was held in a small venue in a corner of Hibiya Park in central Tokyo. Back then, in addition to such “domestic cars” as the Toyota Crown, Nissan Datsun and Prince Skyline, on display were ones made by Japanese automakers, which entered into technical tie-ups with their counterparts in Europe to take advantage of their advanced technology.
They included cars such as the Isuzu Hillman and the Hino Renault. The exhibits even included cranes and other heavy vehicles used at construction sites. Now, cars from around the world inundate the expansive exhibition halls at Makuhari Messe in Chiba. The auto industry is thriving.
But at the same time, it faces many problems it must overcome, such as improved fuel efficiency and measures to fight global warming.
As in the past, this year, too, along with the latest models and cars that are currently on the market, ones called “concept cars” that incorporate new ideas that are in the process of development were also on display. For example, Honda Motor Co. exhibited the soft-bodied Puyo, while Nissan Motor Co. showed Pivo 2, a car with a swiveling wheels. On the whole, they tended to vie for attention with novel and unusual eye-catching features.
Watching them made me think that if automakers seriously want to win over consumers, they should concentrate on cars with more realistic state-of-the-art technology.
In that sense, Nissan GT-R, which dashingly made its public appearance with Nissan President Carlos Ghosn behind the wheel, is quite interesting because it is the world's fastest mass-produced car that can speed up to 350 kph. It uses the latest technology that has been repeatedly tested and improved in not only the engine, but virtually every feature of the car, such as the body and the unique trans-axle.
I think it is a car that Nissan can justly take pride in. Still, it seemed to lag behind the popularity of Toyota Motor Co.'s hybrid cars, which starts with an electric motor and runs with a gasoline engine.
For one thing, GT-R is too expensive. Besides, it cannot fully demonstrate its excellent performance on Japanese expressways, much less on ordinary roads, because of strict speed limits. The car is not designed for mass sales. It may be Nissan's flagship car but there is no way it can do miracles to pull the company out of its predicament.
By contrast, Toyota expanded the application of its hybrid technology that started with the Prius to its high-end Lexus and medium-grade Estima. As a result, its corporate image rose.
New energy source needed
Car users today look to fuel efficiency, safety, low pollution and countermeasures against global warming. With the soaring price of gasoline caused by uneven distribution of crude oil production, users are pressed to minimize fuel costs. Fuel efficiency improved remarkably thanks to the introduction of plastic, aluminum and carbon fiber materials that made bodies lighter, the improvement of computer-controlled engine combustion, reduced friction with advanced polishing technology to achieve low fuel costs (for example, Nissan 1,500cc cars run 19.2 km per liter). Still the trend among consumers to seek smaller cars is still advancing.
Safety is also crucial. While automakers are making car bodies stronger, road operators also need to introduce measures to enhance traffic safety, such as radio guidance systems. Low pollution cars are manufactured by advanced automakers.
The difficult part is coming up with measures to combat global warming. Electric cars that use electric motors in place of conversional internal combustion engines that burn fossil fuels are gathering attention.
Some automakers, including Nissan, are developing lithium ion batteries to replace conventional lead storage batteries, while Honda, Toyota and others are developing fuel cells that generate energy by combining hydrogen and oxygen.
However, because of the high costs and concerns for safety, the technologies have yet to be put to practical use.
Hybrid technology is one way to break away from reliance on gasoline engines, but having two power sources is fatal from the viewpoint of economic efficiency. A shift to a new power source is needed.
What may come as a surprise to Japanese is the popularity of diesel engines in Europe. In Japan, diesel engines have an image that they emit black, malodorous exhaust fumes, are noisy and produce uncomfortable vibrations. But 40 percent of passenger cars in Germany are powered by diesel engines. In France, the ratio is 60 percent. Currently, diesel technology is undergoing drastic improvements and is used in the development of super-clean diesel engines. Nissan recently announced plans to fit a small high-performance diesel engine developed by Renault, with which it has ties, on a new multi-purpose sports vehicle of South Korea's Renault Samsung Motors whom Nissan assists in development.
In the end, a new energy source is needed. However, it costs a vast sum of money to develop such new technology. One of the reasons mergers and acquisitions have been repeated in the auto industry is to pay off development expenses of advanced technology by mass production. Recently, a capital tie-up between Nissan and Renault seems to have given rise to a “synergy effect” as the two automakers complemented each other, with Nissan providing a new powertrain and a small platform and Renault providing a diesel engine.
The total number of cars produced in 2006 was 70.4 million. As a result of the formation of giant corporate groups, 54.8 percent of the total was produced by the big five as follows: The GM group made 9.6 million cars, the Toyota group, 9.3 million, the Ford group, 7.8 million, the Nissan-Renault group, 6 million, and the Volkswagen group, 5.9 million.
Survival of domestic automakers
In addition to technical developments, the auto industry also faces the rapid advancement of developing countries in terms of car production and sales. In 2006, of the 15 countries that produced 1 million cars or more, China (7.3 million cars), South Korea (3.8 million), India (2 million), Russia (1.5 million) and Thailand (1.2 million) had a 22.4 percent share of the global market.
These countries have fumed into a battleground for big groups of automakers to vie for production bases and markets. Since the auto industry contributes to boosting a nation's gross domestic product, it is natural for developing countries to attract companies and seek technical transfer. However, globally, the situation could lead to overproduction.
What must Japanese automakers do to survive amid advancing globalization? Japan's top automaker, Toyota, which may overtake General Motors this year, faces the question of securing management as it advances in the global market.
Can it cover the world market with Japanese managers alone or can it make good use of local personnel? According to recent reports, the top three American managers who oversaw the administration of Toyota Motor North America Inc. and Toyota Motor Sales USA Inc. left the group to join Chrysler and Ford.
It is also questionable whether the Toyota production system and the kanban system of procuring parts that made Toyota into what it is today can really function in other parts of the world where the keiretsu group company system has yet to take root.
What about Nissan, Japan's second largest and the world's fourth largest automaker with Renault? Such management policies introduced by President Ghosn as target control and competitive purchasing did a remarkable job to breathe new life into the company, which was facing a serious crisis.
However, recently, the company seems to have fallen into a slump again. The various systems are almost designed to meet global standards, but is that wise? As the timeframe to develop new models has become shorter, simultaneous designing of cars and parts is indispensable. But can Nissan meet this requirement without rebuilding its keiretsu system that fell apart?.
Daihatsu Motor Co., Hino Motors Ltd., Isuzu Motor Ltd. and Fuji Heavy Industries Ltd. joined the Toyota group in a capital tie-up. Mazda maintains strong ties with Ford. I expect Honda and Suzuki Motor Co. to survive and stay as they are. What about Mitsubishi Motors Corp? Either way, with so many Japanese automakers, it is questionable whether they can all survive. From now on, automakers need more than just technical capabilities and capital to stay active.
I also wish to point out the sharp increase in the number of traffic accidents in Japan. In 2006, it stood at about 887,000 and the death toll was about 13,600, including those who died within a month. The main reason was illegal and careless driving.
We should slow down and observe driving manners so that we may enjoy the benefits of life with cars.
Jan.7, 2008
Royal Thai Embassy / Board of Investment / Tourism Authority of Thailand / JTECS / AOTS / JCC Bangkok / JFTC /