Manufacturing efficiency and fuel economy brings success for Japan auto industry

japanese-sports-car-auto-335copyIn the middle of the 20th century, there were few things that better symbolized American freedom and the growth of the middle class than the automobile. The Ford Motor Company’s Model T brought the mobility of car travel to the masses; between 1908 and 1927, Ford produced 15 million “Tin Lizzies” at the company’s production facilities based in Detroit and Highland Park, MI. In the 1950s, automobiles played a large role in the suburban sprawl of metropolitan city centers all over the country and the Eisenhower interstate highway system created the infrastructure that enabled simple cross-country travel to U.S. citizens for the first time.

Take a look around at the global automotive industry today, however, and it’s easy to see that our country has gone from a monolith of car production to a mere side player in some respects. For example, not a single American automaker was expected to increase its market share over the next five years, according to global auditing firm KPMG in its 2015 Global Automotive Executive Survey. In terms of mass-market production, only General Motors and Ford rank in the top ten of auto manufacturers from across the globe.

One country whose carmakers have done a great job of stepping in and commandeering significant parts of America’s market share for autos is Japan. Nissan (TYO:7201) and Toyota (NYSE:TM) are two car brands which are incredibly familiar to today’s American consumer. However, when these companies entered the American market, it was almost laughable to think that either would manage to survive, let alone succeed. Although it’s position is threatened by Volkswagen, the annual KPMG automotive industry report places Toyota first overall for global mass-market auto sales. We’ve spent a lot of time this year looking ahead at the future of autonomous automobiles but the history of Japanese vehicles on American roads is one which reminds us of the disruptive nature of innovation that can render market giants into lesser beings over the course of a couple decades.



Toyota and Nissan Claw Their Way Into the American Market

Neither Toyota nor Nissan had what could be considered early successes with American sales of their vehicles. In 1957, Toyota’s first year in the U.S. market, the company sold a total of 288 vehicles. Nissan began selling its Datsun to American consumers in 1958; by 1961, the company had sold a total of 146 units. This was a drop in the bucket compared to the hundreds of thousands of vehicles being produced in the late ’50s by companies such as Ford, Chevy and Plymouth.

The late start that these companies had did not help their chances of succeeding against their American competition at all. Both Nissan and Toyota did not begin manufacturing vehicles until the late 1930s, giving companies like Ford three decades’ worth of experience on their Japanese counterparts. By the late 1950s, the Nissan Datsun and the Toyopet Crown, Toyota’s first American market model, offered a paltry 37 horsepower and 27 horsepower, respectively. By contrast, some variations of the 1957 Chevrolet offered up to 283 horsepower, although most of its V-8 offerings that year topped out at about 245 horsepower.

There were other production issues, however, that would prove to be hurdles on the path towards market success for Japanese car companies. Both the Datsun and Toyopet Crown had issues with stability and adapted poorly to American highways; the Toyopet Crown, for example, overheated often and required more gas and oil than many other American models. Generally, the Japanese product just wasn’t as good as American automobiles at that time.

One thing that Japan as a nation did have in its favor, however, was an incredible amount of economic growth in the decades after WWII. Buoying the Japanese economy after the war was important to American interests who were looking to stem the tide of Communism which was already sweeping over China and other Asian nations. The Japanese government failed to entice a multitude of Japanese car companies, which included Isuzu, Mitsubishi and the precursor to Mazda, into merging so as to create a Japanese Big Three to compete with Detroit. However, other governmental policies, such as total employment and public loans to private businesses, enabled a great deal of business growth in the post-war years.



Crisis and Manufacturing Opportunity Leads to Turnarounds for Japan Auto

It would not take long for both Nissan and Toyota to learn from their early mistakes in the American market. As American historian David Halberstam put it in this documentary video about the Nissan Datsun, “the learning curve was very short.” Toyota in particular devoted a lot of resources towards developing more successful manufacturing methods. The company became bolstered by the success of engineer Taiichi Ohno’s Toyota Production System, also known to practitioners as kaizen, the practice of continuous improvement.

The Toyota manufacturing processes established by Ohno reflected the need for Japanese companies to become competitive against their much larger American counterparts. Unable to amass the huge auto part inventories that characterized most “push” manufacturing operations in the U.S., Ohno focused on developing “pull” or “just in time” manufacturing systems at Toyota plants. This method was better suited for smaller production volumes as workers were asked to retrieve parts when they were required instead of receiving parts as they were made, preventing the inventory waste of push manufacturing operations. Labor productivity was improved when managers had Toyota employees operate an average of five machines each by 1963, another deviation from American mass manufacturing practices. Nissan adopted similar techniques shortly after Toyota and, as the system became known more widely as “lean manufacturing,” these concepts would prove to be very influential to consumer product development in the following decades.

Capitalizing on some economic realities of the early 1970s also proved to be a boon for Japanese automakers. The 1973 OPEC oil crisis and the subsequent gasoline shortages at U.S. gas stations put the fuel efficiency of vehicles squarely in the forefront of the consciousness of American consumers. Nissan in particular was able to grab the attention of a great deal of American car drivers with an ad campaign about the fuel efficiency of its vehicles. In one commercial, a man in a dark suit carefully handles a decorative glass decanter filled with one gallon of gasoline, which “is one of our most valuable resources” as the commercial’s narrator reminded viewers. The commercial went on to explain that an average car would travel 13.5 miles on one gallon of gas while the Nissan Datsun could travel up to 30 miles on the same gallon. The success of this ad campaign would go to prove yet again that if you want the American public on your side as a consumer, promise them that their purchasing dollars will go farther with your product than it will with the competition’s.

Brash salesmanship also has a way of earning success in America and Nissan owes a debt of gratitude in this regard to the work of Yutaka Katayama, the first president of Nissan Motor Corporation U.S.A. Katayama, who passed away this February at the age of 105, was sent to handle Nissan’s operations in America in 1960, very likely with the expectation that he would fail in this endeavour; Katayama’s willingness to butt heads with his superiors on management decisions was discussed in this documentary video on Nissan’s success in America. During his time at Nissan’s U.S.-based subsidiary, that business grew from sales of 1,000 vehicles per year to a production schedule of 4,000 cars per month, a breakneck pace that was still sometimes not enough for consumer demand.

Through the 1980s, vehicle production rates continued to soar for Japanese auto manufacturers compared to their American counterparts. By 1970. Toyota was more than twice as productive as the average vehicle production levels of America’s Big Three and Nissan had just about doubled the U.S. average as well. In 1979, Toyota was producing 2.7 cars and Nissan was producing two cars for every one car manufactured by Ford, Chrysler or GM, when their totals are averaged together.

As if stealing a larger slice of the mass-market vehicle pie wasn’t enough to rankle the American auto industry, both Nissan and Toyota would enter the luxury vehicle market in 1989 and find success there over the years as well. Toyota’s Lexus LS was that company’s first entry into the luxury car market while the Infiniti was the flagship line of luxury cars for Nissan. In its first full year of sales, the Lexus sold 60,000 units, outpacing Toyota’s expectation on sales by 3,000 cars. The Nissan Infiniti experienced more struggle in its early days, owing at least in part to an ad campaign that received wildly mixed reviews from consumers, but it became a very profitable vehicle for Nissan by the early 2000s.

A company’s reputation goes a long way in encouraging consumers to purchase its products, especially when those products are being offered by a foreign business. Japanese cars in America suffered early on from a reputation of shoddy production values but were able to buck that perception and ride the consumer wave of demand for fuel efficient vehicles in the 1970s. Judging by the production numbers tallied by these companies in recent years, consumers around the globe have come to trust Japanese automakers at least slightly more than their American counterparts.


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