Japanese Carmakers Invade the U.S. Automotive Industry

Japanese Carmakers Invade the U.S. Automotive Industry

“‘What the United States has gone through now lies in store for Europe,” Dieter Zetsche, chief executive officer of Chrysler, DaimlerChrysler’s U.S. arm, told Germany’s Berliner Zeitung recently.” Dieter was commenting on the growth of Asian cars in Europe and how this affects the European auto industry. Although the penetration of Asian carmakers in Europe has been evident since the 1980’s, only recently have European auto companies reacted to the threat. Now European carmakers are scrambling to further differentiate their cars while lowering the cost of production in order to remain competitive against impeding Asian auto companies, which are quickly establishing a presence in Europe.

The loss of U.S. market share to Japanese carmakers during the eighties provides insights of what is to be expected in the European automotive industry. Edward Deming, a pioneer in operations management, first proposed his arguments regarding the minimization of production variance as a means to enhance quality to U.S. auto-makers. Uninterested by the arguments laid forth, U.S. automobile companies disregarded this approach. Toyota, however, found Deming's theories compelling and it implemented Deming’s quality control approach. Other Japanese car manufacturers such as Nissan and Honda soon followed suit. The global automobile industry has not been the same since.

The efficient production capabilities Japanese auto manufacturers developed during the eighties quickly allowed them to establish a low cost competitive advantage over other passenger cars of similar class. In comparison to the American automobiles of similar class, the Japanese cars were also better in terms of quality. High fuel prices also played favorably for the Japanese automobiles, as the cars had better fuel efficiency and were generally smaller in size than the American automobiles.

Although Americans during the eighties had significant pride regarding their domestic cars, the Japanese auto companies quickly gained significant market share. Pride and confidence of American automobiles dwindled, nearly in negative correlation to the increased presence of Japanese cars. Although the American automobile companies have since implemented Deming’s control processes and today produce very high quality automobiles, the stigma of poor quality remains.

Europe’s Carmakers Remained Confident

European auto companies, however, dismissed the Japanese success in the United States. To them, the penetration of Japanese automobiles in the U.S. market was attributed to poorly made American cars. Ultimately, the loss in market share to the Japanese was thought to have been a result of an ignorant public that did not appreciate sophisticated automobiles. At the time, European carmakers perceived the low-cost Japanese cars a threat only to the United States. European consumers had an appreciation for sophisticated engineering, quality, and style, neither of which was a characteristic of the Japanese cars. In turn, European auto companies saw themselves protected from the expanding Japanese carmakers.

Indeed, the Japanese carmakers posed little threat to the European automobile industry during the eighties. The Japanese auto companies were only able to capture a very small portion of the European market. However, this was attributed to the fact that the major markets of Europe restricted Japanese access or limited their market share. The Japanese carmakers actually took a significant market share within open access countries such as Ireland, Finland, the Netherlands, and Switzerland. Nevertheless, the European auto companies continued to ignore the developments among Japanese and other Asian automobile manufacturers.

Today, the European automotive industry is facing the same threat the U.S. faced during the eighties: the loss of market share to Asian car manufacturers. Only now, Europe faces this threat from not only Japanese carmakers that successfully captured significant market share in the U.S., but it also faces threats from other Asian countries, such as China and Korea, which have a low-cost competitive advantage.

Increased Consolidation and Competition

Since the eighties, the international competitive landscape for the automobile industry has changed dramatically. There has been a great deal of mergers and acquisitions over the last two decades, which has dramatically affected the industry. Significantly contributing to further consolidation has been the expansion of the auto industry into new markets such as Eastern Europe and China, where many independent