Japan's Automakers Face Endaka Due to the Arab oil embargo, oil shock was raised in 1970s. The global economy faced a period of recession. The sluggish economy also affects the automobile market. Japan's automobiles prevailed for its cheaper cost, fuel efficiency, and exquisite design. In the early Eighties, dollars appreciated against major currencies including the Japanese yen. It boosted the expansion of Japan's exports, U.S. government faced successive years of trade deficits against Japan, protectionist coalitions claimed that measures shall be taken to reverse the present trade situation. As such, a new agreement called the Plaza Accord was brought onto the agenda. Instead of controlling domestic demands, U.S. government exerted pressure on the Japanese yen, since they thought yen was underrated. The adoption of the 1985 Plaza Accord improved the value of the Japanese yen against dollar. Prior to the Accord, the dollar had traded at 240 yen; one year later it was down to 150 yen (HBScase). Japan faced a sharp exports crisis after the Accord. The backbone of Japan's GDP growth, the automobile industry, also suffered the pain from a strong surge of yen's value. They faced several problems: (1) The Japanese government made a concession of voluntary reduction of exports to the U.S. market under the pressure of protectionism. Meanwhile, few improvements can be seen on the issue of trade deficits, the policy to restrain Japan's automobile expansion in U.S. will be more rigid; (2) Due to the rise of Japanese yen's value, original cheaper cost, fuel efficient car brands will not have their previous price advantage, purely for the sake of exchange rates float, despite of the impact on cost of goods sale and the other factors; (3) Japan's automakers obtain relatively lean profits compared to the booming period, they are compelled to reduce their cost to maintain their market share with caution. Some of the executives found other ways out, for instance investments in fixed assets. The bubbles in overheated housing markets in the late 1980s became a severe burden for Japan's economy. Japan's big four automakers undertook reforms and strategy adjustments to pull through all frustrations: (1) Cut cost. By reducing overtime in plants and set up cost of offices, as well as using the increasing strong yen to cut down the cost of foreign inputs, for example raw materials or finished accessories. Austerity budget policy help them to minimize the impact of yen appreciation; (2) Start up transplant. High yen compelled automakers to move their export origin out of Japan, investments kept flowing in the U.S. market; (3) Diversification. Because of the export restraints and competition with other countries' low cost automobiles, Japan's automakers were looking forward to more market share in the high end segment. Upgrade on the technique and release of a new series of models enabled automakers to maintain their market share. For example, between 1985 and 1991, Nissan increased its number of models to 60 from 39 (The New York Times, 1992); (4) Higher sticker prices. Although automakers promised not to pass along all yen appreciation to the price of their products, the price nevertheless was raised by 40% in order to maintain automakers' profit (HBScase). Actually Japan's automakers not only got pains but even thrived on the soaring yen. Japan's automakers were undergoing a period of being more multinational, with capitals flow out from domestic market, automakers felt their way in the global market. The benefit is their manufacturing technique became more adept by employing skilled specialists from the U.S. and Europe, otherwise they use the mighty yen to easily and cheaply capture the dollar-linked Asia market. As the investments of automakers spread globally, it allows them to play both sides of yen-dollar swings, using cheaper dollar-denominated parts and materials to offset higher yen...
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