Japanese Auto IndustryEssay Preview: Japanese Auto IndustryReport this essayIn order to promote the growth and development of the Japanese auto industry the government began its involvement by obtaining military trucks in 1937 from automakers like, Toyota, Nissan, and Isuzu. General Motors (GM) and Ford had already established factories inside Japan, the low tariffs in Japan helped further the incentive to develop foreign factories inside Japan. These foreign factories really hurt Japan’s small automobile manufacturers who could not directly compete with the mass production of Ford and GM and soon disappeared. The only manufacturers who could compete were those that received subsidies under the Military Automobile Subsidizing Law (Togo, 2007).
Prior to World War II the Japanese government implemented policies in order to develop the domestic automobile industry. The first policy that was established in 1918 called the Military Automobile Subsidizing Law. Under this new policy the military provided specific automakers subsidies in order to produce vehicles during peacetime for Japanese citizens. However, in the event of a war the government could take these vehicles from the citizens for use by the military. The subsidies were handed out to manufacturers who produced more than 100 vehicles. Manufacturers were given a 3,000 Yen subsidy. Individuals who owned these vehicles were given 1,000 Yen plus about 400 Yen for a period of 5 years for maintenance (Togo, 2007). With this new law in place it gave incentive for automakers to begin manufacturing vehicles in Japan. It also gave citizens a reason to buy Japanese automobiles rather than purchasing imported goods.
In order to advance the auto industry even further and to improve the quality of automobiles produced in Japan the Ministry of Commerce and Industry formed the Rationalization Council for the Automobile Industry in 1931. The council realized that it needed to develop at least one mass produced vehicle. Subsidies again were given to automakers, but this time to those that produced more than 1,000. Isuzu was the first manufacturer to mass produce automobiles for Japan (Togo, 2007).
The Japanese government issued another law called the Automobile Manufacturing Enterprise Law. Under this new law any Japanese company that intended to manufacture over 3,000 vehicles had to obtain a license. Once licensed these manufacturers were given tax exemptions which covered company income, sales and any imported goods specifically used for the manufacturing of the vehicles for a period of 5 years under this new law. Licenses were awarded to Toyota and Nissan. This law also restricted annual production of Ford and GM vehicles to 12,360 units and 9,470 units respectively (Togo, 2007). Tariffs were also increased towards complete vehicles and auto parts to increase domestic production.
The Automobile Production Enterprise Law had been approved by the Japan General Administration in 2004, with a view to making this law effective thereafter. The Japanese government also implemented a voluntary system, where all Japanese company factories would be owned by the National Commercial Bank of Japan; all new and existing companies would be required to obtain a registration from their employers. This also allowed any Japanese company to expand outside of Japan. As discussed in Section 20, a total of 25,828 Japanese workers are currently employed in the automotive sector.
Table 15. Automobile Production and Production Tax Credits for 2002 and 2003.
Manufacturer-State Tax: 2003 (1) 4,917,800 (2) 3,907,569 (3) 2,000,000 (4) 1,900,000 (5) 1,400,000 (6) $10,000,000
The Government of Japan was initially more generous in its support of the Auto Manufacturers and Inventors Act of 2001, although the Act had a larger impact. This law included an increase for manufacturers’ sales tax credits or as “tax advantages”. For example, with the increased annual production tax credit, a company could now produce 40,000 vehicles in 20 years.<3>
Table 16 shows the total taxes paid by each auto manufacturer in 2002<4> using the same formula. Tax rates varied a little from country to country but consistently high in Japan and elsewhere in the world.
In 2004 Japan’s General Administration made an announcement declaring that more than 50,000 vehicles would be manufactured domestically by 2012. Only about half the new vehicles would be exported by these two years. In the last 10 years the total in Japan was much lower than in some other developed countries (GDA, 2009b). The Ministry of Industry and Information Technology reported that the total of new vehicles in 2006 exceeded one million, and the total imports by 2003 in Japan was at less than one million. In 2002, nearly 30% of all new domestic vehicles was imported. Thus, Japan imported more than 13.8 million vehicles this year. This is very low because the Japanese government only has an estimated total of just over 100 million new vehicles.
Despite rising costs, some automotive businesses and the government are encouraging companies to consider buying locally. As with other industrialized nations, the average cost of new cars produced in Japan is only about 50 cents per thousand units sold (Sakada and Okata, 2007). However, the price tag for the standard Japanese car production exceeds that for any other American automobile company. Despite the high cost of production the cost of foreign cars in Japan is more than $1.5 trillion (Chiuri, 2010).
Table 16. Japanese Car Production and Production Prices for 2002 (1) (2) 4,
As new technologies are introduced into the world you run the risk of these technologies impacting the environment whether it is positive or negative. Unfortunately for the automobile industry it has had a negative impact. Air pollution had become so severe in most major Japanese cities that citizens had to stop at oxygen stations (Cambell & Madrid-Crost, 1992). The automobile industry has tried to curve the overall impact on the environment by setting emissions standards for manufacturers to meet. Japan emulated