1. Talking Points AJBS Auto Forum Michael Smitka, Professor of Economics Williams School of Commerce Washington and Lee University Lexington, VA 24450 ------------- Association of Japanese Business Studies Conference Friday, June 6, 2003 Concordia University Montreal, Quebec

2. Definition of industry By location: “japan” or “ownership” ? –Is Nissan “Japanese”? –Is Honda “Japanese”? –Neither clear By sector ? –Assembly: but at most 15% of costs –Design & engineering –Suppliers –Distribution

3. Analytics Final market: monopolistic competition –Implication: at best “normal” profits –Evidence: product proliferation, low profits Analytic premise #1: organizational change –Can old dogs learn new tricks, or entry / exit? Premise #2: is the firm an appropriate unit? –National industry? NAFTA vs Japan profits

4. Assembly focus in academics Not center of costs: suppliers –Overrated: worst in quality today is better than best when JDPower surveys began Not strategic key: design & product positioning Neither addresses issues of technology –Electronics in car, now alternate propulsion systems Marketing neglected –Absent dealerships, GM would have failed Poorest in quality, product, cost but survived

5. Suppliers Subject to strategy of parents –Both Toyota & GM had written policy: never be 1st to market - both now selective innovators –Qualitatively, no PACE (Automotive “Supplier of the Year”) finalists from Japanese supplier network –Qualitatively, suppliers I’ve visited in Japan are only now awakening from a passive mindset, about 10 years after transition in NAFTA

6. Design: What’s Known and (mainly) What Isn’t Speed-to-market: Japanese strength –Fujimoto research –Help with auto market –But still lagged in light trucks Link from marketing to design not studied Contrast of independent dealers vs captive dealers not studied

7. Domestic Japan Adjustment: my story of post-1991 shifts –Started with grant proposal in 1999, why no change despite 30% excess capacity? Unfortunately Nissan takeover announced between writing and evaluation of proposal –CY 2000 version: direction but not results –CY 2002 version: direction and results –Next version: adequate results?

8. Will “Japan” survive? Not sure what to conclude –Only 2 independent assemblers remain: Honda, Toyota - and former more US than Japan sales! –NAFTA still young: I know two retirees from Honda, but one was the 4th hire in HMMC. Cf. GM pension crisis –MMC, Mazda, FHI, Suzuki, Isuzu GM okay - FHI, Suzuki, remains of Isuzu DCX can’t manage mass market maker MMC Ford not yet recovered from chaos: fights between EU, NAFTA, with Mazda to date a loser

9. Nissan They make money, and maybe BMW Not clear anyone else does: on a ROA basis Toyota is not very profitable

10. The Future Industry consolidation? - will it work? China? –Every manufacturer I visited in Japan July 2002 and December 2002 wanted to discuss New technology? –Car electronics (adaptive safety devices) –Fuel cell electric vehicles & hybrids Demographics & LF issues in both US and Japan –Common source, firm-level issues vary with health care and retirement systems