Toyota Drove To the Bank In a Ford

Economists have explained that Japan has an absolute advantage and a comparative advantage over the US in terms of automobile productions. An interesting article in The New York Times shows that it is not only lower input and labor wages that made the Japanese car makers better off.

Japanese car makers are in a much better position than the Americans. Toyota upset Ford for second place in the American market in July, 2006 and reported a huge rise in profits for the quarter. Also, studies show that the Japanese sell over $ 1 billion more in the United States than the Americans sell in Japan.

Why do the Japanese do it better?

Three decades ago, American automakers insisted that the Japanese build their factories in the United States. The Japanese did. It turned out to be the Japanese auto industry’s accelerator. Now the American car manufacturers are pushing measure in Congress to limit each Japanese company to just 200,000 sales a year in the United States. Will protectionism win over free trade? I doubt it. I’d rather believe that Japan wins because up until now, they have been playing the open market game better. In terms of productivity and branding, no auto manufacturer has ever been able to match Toyota’s amazing manufacturing methodology. Japanese companies like Toyota and Honda learn a different culture fast and they always keep up with research and development.

The Americans are in a worse position because of the decline in the overall competitiveness of US auto makers. The lack of style among GM’s lineup has been ridiculed for years. Now with gas price at almost $6 dollars a gallon in Japan, GM is going to sell SUVs there. How can they compete with the stylish and compact Japanese cars? They probably need a better strategy of developing and manufacturing cars. Simply depending on cutting company health care cost and opening-up market in Japan is flawed to the core.

Overall, many factors contributed to the changing scenarios of Japan’s comparative advantage over the US in automobile industry. In today’s market, large R&D funding to bring the world-class quality of vehicles and the global standard manufacturing process is an important issue. Analysts predicted that Toyota will overtake first-place General Motors in global sales in 2007. It seems that the Japan era in auto industry is coming and coming strong.

Are we ready for that?