Amerasian Auto

GM cuts a deal with Toyota

Even in the depths of their current despair, Detroit automakers have shown that they can learn from the competition, including their archrivals in Japan. Japanese inventory-control techniques are being introduced in U.S. plants, as are pared-down corporate staffs and worker-management cooperation programs. Now General Motors Corp. is pushing that process one giant step further, taking to heart the old tactic of joining 'em when you can't beat 'em. Reports out of Tokyo and Detroit last week indicated that GM, America's largest car manufacturer (sales in 1982's first nine months: $46.1 billion), may soon enter into a joint venture with Toyota Motor Co., Japan's biggest (fiscal 1982 sales: $16.1 billion), to build a new small car in the U.S.

The subcompact-size auto, which would be patterned after the popular Toyota Corolla, is to be assembled at a now closed GM plant in Fremont, Calif. About half the parts, including the all-important engine and drive train, would be made by Toyota in Japan. A second factory would be built next door to produce metal body parts. Production of the car, which would probably be marketed by Chevrolet dealers, is scheduled to begin in late 1984.

Although an auto with both an American and Japanese heritage sounds improbable, it is a direction in which U.S. carmakers have been heading for several years. Chrysler Corp. owns a 15% share of Mitsubishi Motors Corp., Ford Motor Co. has a 25% stake in Toyo Kogyo Co., and GM already holds a 34.2% interest in Isuzu Motors. As one Japanese auto company official put it, GM needs no help in the design and styling of a new model, but it is the Japanese who are really expert at devising an efficient and high-quality production system for small cars.

A final agreement to formalize the GM-Toyota linkup must still be signed, and it will surely be opposed by other U.S. automakers on antitrust grounds. Though few think that GM and Toyota would have embarked on lengthy negotiations without at least tacit approval from the Government to go ahead, one well-placed official is extremely skeptical that the deal will go through. Bargaining between the two companies consumed nearly a year and dragged on longer than GM expected. One major sticking point was resolved when Toyota apparently agreed to allow the new plant to be unionized by the United Auto Workers. Toyota will reportedly also get a 2.5% design royalty on each car built. With production estimated to be 200,000 cars annually, that could amount to $25 million a year.

By linking up with Toyota, GM is making a virtue of necessity. Like other U.S. manufacturers, it has not been able to solve the manufacturing and financial equations of small cars. Design problems helped doom the Corvair in the 1960s and the Vega in the 1970s. The rear-wheel-drive Chevette, introduced in 1975, is obsolete and overdue for replacement. As a stopgap, GM has been planning to import 200,000 subcompacts made by Isuzu starting next year, and there are tentative plans to bring in up to 80,000 smaller minicars from Suzuki Motor Co. So far, the giant automaker has not announced any change in its intentions.

But GM has balked at spending the estimated $1.5 billion it would cost to tool up for an entirely new model because there was no guarantee of an adequate return. Japanese manufacturers enjoy a cost advantage of some $1,500 per unit in the production of small cars, which comes from production efficiencies, labor-cost differentials, tax laws that favor exports, and the cheap yen. U.S. automakers have been unable to compete profitably (see Book Audits). Japan commands 48% of the small-car market in the U.S.

While Honda Motor Co. has already begun producing Accords at its plant in Marysville, Ohio, and Nissan Motor Co. will be turning out pickup trucks in Smyrna, Tenn., later this year, Toyota has dragged its feet on U.S. production for a decade. In 1980 it initiated talks with Ford about a joint production arrangement, only to break them off after a year of protracted discussion. Now a decision is being forced upon the company. Next month the agreement under which Japan "voluntarily" limits its auto exports to the U.S. to 1.68 million cars annually is due to expire. With the U.S. expected to demand a two-year extension, Toyota has no room to expand its U.S. sales. It also wants to head off proposed domestic-content legislation, which would require that high-volume imported cars built by foreign automakers contain a large percentage of American parts and labor. Moreover, the zaikai, the top leaders of Japan's business community, have been pressing Toyota to move some of its manufacturing capacity into the U.S. because they fear retaliation in other industries like electronics.

Though GM Chairman Roger Smith claims that the Toyota venture represents only a "temporary" solution, there was another sign last week that Detroit is leaving the manufacture of small cars to someone else. American Motors Corp. indicated that it may soon pull the plug on its archaic Spirit and Concord models. That will leave AMC with only the four-wheel-drive Eagle and the hot-selling Alliance, which was developed and financed by its French partner, Renault. This file is automatically generated by a robot program, so viewer discretion is required.