Honda makes cars in Thailand and imports them to Japan. Toyota produces pickup trucks in South Africa and Argentina.
These are recent examples of how two of the nation’s leading automakers are accelerating efforts to link their respective production bases abroad.
Global networking — made possible by the improved quality of manufacturers’ factories in countries less developed than Japan — helps the firms achieve an optimal mix of cost efficiency, labor skills and consumer markets.
By taking this tack, the carmakers seem to be following in the footsteps of domestic home-appliance manufactures such as Matsushita and Sony. Facing severe competition from Chinese and South Korean rivals, home appliance makers have for many years manufactured such products as color TVs and air conditioners at their overseas units before shipping them to the rest of the world.
But shifting production offshore also means fewer jobs at home, where the economy has been mired in a decade-plus slump.
Toyota Motor Corp. and Honda Motor Co. hope to outperform their American and European rivals in various markets, including the United States, the world’s largest, and China, where growth potential is huge.
“We basically manufacture vehicles where demand exists,” Honda President Takeo Fukui said. “Now that our overseas bases are able to manufacture quality products, it is more efficient to transfer supplies among these offshore sites.”
To drastically reduce costs, Honda vehicles and parts are interchangeable among its various offshore factories. This gives the carmaker wider latitude in deciding which plant is the most competitive for a certain model or part, Fukui said.
Since December, Fit Aria compacts, for example, have been made in Thailand and exported to Japan.
Honda found that its plants in Southeast Asia and China are the best suited for producing auto parts bound for Europe, where it sold only 207,000 vehicles in fiscal 2002.
This fall, it will ship automatic transmissions made in Indonesia and manual transmissions made in the Philippines to its British assembly plant. Last August, it began delivering to the U.K. plant steel parts made in China, including connecting rods and crankshafts.
Next year, it will start making a compact in China based on the Fit, hoping to export up to 50,000 units annually, mainly to Europe.
“In Europe, our capability is limited, while European carmakers that sell many vehicles there have an advantage in procuring components at low prices,” said Motoatsu Shiraishi, Honda’s senior managing director in charge of manufacturing.
To make its global network more efficient and less costly, Honda updated all of its manufacturing plants between 1998 and 2002, making them compatible, simplifying the assembly process and installing computerized welding robots that can adapt to various models.
This has given Honda the leeway to shift production of any model to any assembly line without a further huge investment, and has helped improve the overall output rate of its factories, which effectively boosts profits by saving on the cost of maintaining unused lines, the carmaker said.
The company in April 2002, for example, started annual production of 70,000 CR-V sport utility vehicles at its British plant for export to the U.S. The SUVs were previously made in Japan.
In just a few months, the U.K. plant’s operation rate rose to nearly 80 percent from less than 50 percent, Honda said.
It added the worldwide overhaul consequently halved the multibillion yen cost of gearing up an assembly line for a new model.
“What used to take at least half a year now only takes two or three months,” Shiraishi said.
Toyota also plans to bolster its overseas operations in order to produce and supply competitive products, mainly multipurpose vehicles, worldwide.
Toyota next year will transfer manufacturing of some pickup trucks, multipurpose vehicles and their components from Japan to Southeast Asian as well as to South Africa and Argentina.
The plan calls for up to 200,000 pickup trucks and MPVs to be produced in Thailand, half of which will be exported, while up to 180,000 gasoline engines will be manufactured in Indonesia, about 70 percent of which will be exported.
“This move is based on our policy of manufacturing products at the most competitive sites, namely in those countries and neighboring regions where demand for pickup trucks and MPVs is strong,” Toyota spokeswoman Yurika Motoyoshi said.
The two firms’ Southeast Asia shift is timely, said Tsuyoshi Mochimaru, an industrial analyst at Daiwa Institute of Research Ltd., noting that the region has formed a free-trade zone. Average import tariffs among six member countries of the Association of Southeast Asian Nations were lowered to 2.89 percent in 2002 from 12.76 percent in 1993.
Southeast Asia has accumulated expertise in car manufacturing in the years since Japanese carmakers advanced there in the 1960s, and workers are now skilled enough to make quality products, Mochimaru said.
Honda and Toyota face various new challenges in global management, however.
When Japan was the main source of supply for such overseas operations, carmakers’ main concern was the yen’s rate against other currencies.
But with offshore operations interacting more and more without Japan being involved, tabs will have to be kept on exchange-rate fluctuations among various currencies.
Honda executives said the firm must upgrade its ability to deal with exchange-rate fluctuations and the complications associated with distributing products among various regions.
Shifting production bases abroad could meanwhile have serious ramifications on the domestic economy. Employment and a wide range of businesses will no doubt suffer, according to experts.
Takashi Oshika, an automotive industry analyst at Mitsubishi Research Institute, fears that exports by Japanese carmakers may decrease from their current 4 million-plus vehicles annually to 2.5 million in a decade or two.
“I think Japanese carmakers, if necessary, will strategically decrease (domestic) production (for export),” not because they want to cut employees, he said.
Honda’s Shiraishi said Japan should continue acting like a “spinning top,” pursuing innovative technologies to develop exciting vehicles in order to remain a viable manufacturing base.
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