parts imports increased with the start-up of the new American manufacturing
plants. However, as these new plants have become more mature, they have
increased their purchases from U.S. suppliers. For example, Toyota reports
purchases of over $4 billion worth of U.S. -made parts a year. Of Toyota Motor
Manufacturing USA's (TMM's) suppliers:
► 114 are U.S. -owned companies (a few Canadian);
► 29 are U.S. /Japanese joint ventures;
► 7 are U.S. /Japanese M&A (companies which were U.S. -owned when
TMM formed supplier relationships and were later acquired by
73-345 - 93 - 7
*■ 18 are Japanese traditional suppliers; and
*■ 6 are Toyota group companies (companies which are included in the
consolidated financial statement of Toyota Motor Corporation/Japan).
The new American manufacturers also have increased activities which will lead to
heavier involvement by U.S. suppliers. For instance, Honda has expanded vehicle
design, research and development, and production engineering in the United States.
The Accord Station Wagon, introduced in 1991, was designed and tested in the
United States. The original prototypes were fabricated here, as were the major
dies. The car even was introduced in mass production exclusively at Honda's auto
plant in Marysville, Ohio.
The bottom line to all this activity is that parts orders in the United States have
increased. Honda reports that U.S. purchasing has risen to $2.9 billion, Nissan
buys $2.35 billion in parts, and Mazda purchases are over $1 .4 billion. According
to the Los Angeles Times, total Japanese purchases of American-made auto parts in
1992 totaled $13 billion, a 44 percent increase over the last two years. (May 10,
Examining the U.S. auto parts industry more carefully, the difficulties facing this
sector are primarily structural. According to the Financial Times, "The U.S.
automotive parts industry is in the throes of a long and painful consolidation wave
which is likely to eliminate many of the sector's weaker players but leave the
strongest and most efficient companies significantly more profitable." (June 28,
1993) Parts companies' problems have been exacerbated by the recession which
led to softer auto production and by Ford's, GM's, and Chrysler's moves to cut the
number of their suppliers, concentrating on fewer, long-term relationships. In its
survey of the industry, the Financial Times reports General Motors "has caused the
biggest upheaval in the industry over the past year." (June 28, 1993) The news-
paper recounts how GM, seeking to reduce costs, demanded price cuts of 20
percent or more from its suppliers in return for longer-term contracts. Another
problem facing the industry, according to Michael Farren, the former Commerce
undersecretary for International Trade, is that the higher quality of cars and parts
is chilling the demand for replacement parts. While AlAM member companies
increase their purchasing from U.S. suppliers, these structural problems will
Finally, the Association would be remiss if it did not address an issue whose
improper resolution could seriously threaten the livelihoods of many of your
constituents - that is reclassification of multi-purpose passenger vehicles (MPV) -
many people forget the P in MPV stands for passenger. AIAM believes reclassifi-
cation would amount to seriously misguided policy. In fact, the United States
Court of International Trade was asked if two-door Nissan Pathfinders were
designed primarily for passenger or cargo use. In her ruling on this case. Judge
Jane Restani found that "two-door sports utility vehicles... [are] motor vehicles
primarily designed for the transport of persons. " ( Marubeni America Corp. v. The
United States )
By reclassifying MPVs, the Government would increase the prices of these vehi-
cles, both foreign and domestic, by $1,300 to $3,600, according to the Citizens for
a Sound Economy. GM, Ford, and Chrysler will not stand idly by and not raise
their prices if MPVs are hit with a 25 percent duty as the result of reclassification.
Take a look at what is going on as AIAM members are being forced to raise their
prices due to the Yen's surge; mysteriously, the prices of GM. Ford, and Chrysler
are creeping up as well. Thus, in reclassification, what the government would be
doing is raising the price of these vehicles upon which so many families rely.
MPVs take kids to soccer and dance practice, not concrete to a construction site.
I do not think this Congress wants to raise taxes on the Middle Class — which is
what reclassification effectively amounts to.
In conclusion, today's auto industry is global, and U.S. policy should reflect this
new dynamic. International auto manufacturers are a large part of the U.S. auto
industry and make a significant contribution to this economy. Any government
action that restricts access to the U.S. automotive market or places limits on
investment opportunities for foreign-owned auto manufacturers would artificially
and arbitrarily restrain competition. The effects of such restraints on competition
are well known. Workers in the entire automobile industry would be at risk, and
consumers would be faced with higher prices for products they desire — if in fact
such products remain available. To the 400,000 Americans whose families depend
on the ability of international automakers to design, manufacture, distribute, sell,
and finance motor vehicles in the United States, the freedom to compete is critical.
To those responsible for setting government policy, this freedom — which is the
basis of a strong and competitive automotive industry — fundamentally depends on
the firm rejection of protectionism, in all its forms and guises.
Thank you for the opportunity to present AIAM's views.
Japan Automobile Manufacturers association, inc.
TEL (202) 296-8537 • 1050 17TH STREET NW, WASHINGTON, DC 20036 • FAX. (202) 872-1212
WILLIAM C. DUNCAN, Ph.D.
July 19, 1993
Ms. Janice Mays
Chief Counsel/Staff Director
House Ways and Means Committee
1102 Longworth House Office Building
Washington D.C. 20515-6348
Dear Ms. Mays:
As General Director of the Japan Automobile Manufacturers Association (JAMA) ,
Washington Office, I am submitting the following comment and attachment for
the record of the July 13 hearing before the Subcommittee on Trade of the House
Ways and Means Committee on the subject of United States-Japan Trade,
Commercial, and Economic Relations.
In the course of the hearing testimony, certain charges were made by the
representative of the Automotive Parts and Accessories Association (APAA)
regarding the Japan Automobile Manufacturers Association's efforts to assist U.S.
suppliers in developing business with the JAMA member companies, who are the
13 producers of motor vehicles and motorcycles in Japan.
Specifically, the charge was made that an independent Boston Consulting Group
Study, sponsored by the Japan Automobile Manufacturers Association, which
addresses the real world issue concerning process technology capability was
intended to serve as a forewarning "against celebrating additional sales gains too
soon." Nothing is further from the truth. This is a total mis-representation of
both substance and intent.
Significant progress has and is being made. In 1985 JAMA member companies
purchased 1.7 billion dollars of U.S. sourced parts. JAMA members purchased
13.6 billion dollars during the 1992 fiscal year and despite a recent slump in
vehicle sales, the individual members of JAMA are making substantial efforts to
increase significantly the additional purchases of U.S. auto parts.
JAMA is playing an important facilitating and educational role in this process,
which requires not only efforts on the part of JAMA member companies but also
changes on the part of U.S. suppliers who seek to meet the high procurement
standards required by the Japanese vehicle manufacturers of all their suppliers.
This fTHlerial was dicsomirated by the Wastiinjton Office of JAMA iihKh is r<!gi5lered with the D«p-jnmonl of Justic», ^'ashmjlon. D C. under Ihe
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the contents ot th.s material bv ttie United State, Govsi nir.fnt
These standards and practices, which are recognized world-wide for improving
quality, increasing efficiency and lowering costs, are increasingly being adopted
by other manufacturers as well in both the U.S. and Europe. Ask any US auto
parts manufacturer who has been successful in selling to Japanese vehicle
manufacturers and he will tell you that the relationship has made his company a
better supplier to all of his customers. This is a known and often stated fact.
JAMA and its members have developed close working relationships with those
U.S. auto parts manufacturers who are dedicated to expanding business and
interested in developing specific programs to encourage this process. For
example. Director level procurement executives of JAMA member companies
meet twice a year with chief operating officers of U.S. supplier companies. This
has led to a number of joint projects including a series of annual "One-on-One"
conferences which bring together some 300 executives of over 80 U.S. parts
manufacturers and some 200 executives of JAMA member companies to discuss
business expansion opportunities on a company-to-company basis.
As part of this process, JAMA has issued publications or undertaken studies
which are designed to lend transparency to the procurement system of the JAMA
member companies. The latest of these publications, which was referred to in the
hearing, was a report undertaken for JAMA by the Boston Consulting Group,
entitled: "Context of U.S. -Japan Automotive Issues and Competitiveness of
Automobile-parts Suppliers." This study seeks to identify those practices which
characterize a successful relationship between manufacturer and supplier.
Constant and clo.se communication during the development and production
process, for example, is one of the key aspects identified in the study. BCG calls
this the "capabilities based" system. This report was intended to provide
guidance to further a process of integration, not to impede that process as was
suggested in testimony.
We submit the attached executive summary of the BCG study for the record of
the July 13th hearing. This study was released at an auto parts seminar, held in
Detroit on June 2nd and 3rd of this year. The seminar, entitled "Business
Together: Selling U.S. Auto Parts to the Japanese Automotive Industry," was
sponsored by the U.S. Department of Commerce in cooperation with Japan's
Ministry of International Trade and Industry. JAMA and its Washington DC
office played a key role in bringing top level executives from JAMA member
companies to make presentations to some 300 supplier participants who attended
the .seminar. Representatives from the Japan Auto Parts Industry Association
made presentations as well. The seminar was well received and JAMA and its
Washington office were complimented by both the U.S. Department of Commerce
and U.S. industry for the quality of the presentations and for assisting in
facilitating the seminar.
It is surprising and indeed a bit discouraging to find that these efforts should be
publicly castigated before one of the most honorable and influential policy-making
bodies in the U.S. Government. At JAMA we have been focusing our efforts
where it makes the most practical sense to do so and that is developing business
opportunities between JAMA member companies and U.S. suppliers. We are
committed to this process.
We would also call the Committee's attention to APAA's repeated reference to
"JAMA's current 26% U.S. (ownership) sourcing figure." JAMA has never
reported such a figure and to attribute it to this association is but another
fabrication. To our knowledge, given the complex international relationships
between and among auto and auto parts companies in today's global environment,
data on purchases cannot effectively be collected on the basis of ownership.
Where this leaves the auto parts trade deficit with Japan, which relates to
decisions made not only by JAMA member companies, but also by the big three
U.S. vehicle manufacturers and some U.S. aftermarket parts suppliers as well,
is a broader issue. However, it is interesting to note that the trends discussed
above are beginning to be recognized even by groups who only two years ago
were forecasting the trade deficit in auto parts to double to 22 billion dollars by
1994. More recent updates of this forecast put the deficit in the range of
8.8-10.6 billion dollars.
The extraordinary economic and structural changes that have and are taking place
in the auto parts industry present challenges to all participants on both sides of
the Pacific. JAMA for its part will continue to seek ways to play a significant
role in addressing these challenges on the basis of fact. All we ask is that others
We appreciate the Committee's attention and consideration.
William C. Duncjrfi, Ph.D.
Context of U.S.- Japan Automotive Issues and
Competitiveness of Automobile-parts Suppliers
The Boston Consulting Group
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• Overcoming Hurdles to Expanded Japanese Procurement of U.S. Auto Parts
The following is an overview of a competitiveness study of U.S. and Japanese automobile-
parts suppliers. The study was conducted by the Tokyo office of The Boston Consulting Group
from July to September 1992, following a request from the Japan Automobile Manufacturers
Association (JAMA), and included interviews with 121 individuals at 56 automakers and parts
suppliers in the U.S. and Japan.
Japanese automakers and U.S. parts suppliers have long enjoyed good relations and
have undertaken a variety of efforts ain-ied at expanding opportunities for business with one
another. The present study was undertaken to find ways of making these mutual efforts more
We approached our competitiveness study by devoting much of our effort to understand-
ing the reasons for the success and failure of individual business relationships between
automakers and parts suppliers. Furthermore, given the limited amount of time for our study and
the need to maximize our contribution to the ongoing automotive debate, we concentrated on
establishing an objective framework in which further study can be carried out rather than coming
to a conclusion based on existing quantitative data. In other words, we decided not to delve into
such quantitative facets of competitiveness as cost, quality, and delivery, instead aiming to
discover the reasons for the success and failure of many U.S. and Japanese parts suppliers
whose cost, quality, and delivery were said not to differ very much.
As a result, we have reached the conclusion that there indeed exists a major "capabilities"
difference between suppliers who succeed and those who do not. Detailed explanations with
respect to various capabilities are provided incur report, and this overview will briefly summarize
the consequences which a lack of these capabilities often leads to.
In our competitiveness study, we clarified the context of U.S. -Japan automotive issues
from an objective viewpoint, described the common features of successful manufacturer-supplier
relationships and termed this new development/manufacturing method the "capabilities-based
system." We then assessed the competitiveness of U.S. and Japanese parts suppliers based
on their ability to adapt to capabilities-based systems, thus paving the way for more accurate
understanding of automotive debate and for its swift resolution.
Our findings can be summarized as follows. First we verified the fairness of the purchasing
practices of Japanese transplants in the U.S. To support our conclusion that transplants did not
unfairly discriminate against traditional suppliers, we classified the hurdles between parts
suppliers and transplants into three broad categories, which are shown in Figure 1 . We selected
the three categories to separate the requirements based on suppliers' competitiveness from
those based on unrelated factors. Among the three groups, the first involves what we have
termed "accessibility hurdles." At this point, difficulties lie in securing enough time and proper
presentation opportunities from automobile manufacturers' contact people. The second group
of hurdles represents the initial trust-building and mutual-needs recognition process linking parts
suppliers and automakers, necessary at the beginning of any new business relationship.
Suppliers must thoroughly understand and prioritize the specifications and expectations of
automakers while the automakers must understand the suppliers' ability to meet their needs. We
have termed this second group of hurdles "initial entry hurdles."
These first two groups of hurdles are unrelated to parts suppliers' competitiveness, at least
in the strict sense of the word. The third and last group of hurdles are those related to parts
suppliers' ability to actually participate in and successfully contribute to automakers' "design-in"
process. The suppliers must be on the automakers' list of "potential suppliers." These hurdles
involve a parts supplier's ability to flexibly provide engineering know-how while absorbing the
automakers' expertise during the development process, which includes design and prototype
development. The greater this ability, the higher the probability that the parts supplier will
eventually win contracts from the automakers. We have termed this group of hurdles the
Accessibility hurdles have been substantially lowered in the last five years, partially as a
result of U.S. -Japan trade talks (Figure 2). Of course, the geographical disadvantages of
traditional suppliers still remain, and further efforts on the part of transplants to localize their R&D
bases and expand their purchasing staff are needed.
Initial entry hurdles always exist regardless of national origin and industry; they are
unrelated to competitiveness. Some companies make the choice not to overcome these hurdles
because, given their particular business environments, satisfying the specifications of their
potential customers does not make economic sense. Initial entry hurdles should be overcome
through the efforts of individual suppliers. Industry organizations such as the JAMA and (\/lotor
and Equipment Manufacturers Association (MEMA) can extend a helping hand to struggling
traditional suppliers by familiarizing them with past success stories and providing other sorts of
assistance, such as guidelines, advice, and so forth.
Having thus delineated the kinds of hurdles parts suppliers face, we carefully examined
the third type — the competitiveness gap these companies. The ability to overcome the competi-
tiveness gap cannot be measured by such quantitative criteria as cost, quality, and delivery. The
rationale is that there must be some other competitive factor determining the divergence in
performance of various parts suppliers, since differences in these capabilities of most suppliers,
U.S. and Japanese alike, are said to be rapidly disappearing. The most crucial conclusion of this
report is that the success and failure of individual suppliers is based on their "capabilities" to
interface their strengths and automakers' needs. Therefore the argument below summarizes this
It is fair to say that the competitiveness of automobile-parts suppliers, as it is universally
defined, should be measured by their contribution to automobile manufacturers' value chains.
Suppliers have the greatest scope for contribution when they develop new parts for new or
redesigned models. Particularly today, when automobiles have become mature products, their
appeal largely determined by design and advanced technology, more and more creativity is being
demanded in automobile parts. Therefore, the competitiveness of parts suppliers in terms of their
creative contribution at the product development stage is significant.
In our study of U.S. and Japanese autonnobile-parts suppliers, we set out to determine the
best method for developing technologically advanced industrial products, most notably automo-
biles, under time constraints. What we have termed the "capabilities-based system" is, simply
put, a development process by which specialists synthesize their distinct capabilities and
supplement each other's shortcomings under the guidance of a team leader. Its main aim is
twofold. It seeks to extract and utilize the capabilities of each team member to the full. At the same
time, it aims to add value by integrating the diverse capabilities of the team. In other words, a
capabilities-based system aims to generate positive-sum results in the development of automo-
One of the conclusions of our study is that Japanese automakers and their parts suppliers
have successfully adopted capabilities-based systems as their standard development method
and that the development methods require a new set of capabilities on the part of components
suppliers. The rest of this overview will elaborate on the prominent features of capabilities-based
systems in detail.
In the development of a new automobile, a product development manager from the
automaker corresponds to the team leader in a capabilities-based system. Supporting the
development manager are various functional specialists who constitute the project team. It is
important to note that these specialists come not only from the automaker but also from a variety
of suppliers of parts ranging from electronics to brakes to the chassis.
The team leader need not create everything — quite the contrary. For example, a supplier
of brake-related components is expected to propose ideas on how to further miniaturize current
products; a supplier of electronic components ideas on how to improve the exterior appearance;
and a supplier of chassis components ideas on how to contribute to assembly productivity during
mass production. Of course, the team leader injects his or her own ideas into team discussions
as well. The basic concepts of the new model are thus formulated by exploiting the team's
capabilities to the full while maintaining total balance in the final output. The capabilities-based
system differs from a simple division of labor in that the former requires parts suppliers to actively
participate in the development process rather than simply receive orders from the automaker.
Historically, the development and manufacture of industrial products have shifted from
generalists to specialists. What we call the capabilities-based system takes this trend a step
Automobiles are designed and developed by integrating a wide variety of precision parts
such as engines, transnnissions, brake-related products, and electronic components. Therefore,
capabilities-based systems are quite suitable for developing automobiles, especially today, when
both creativity in individual components and the total balance of the final product are increasingly
determining the success or failure of many models. Figure 3 shows the requirements of the
Our study has revealed that many traditional suppliers still have room for improvement in
terms of their abilities to produce output on time throughout product development and to introduce
appropriate know-how at the right time. Details with respect to traditional suppliers' ability to
adapt to capabilities-based systems can be found in our report. During our three-month study,
we encountered many instances in which traditional suppliers' inability to meet deadlines in