BLOOMINGTON, Ind. — An American product built in an American plant. Dog bites man. Nothing newsworthy.
But wait. Here in this college town, General Electric is making really big, national news--simply by using its own factory. GE has just moved the production of 500,000 color televisions back from Japan to its Bloomington plant, mainly because the rapid rise in the value of the Japanese yen had made production in Japan too costly.
"Right now, we have the opportunity to be competitive in color television production with Japan," says Joseph Fogliano, vice president for manufacturing at GE's consumer electronics division. "The yen's movement has given us a window of opportunity, and we have to take advantage of it."
Clearly, when American factories can build televisions as cheaply as plants in Japan, a shift of mammoth proportions is in the works. Indeed, the rapid rise in the value of the yen is finally starting to whittle away at Japan's manufacturing edge over the United States, an edge that at one time looked so permanent that many feared America might be destined for second-class economic status.
It's taken nearly two years, much longer than most economists and politicians first expected. But now, in industry after industry, American producers of both capital and consumer goods report that the overwhelming cost advantages that Japanese manufacturers enjoyed over their U.S. competitors as recently as 1985 have been all but eliminated.
A 40% decrease in the value of the dollar against the yen since September, 1985, has dramatically increased Japan's costs of producing goods for export, forcing Japanese firms to raise prices, while also reducing their profit margins, in order to stay in business.
Certainly, America manufacturers still face a number of other hurdles, such as improving the quality of their products and overcoming trade barriers, before they can compete head-to-head with the Japanese around the world. But, the first unmistakable signs of the shift in relative manufacturing costs are sweeping across the industrial landscape.
Big shipments of American-made steel are on their way to Japan for the first time in a generation. Japanese auto makers, forced to raise their U.S. prices by more than 20% to cover their higher production costs in Japan, are struggling, and some are now suffering through their first significant sales slumps in the American market in nearly a decade.
And, in places like Bloomington, American companies that had previously given up on the domestic manufacture of import-sensitive products such as televisions are moving out of Japan and coming home.
Even deeply troubled industries, such as the machine-tool makers, that have been all but overwhelmed by Japanese competition over the last five years, are getting a breather. Warner & Swasey Co., a Cleveland machine-tool maker, is in the process of moving the production of its computerized numerically controlled lathes and punch presses back from its Japanese joint venture to its own plants in Ohio and Pennsylvania. In 1985, when the yen was at 250 to the dollar (compared to 144.6 on Friday), "they a had a huge, huge advantage," says Bud Aspatore, president of Warner & Swasey. "But now, machine tool production costs in Japan and the U.S. are comparable."
Now the Japanese are reacting as well, moving as quickly as their American rivals. Japanese producers of everything from televisions to auto parts, desperate to reduce their yen-related costs, are opening or expanding U.S. production facilities at breakneck speed.
"The change in the exchange rate makes U.S. auto component manufacturing much more attractive relative to Japan, and there is a large movement of suppliers coming from Japan to the U.S.," says Jim Trask, director of economic analysis at General Motors. Indeed, a recent report by the U.S. Consulate General's office in Osaka, Japan, found that "earlier projections that 300 auto parts makers were considering investment in the United States may be low, particularly if materials suppliers are included. The flood of inquiries to the Tokyo offices of Midwestern states (concerning plant site locations) continues unabated."
"I was just in Japan, and the Japanese executives were telling me it is just shocking what the yen has done to their corporate strategies in the last year and a half," adds Chuck Peters, vice president for corporate strategy at Amana Refrigeration, an Iowa-based appliance maker. "They have had to shift away from just trying to get greater manufacturing productivity gains in Japan; they've had to look at building new plants in the U.S., or setting up plants in countries with low wage rates, and they've had to consider establishing joint ventures overseas."