WASHINGTON — The foreign car showrooms that dot the American landscape generally are not bargain basements. A 1988 four-door Toyota Corolla DLX, for instance, one of the big Japanese company's most popular no-frills imports, bears a sticker price of $8,898 at one Washington-area dealership.
What few people realize is how much higher that price might have been.
Had Toyota passed through to customers the full effects of the dollar's 50% decline against the Japanese yen over the past 2 1/2 years, a Corolla's sticker price might today be $1,500 to $2,000 higher.
But Toyota did not take that route. With other Japanese manufacturers, it has responded to the challenge of endaka, a newly created word that means "high yen," with a remarkable campaign of sacrificing profits and raising productivity in its home factories in order to hold price increases to a minimum. The result is another success story for Japanese industry--and another source of friction with the United States over trade.
It wasn't supposed to happen that way. Two-and-a-half years ago, the United States, Japan and three other industrialized countries joined hands to help push down the value of the dollar on the world's foreign exchange markets. It was a calculated attempt to boost the prices of foreign imports flooding U.S. markets in order to rein in the soaring U.S. trade deficit.
Since then, the dollar has indeed plummeted, hitting postwar lows against the yen and other major currencies late last year and then sticking there. But until recently, the anticipated price increases on Japanese cars have been slow in coming and the Reagan Administration's hopes for a sharp reduction in the trade deficit have been confounded.
Difference in Cultures
This is the story of how one Japanese company dealt with the dollar's historic fall, one of the greatest challenges to face the Japanese economy in the postwar era. To a degree, it is what all of Japan's export-oriented companies have done. Some have failed and some have succeeded, but together their efforts have helped slow the effect that the dollar's plunge was meant to have.
Japanese companies' strategy of the past 2 1/2 years also underlines what some analysts describe as a key difference between the corporate cultures of the United States and Japan. In planning the dollar's fall, U.S. officials had assumed that Japanese companies would respond as most American ones would, by raising prices quickly to preserve profits. (The falling dollar confronted Japanese exporters with the prospect of lower profits when their U.S. sales were translated back into yen).
The Japanese, however, believe that the most important measure of a company's success is how much of a market it controls--not profits--and quickly got to work defending their sales levels here.
Production costs are among the corporate world's most closely held secrets and can vary widely from factory to factory. But the Wefa Group, a Philadelphia-based research firm, recently made estimates of what major Japanese auto makers such as Toyota spend in building a typical compact car in their homeland.
In 1985, Wefa estimated, the raw materials in that typical compact car cost $2,131 (at the exchange rates prevailing then), with labor, administration, factory profits and Japanese taxes adding about $2,268. Another $521 went toward shipping the car across the Pacific, insuring it and paying the U.S. import duty. Later, the distributor in the United States took $787 in costs and profit for its handling of the car. The dealer added $913 in costs and ordinary profit. The car went on the lot with a sticker price of $6,620--the sum of all these costs.
The American who finally drove it away, however, probably paid more than the sticker price--$750 more was common, meaning the retail price for the car really was $7,370. Such an "additional dealer markup" was routine in 1985 and added to the dealer's normal profit. The dealers were able to take advantage of a heavy demand for the Japanese imports caused by their popularity and a limit on Japanese auto imports arranged by the Reagan Administration.
The United States was practically a money machine in those days for all Japanese auto makers and their U.S. partners. With little effort and creativity in marketing, they could sell every car they could ship, at unusually large profits. "Very few people in the U.S. grasped quite how much money these people were making," said James Womack, research director of the international motor vehicle program at Massachusetts Institute of Technology.