Protected by "voluntary" quotas from the full effects of Japanese competition, General Motors made a profit of $1 billion in the second quarter of this year, Ford banked $542 million, and Chrysler came up with $310 million. Chrysler, moreover, is able to pay off $1.2 billion of its U.S. bailout loan in advance. All told, the U.S. industry sold cars at an annual rate of 7.4 million in June, and anticipates a further recovery as the economy gains momentum in 1984.
Now, the fix is all but in for a fourth year of Japanese quotas, although Detroit promised that the three years of protection it begged for and got would provide "the breathing room" necessary to get back on its feet. Japanese manufacturers and American consumers are entitled to ask if Detroit will ever give up the crutch.
The current quota limits the Japanese to selling 1.68 million cars a year--which amounted to about 16 percent of the U.S. market when they agreed to it. But total sales slumped during the recession, so that the 1.68 million represents some 22 percent of the American market.
Naturally, the Japanese maximized their profits by selling bigger cars loaded with extras. Honda kept its new, smaller "City" model at home, and a couple of newer Japanese producers have been shut out entirely.
Now, Japanese politicians are expected to knuckle under to the Reagan administration on cars. It's likely that they will cut a deal with U.S. trade ambassador Bill Brock, who plans to visit Tokyo in October prior to President Reagan's November trip to Asia.
The highly practical Japanese, with one eye on the American economic recovery, and the other on the political verities of 1984, appear to think they have no other option. They have an overwhelming fear that unless they are "realistic," as one American official puts it, the protectionist local content bill sponsored by the UAW will slip through Congress.
Actual quota numbers aren't likely to be announced prior to Reagan's visit--just agreement in principle. Then, the Ministry of International Trade and Industry and the Japanese auto industry will try to get a fix on the probable size of the U.S. market for the year beginning April 1984, and establish a modestly larger "voluntary" quota--in absolute numbers of units--that will continue their present 22 to 23 percent of the market.
Insiders here say Brock is prepared to acknowledge that the major U.S. companies are healthier--how can he do otherwise after the second-quarter reports? But he also plans to argue that the recession hit Detroit harder than expected three years ago, and that the American industry needs at least another year of protection.
Ironically, the same Bill Brock will contend that the Japanese, in violation of General Agreement on Tariffs and Trade rules, have been protecting beef and citrus imports for 20 years, and must set a date certain for removal of the quota system. (He doesn't really expect to win that one.) There, Brock has right on his side, and the Japanese are clearly wrong--as Japanese consumers of beef and citrus products know best.
The Reagan administration likes to perpetuate the fiction that any decision on auto quotas is really voluntary--that it is entirely up to Japan. True, it has been careful not to lay a specific auto-quota proposal, with numbers, before the Japanese, because that would be an overt violation of the international rules set out by GATT.
But anyone who believes that these auto quotas are "voluntary" is also regularly communing with the tooth fairy. The not-so-subtle sledgehammer carried by U.S. negotiators is the reminder that the American voter has become acutely conscious of trade as a job-and-pocketbook issue, that 1984 is a political year, and therefore it is in Japan's interest to defuse as many trade issues as possible.
It is quite true, as Susan C. Schwab points out in a fine piece on "Japan and the U.S. Congress" in a Columbia University publication, that Japan for the foreseeable future will remain vulnerable to protectionist moves by Congress, which assumes there is little likelihood of Japanese retaliation.
"When managers . . . cannot admit to having been short-sighted and union officials are unwilling to acknowledge that their successful negotiations have produced uncompetive wages, it is not surprising that imports have become the focus of their frustrations," she wrote in the university's Journal of International Affairs.
Schwab calls on the Japanese for a better response to congressional pressure for market access--less of a crisis management response and more of a general anticipation of long-run trade problems.
But quotas on car shipments here aren't the answer to U.S.-Japan trade problems in general, or to Detroit's in particular, although quotas helped swell this year's profits, that's for sure. The Big Three have been producing better quality cars, but they still have a long way to go to meet Japanese standards. Without quotas, Detroit car makers would have been forced more quickly to become even more efficient.
Thus, it will be a mistake to pressure the Japanese into a fourth year of quotas. Eventually, the U.S. industry is going to have to sink or swim on its own. The longer Detroit relies on quotas, the harder they will be to abandon. Yet, events are conspiring to produce a bad decision.