Toyota Motor Corp. agreed to build cars with General Motors Corp. in the United States to help ease economic tensions between this country and Japan and to ensure its presence in the U.S. auto market, say top officials of New United Motor Manufacturing Inc. (NUMMI), the GM-Toyota joint-venture company established here.
"We decided nearly three years ago that we had to do something about the imbalance of trade between the two countries," said Tatsuro Toyoda, NUMMI president and chief executive officer and a member of Toyota's board of directors.
"There were tensions. Everything was coming to a point that we had to do something" about the then-record $18 billion U.S. trade deficit with Japan, Toyoda said.
The deficit this year is projected at $34 billion, half of it attributable to Japanese automotive exports to the United States. Auto industry analysts say the imbalance will keep heavy pressure on the Reagan administration to seek another year of voluntary quotas on shipments of Japanese passenger cars, station wagons and vans to this country.
Those quotas have held down Japanese auto exports to the United States since April 1981, when the initial ceiling was set at 1.68 million units. The current limit, expiring next March, holds shipments of affected Japanese vehicles to this country at 1.85 million units annually.
Toyota is Japan's largest auto maker and is the largest exporter of Japanese vehicles to the United States. But the quotas have had a significant effect on Toyota's sales in this country, Toyoda and officials in his parent company said.
For example, Toyota sold 534,718 passenger cars in this country in the first 11 months of 1981. The 1984 figure for the comparable period is 510,914, about a 4 percent drop. The company sold 484,099 passenger cars in the United States during the same period in 1982 and 504,740 in 1983, Toyota officials said.
But the real pain comes in maintenance of market share, those officials said. Toyota had a 6.8 percent share of the U.S. auto market in 1981 and a 6.1 percent share in 1983. Toyota officials say they expect to fall below 6.l percent for 1984 -- a year of expanding sales in the domestic car market.
That is no way to do business -- and no way to promote competition and free trade, he said.
NUMMI, which began rolling out its first subcompact Nova passenger cars here this month, is a way to do both, Toyoda said.
"What we're doing here is quite new and unique," he asserted. "We are taking the best of Japanese auto manufacturing and the best of American manufacturing to produce one of the highest-quality cars in the world." That venture, agreed to by Toyota and GM on Feb. 17, 1983, will establish a new approach to auto manufacturing in an increasingly global auto market, Toyoda said.
Supporters agree, hailing the GM-Toyota venture as a grand experiment in international industrial cooperation. But opponents call it grand corporate collusion -- an industrial affair involving GM, the world's biggest auto maker, and Toyota, the world's third-largest. Chrysler Corp., the leading domestic critic of the relationship, has filed a suit in U.S. District Court in Washington, D.C., to break it up.
The suit was filed on Jan. 12, shortly after the Federal Trade Commission voted 3 to 2 to approve the joint venture. It is scheduled to be heard March 5, about two months before the first of the front-wheel-drive Novas are shipped to GM's 5,000 Chevrolet dealers across the country.
At full production, on two shifts, NUMMI will build 250,000 Novas annually. Some NUMMI suppliers speculate that the car will cost about $6,000.
Chrysler Chairman Lee A. Iacocca contends that the joint venture -- the first of its kind on U.S. soil -- is anticompetitive "because of the sheer size and market power of GM and Toyota." If GM had mated with a smaller Japanese partner -- either Suzuki Motor Co. Ltd. or Isuzu Motors Ltd. -- Chrysler would have had no complaints, Iacocca said.
In addition, the Nova -- the namesake of an earlier Chevrolet introduced by GM in 1962 -- is not really a new car at all, Iacocca said. It is a derivative of a car that has been on sale in Japan since 1968. Toyota and GM are big enough to have produced that kind of car on their own in the United States, he asserted. By combining resources on the Nova -- about a $400 million investment equally divided -- GM is getting a relatively cheap supply of highly competitive new cars and Toyota is buying an economy ticket to build cars in the United States, Iacocca added.
By comparison, Japan's Mazda Motor Corp. is planning to spend $450 million to set up its own production plant in Flat Rock, Mich. Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. also have made substantial investments of their own to start U.S. auto production, Iacocca said.
Why didn't Toyota do the same thing?
Toyoda passes the question to two of his top aides -- NUMMI Executive Vice President Kan Higashi and Dennis Cuneo, a former attorney in the Washington law firm of Arent, Fox, Kentner, Plotkin and Kahn who now serves as NUMMI general counsel and secretary.
Joint ventures are legal, Higashi said, and one with GM, an acknowledged leader in automotive technology, presents an ideal situation for Toyota to try out its equally renowned production processes and management techniques in the United States.
Toyota had considered a joint venture with Ford Motor Corp., the nation's and the world's second-largest auto maker. But GM had the plant space and the West Coast locations -- an idle factory near Los Angeles and a shuttered, sprawling, two-assembly-line facility in this San Francisco Bay area town -- to make a joint venture feasible, Higashi said.
"Does it make sense to rebuild what is already there?" Higashi asked. "Besides, there was the time factor. We wanted to get into production very quickly. There was no need to spend the time to buy a new plant, to do all of the environmental impact studies to do this job. It was more of a time-saving to use the existing plant."
At the moment, NUMMI is concentrating all of its energies on building the best subcompact cars for the lowest price possible, Higashi said. Production began on schedule Dec. 4 at a remarkably slow pace -- by U.S. auto industry standards -- of one to three cars a day. NUMMI gradually will increase that pace to about 60 cars an hour as the company becomes more confident that it is turning out vehicles of consistent quality, Higashi said.
The Novas will not increase Toyota's U.S. market share, because they will be consigned to GM's Chevrolet Division. But Toyota will have gained valuable experience using its management techniques with U.S. workers represented by the United Auto Workers union.
Higashi said that Toyota, through NUMMI, opened its gates to the UAW because the company believes the union eventually will organize all Japanese production plants in the United States anyway. Nissan and Honda have resisted UAW organizing attempts.
"But we believe that it is healthy for a big company to operate without a union," Higashi said. "If we get a union after fighting one, we'll have bad labor-management relations. But if we form mutual trust and respect in the beginning, we have a better chance for success for everyone."
Toyoda and Higashi said that the Fremont UAW, several of whose members have visited Japan for three-week training sessions, has been very cooperative. Local UAW leaders such as Les Myers, a team leader in the NUMMI plant, agree.
"These people respect your dignity," Myers said of NUMMI's Toyota-dominated executive lineup. Myers also had worked 25 years for GM when GM ran the assembly plant here. "The difference is that GM treated you as just another auto worker. The Japanese treat you as a professional car builder. They respect your intelligence, and that makes you want to do a better job," Myers said.
If the experiment with the UAW works and product quality holds up, Toyota might very well exercise other rights granted to it in the 12-year joint-venture agreement with GM, Higashi said. To wit: Toyota, under the agreement, has the right to produce its own cars at the NUMMI plant for U.S. sales.
"One thing we absolutely won't do after 12 years is to continue operating this plant as a joint venture," said Cuneo, emphasizing the term "joint venture."
"I don't think that there is any way that this plant is going to shut down after 12 years if our quality is good and people like our product. I'm sure we'll find a way to keep it going," said Tom Klipstine, NUMMI spokesman.
But what about the Chrysler lawsuit? What if Chrysler wins?
"You have to understand that there are two parts to any lawsuit," Cuneo said. "First the court has to find liability, and then the court has to order a remedy. We believe that we have a substantial defense against any finding of liability.
"But assuming that the court would hold us liable, the court could say that the remedy already exists in the FTC consent order" approving the joint venture, Cuneo said.
The FTC order "is severe," Cuneo said. "It limits our joint-venture life to 12 years. It limits the number of cars that we can produce for GM. We even have to keep logs of communications with our parent companies. There is not another company in this country operating under the constraints that we're already working under."
The NUMMI lawyer said he does not believe the court will dissolve the venture. "If it did, I guess I'd start looking for another job," he said. But more important, he said that dissolution of the venture -- after it already has started hiring workers and contracting with suppliers -- would send a dangerous message to the foreign investment community.
"Toyota came in here and did everything by the book. It complied with every FTC, state and local regulation. The FTC approved the plan. The venture is gearing up to provide an annual local payroll of $100 million. Now, with all of that, for a domestic competitor to come in here with a private lawsuit and derail this thing, what would that say to foreign investors? What would that do for free trade? Would you invest here?" Cuneo asked.