The so-called voluntary restraint agreements (VRA) on Japanese cars -- which in reality represented a nonvoluntary deal worked out by Washington and Tokyo to protect the American industry -- will end on March 31, after four years of milking consumers.
Good riddance! The "voluntary" quotas were a bad idea in the first place, justified by the Reagan administration back in 1981 as necessary to buy time for the industry and its workers to adjust to competition from Japan. This created an artificial scarcity of Japanese cars, fattened corporate profits here and in Japan, and touched off a bonanza for American dealers of Japanese cars.
The Reagan administration apparently has decided that enough is enough, despite howls from industry apologists such as Rep. John D. Dingell (D-Mich.), who begs for the quotas to be extended "until at least March 1987."
Although the Japanese yen depreciated by about 20 percent against the dollar from 1981 through 1984, the Japanese did not lower their sticker prices. As City University of New York professor Yoshi Tsurmi told a congressional committee last week, "The VRA has forced American consumers who earned $10 an hour to subsidize $30-an-hour auto workers and their expensive executives."
Tsurmi, an expert on U.S.-Japanese problems, was trained at Harvard and Keio universities. He concludes that, apart from the harm to consumers, the VRA is hurting the U.S. economy because it has retarded "the U.S. auto industry's ability and willingness to adapt itself to the ever-changing markets and technological environment at home and abroad."
Shielded from competition, the companies didn't use the time or the vast cash surpluses they built up to turn out better small cars. As Tsurmi points out, General Motors Corp.'s well-advertised Saturn project (a mere 200,000-car potential) will cost only $450 million, whereas GM spent five times that sum -- $2.5 billion -- to acquire Electronic Data Systems Corp., among other nonauto investments.
Detroit also was caught napping by the surge in demand last year for European-styled, sporty luxury cars, and the void is being filled by European and Japanese sellers. "The VRA has once again dulled Detroit's sense to stay alert to the changing market amd technological enviroment conditions in the U.S. and abroad," he says.
Various studies indicate that only 26,000 to 44,000 additional auto industry jobs can be attributed to the quotas. By dividing these job numbers into the increased costs for cars in this period, it can be demonstrated that each such "preserved job" had a price tag of between $150,000 and $300,000.
But even these figures must be put in perspective, as did the International Trade Commission in a report to Congress last week. The ITC pointed out that the quotas, by limiting the supply of dollars "entering the foreign exchange market had tended to strengthen the U.S. dollar." As a result, probably as many jobs were lost in exporting and import-competing industries as were gained in autos.
Yet, the American industry did almost nothing to make itself competitive with producers of small Japanese cars. The VRA never was linked to specific investment decisions or wage concessions. Now, if the major Japanese companies choose to do so, they probably could flood the United States with the small, cheap cars on which they made their reputation, and collar the entire U.S. small-car market: American companies have yet to turn out a compact that matches the dollar-for-dollar quality of the best Japanese models.
The Japanese are probably too clever to inundate the American market with inexpensive compacts. They are likely to show truly "voluntary" restraint, for the first time.
The Nakasone government is fully aware that, should the $35 billion trade surplus with the United States swell, it could bring fast and ugly retaliatory action. There is pressure on Capitol Hill for the Reagan administration to extract from Japan, in exchange for abandoning the VRA, some new Japanese commitment to increase imports of American high-tech and other equipment.
So the likelihood is that the Japanese authorities will put a ceiling on car exports, again squeezing the smaller companies such as Mitsubishi and Suzuki: A totally free and unrestrained market for cars isn't likely to return overnight.
Nonetheless, elimination of the VRA quotas is likely to result in some substantial increase in the number of Japanese cars imported here.
The ITC estimated that, without the VRA, an additional 1 million Japanese cars might have been sold here last year, jumping their share of the market from 18.4 to 28 percent. Meanwhile, Korean companies have begun successfully to introduce cheaper cars into the North American market, especially in Canada. And other exporters will try to get a piece of the action here.
As for Detroit, the first result of the new competition should be a reduction in those fat sticker prices -- there's plenty of room for that. The average price of a new car sold in this country rose to $11,254 last year, a 48 percent increase from $7,591 in 1980. The profits for the American Big Three, as just reported for 1984, amounted to a cool $10 billion, topping the 1983 record of $6.2 billion.
Tsurmi calculates that, in 1984 alone, the VRA cost American buyers of new cars about $13 billion by boosting their average effective price by $1,500. The booty was split this way: $6 billion in windfall profits to GM, Ford Motor Co., Chrysler Corp. and American Motors Corp.; $3 billion in overtime to United Auto Workers union workers (although some of this could have been used to rehire laid-off workers at straight time); and $4 billion to the Japanese auto makers and their U.S. dealers, some of whom ripped off their customers for over-sticker premiums of $1,000, $2,000 and more per car.
As Tsurmi points out, the VRA probably persuaded Toyota and Nissan to move up their starting dates for producing subcompacts here. The combined annual production of Toyota, Nissan and Honda in the United States eventually will reach 700,000 units a year, and Mazda will add 200,000 by the end of 1986.
But the U.S. Big Three have de-emphasized production of subcompacts, switching their concentration to larger cars. Instead of head-on competition with the Japanese, their small-car strategy has been to make deals to increase subcompact imports from Japanese affiliates and to put some money into "the Korean connection."
Add it all up, and the Reagan administration correctly concluded that, after four years of coddling, no case could be made that an industry with such dazzling profits should get a 1985 crutch -- although Ford and Chrysler and the UAW did their very best to stick it to all of us once more. If U.S firms want to hold their share of the market, they'll have to fight for it by returning to innovation, skill and their native genius.