Why Don't We Sell More Cars In Japan?

In sports as in international trade, it's the raw figures in the record books that can be the toughest to swallow.

Imagine the Philadelphia Phillies annihilating the Tampa Bay Rays 4,000 to 3 in the final game of the 2008 World Series, and you have something like the U.S. automakers' success rate in breaking into the Japanese and Korean markets.

It is as though the Arizona Cardinals fell to the Pittsburgh Steelers last February without rushing more than a couple yards or Venus or Serena Williams dropped a U.S. Open match without returning a single serve.

In August, only 192 Fords and 63 Chevrolets and were sold in Japan, roughly the same number as a year earlier, according to the Japanese Association of Automobile Importers. And over the last decade, things have actually gotten worse: The figures were 359 for Ford and 793 for Chevrolet in August 1999.

In 2008, Chevrolet exported exactly one vehicle to Japan for every 400 Toyotas exported to the U.S. Throw in the Japanese firm's production at its U.S. transplants, and the ratio is even more lopsided: Chevrolet sold one vehicle in Japan for every 1,300 Toyotas sold in the U.S.

Ford sold about 2,500 vehicles in Korea last year, compared to nearly 330,000 Hyundai and Kia vehicles imported to the U.S.

Variations in consumer tastes alone can't possibly account for differences of that magnitude, even though Asian consumers tend to buy smaller cars than Americans do, critics of U.S. trade policy say. Nor do differences in U.S. and Asian quality levels, when there are any.

While Korea and Japan no longer directly restrict U.S. imports, they do put up barriers to them, said Chris Vitale, president of a Michigan-based group, FairImage.org, which promotes open trade in the auto industry.

"For all intents and purposes, the Japanese market is closed to everyone," Vitale said. "No one gets a foothold."

Japan and Korea don't sell many cars to each other either, as you might expect from two automotive giants facing each other across the Sea of Japan like wary sumo wrestlers.

Korea sold 502 cars to Japan last year. One was a Kia and 501 were Hyundais, according to the Japanese importer group. Japanese automakers did somewhat better in Korea, selling about 21,000 vehicles there, out of a 1 million-plus market.

Vitale and other U.S. critics of Japan and Korea point to "barriers to entry" -- obstacles that may be more effective than tariffs and quotas. They include inspections, complicated distribution systems and taxation. Ironically, U.S. imports to Japan have declined even as more formal, direct barriers like quotas have come down.

Complaints flow in the other direction, too. The Korea Institute for International Economic Policy has contended that U.S. trade complaints "are closely tied to the strategy of the U.S. auto industry of keeping its competitors around the world in check."

The mid-1990s was a comparative heyday for U.S imports into Japan. Ford had some small successes selling Taurus station wagons and Lincoln Town Cars, two vehicles that local producers could not match. VIPs especially liked the Town Car, said Don Whitehouse, a retired Ford executive with extensive experience in Japan.

The Mustang was a special object of fascination for Japanese consumers, too. "A lot of people saved up money to buy a Mustang GT, and then paid cash for it," the former quality manager for Ford's Dearborn Assembly Plant said.

Whitehouse was on the front lines of Ford's efforts to push its imports through a tough inspection gauntlet in Japan, making 13 trips to that country in the 1990s and early this decade.

The audit process was brutal, he recalls. Inspectors would check off every defect, even if it were well within generally accepted tolerance, Whitehouse said.

"They gun-sighted everything with magnifying glasses and flashlights to see if it had to be repaired," he said. Then Ford teams would correct them, often at great expense. The expense drove up the price of the cars for Japanese consumers.

Strangely enough, Ford of Japan itself hired the inspectors who put U.S.-made cars through the wringer, turning the local subsidiary into Whitehouse's chief antagonist. In addition, Japanese government auditors checked the inspectors' work at regular intervals, Whitehouse said.

The auditors were even tough on vehicles that Ford had given special prepping for the Japanese market, Whitehouse said.

He said he had some of Japan's top U.S. sellers dismantled and inspected in the U.S. and then compared them to Ford models during that period.

"The vehicles we were sending to Japan were superior to the vehicles the U.S was getting back from Japan," he said. "I don't think it was the customers who had problem with our products."

No amount of argument could persuade Ford of Japan's Japanese executives to relax the standards, he said. They evidently considered it their mission to block vehicles with the smallest, most inconsequential defects, he said.

Today U.S. automakers may not regard the Japanese market as worth much of an effort. The market has an aging population, and automobile ownership is sometimes a difficult proposition in this crowded country. Not to mention the fact that it's also the home turf of some of the most competitive automakers in the world.

"Our sales in Japan are negligible because it doesn't make sense to import them, and we do not have production facilities there," said John McDonald, a General Motors spokesman in Detroit.

China is another story, however. GM already sells about 150,000 cars a year in China -- or 50 times what it sells in Japan. And execs' mouths water at the prospect for growth there.

GM also has production capability in Korea through its ownership of Daewoo, just as Ford indirectly has with its stake in Mazda in Japan. This involvement may prove more valuable long-term to the automakers than doubling or tripling their tiny shares of the Korean and Japanese import markets.

Ford once held a substantial 33 percent Mazda stake, although it sold off about 20 percent shortly the financial crisis hit the industry last year. GM acquired a controlling stake in Daewoo in 2001, and has been selling more than 100,000 locally produced Daewoos a year in Korea. GM also sells more than a million of the cars in global markets, primarily under the Chevrolet brand.

And there is at least the prospect of more equal trade with Korea. In 2007, Korea and the U.S. negotiated a free trade agreement that would reduce many of the country's non-tariff barriers.

The agreement, which still needs ratification by Congress, would also start phasing out higher taxes for cars with engine displacements of more than 2.0 liter engines. It also would ban auditing the tax returns of Korean citizens who buy expensive imported vehicles -- a practice that appeared to target importers

Vitale said U.S. exports to Europe should be greater, too. But many countries place extra taxes on U.S. vehicles, even though they bear the full weight of American taxation through income and corporate taxes.

In any case, the sales figures for U.S. vehicles abroad don't always correspond to their appeal to customers, Vitale said.

He points to a lively international "gray market" taking advantage of loopholes in import laws. The turbo diesel version of the Dodge Ram, for example, has found a home on farms in Finland, for example.

There is simply no European-built vehicle that functions like an American pickup for snow-plowing and many other tasks, Vitale notes.

"Imagine how many more of them could be sold with a real dealership."