The motor vehicle industry is the most successful industry in Japan. In 1991 Japan produced 9.7 million automobiles, making it the largest producer in the world (the United States in that year produced 5.4 million). Just under 46 percent of that output was exported. Automobiles, other motor vehicles, and automotive parts were the largest class of Japanese exports throughout the 1980s. In 1991 they accounted for 17.8 percent of all Japanese exports, a meteoric rise from only 1.9 percent in 1960.
Fear of protectionism in the United States led to major direct foreign investments there by Japanese automobile manufacturers. By the end of the 1980s, all the major Japanese producers had automotive assembly lines operating in the United States: Honda, Toyota, Nissan, Mazda, and Isuzu (in a joint plant with Subaru). Following the major assembly firms, Japanese producers of automobile parts also began investing in the United States in the late 1980s.
Automobiles were a major area of contention for the JapanUnited States relationship during the 1980s. When the price of oil rose in 1979, demand for small automobiles increased, which worked to the advantage of Japan's exports in the United States market. As the Japanese share of the market increased, to 21.8 percent in 1981, pressures rose to restrict imports from Japan. The result of these pressures was a series of negotiations in early 1981, which produced a "voluntary" export agreement limiting Japan's shipments to the United States to 1.68 million units (excluding certain kinds of specialty vehicles and trucks). This agreement remained in effect for the rest of the decade, with the limit reset at 2.3 million units in 1985. As Japanese assembly lines in the United States came on line, imports of Japanese automobiles in 1988 actually fell below the limit.
Similar restraints on Japanese exports were imposed by Canada and several West European countries. Japan's investment increased in Western Europe as well, but it faced pressure to achieve high local value added with the then-forthcoming establishment of the European Union in 1993.
Foreign penetration of the automotive market in Japan has been less successful. Imports of foreign automobiles were very low during the forty years prior to 1985, never exceeding 60,000 units annually, or 1 percent of the domestic market. Trade and investment barriers restricted imported automobiles to an insignificant share of the market in the 1950s, and as barriers were finally lowered, strong control over the distribution networks made penetration difficult. The major United States automobile manufacturers acquired minority interests in some Japanese firms when investment restrictions were relaxed, Ford obtaining a 25 percent interest in Toyo Kogyo (Mazda), General Motors a 34 percent interest in Isuzu, and Chrysler a 15 percent interest in Mitsubishi Motors. This ownership did not provide a means for United States automobiles to penetrate the Japanese market until the end of the 1980s.
After the strong appreciation of the yen in 1985, however, Japanese demand for foreign automobiles increased. The greater sense of affluence in Japanese society was accompanied by a rising interest in European design. In 1988 automobile imports totaled 150,629 units, of which 127,309 were European, mostly West German. Only 21,124 units were imported from the United States in 1988.
Data as of January 1994