Government and business relations in the Japanese and American automobile industries

Government-Business Relations

Since the end of World War II, Japan has evolved from a country that was a conquered nation, to one that would rebuild to become an economic powerhouse. As they rebuilt key industries, that would help it to dominate markets; that were once the exclusive territory of overseas competitors. In the case the auto industry, the changes that took place helped the Japanese automakers to become some of the largest and most profitable organizations in the world. A good example of this can be seen with Toyota overtaking General Motors as the largest producer of small cars and trucks. ("Japanese Auto Industry," n.d.) This is significant because it underscores how the differences in philosophy; between the government to business relationship is helping the Japanese auto industry to remain competitive, during some of the worst economic conditions for the industry in decades. As a result, it is obvious that the Japanese model is superior in comparison with the American model. Part the reason for this is because of the different environmental and economic advantages that they have. To fully understand this requires examining the different levels of regulation, environmental concerns and the various standards in Japan that make it superior to the United States. Together, these elements will provide the greatest insights as to what makes the Japanese model better and why.

Overview of the American Automobile Industry

The American Automobile Industry is going through some of the most challenging times since the end of World War II. This is because of high labor costs and a change in the overall psychology of the consumer; would cause the entire industry to see sharp declines in sales. What happened was the Big Three were facing high pension and health care costs; that increased the price of all vehicles by $1,500.00. Then when you combine this with the fact; that they were mainly manufacturing large fuel inefficient sport utility vehicles / light trucks, meant that it would only be a matter of time until the entire industry would see a severe contraction. (Cooney, 2005) This would force General Motors and Chrysler to receive government bailouts that totaled $17.4 billion, as an organized bankruptcy was allowed to take place. Ford did not need any kind of government assistance and was able to restructure. ("Automobile Industry Introduction," 2010) Part of the reason for this was a shift in consumer psychology, as high fuel prices and the credit crunch caused sales to plummet 20% or 10.43 million units. ("U.S. Eclipsed by China in 2009 Auto Sales," 2010)

Environmental Issues Facing the U.S. Automobile Industry

The auto industry is facing increasing amounts of pressure to respond to the issue of global warming by reducing carbon emissions. One way to do this is to increase fuel efficiency standards. Several states have been pushing for even greater regulation of tailpipe emissions, with California taking the lead. This is significant because it would allow the state to increase the carbon emissions requirements above that of the federal government. If California is able to undertake such regulations, it will affect nearly half of all cars and trucks sold throughout the United States. ("Obama Issues Memorandum," 2009) What this show is how the industry will face increased amounts of regulation. This is because various treaties such as the Kyoto Protocol have been pushing many nations to begin regulating the overall amounts of carbon emissions that is going into the atmosphere. Since cars and trucks pollute the most carbon, means increasing fuel efficiency standards worldwide are becoming common. ("G8's Gradual Move," 2010) This has caused many automakers such as: Toyota, Honda and Nissan to begin introducing the hybrid. This is a car that will run off a traditional gasoline engine, then once the car has been running a small electric motor will power the car. ("Automobile Industry Introduction," 2010) as result, the sales of the Japanese automakers that are producing these cars have remained steady.

How the U.S. Government is Addressing Environmental Issues

Last year the federal government increased fuel economy standards by 40% to 35 miles per gallon by the year 2020. This is significant because it allows the EPA to regulate the amount of carbon emissions starting in 2011. ("Obama Issues Memorandum, " 2009) the actions taken by the federal government reverse a long standing position, of inaction by previous Presidents. As a result, the increased fuel economy standards will place the federal government in line with states that have their own proposed fuel economy standards such as California. ("Automobile Industry Introduction," 2010)

The Differences in Regulation between Bush and Obama

The Bush Administration loosened various environmental regulations. This is because Administration officials believed that current regulations were too cumbersome for many businesses. For the auto industry this would mean, that fuel economy standards would remain the same. (Stoffer, 2001) the reason why is because there was no cap on carbon emissions. This is because the Bush Administration rejected the provisions of the Kyoto Protocol. Once Obama became President, he issued several different executive orders to increase fuel economy standards and allow the states to go beyond the federal CAFE guidelines. An example of this is when President Obama signed an executive order allowing the EPA to grant waivers to the state of California for certain provisions of the Clean Air Act; that would allow the state to set fuel economy standards beyond the federal government. ("Obama Issues Memorandum," 2010)

The Stimulus and the U.S. Auto Industry

The $17.4 billion in stimulus money that was loaned to GM and Chrysler was used to keep the industry from facing a liquidity crisis. This is because fears of outright bankruptcy would force a number of negative ripple effects on the economy. The stimulus money was allowing both companies time to form a viable reorganization plan and to renegotiate with creditors. However, attitudes have been divided with some arguing that the government is supporting a failed entity that will not become competitive, unless it is forced into bankruptcy. As a result, the federal government allowed both Chrysler and GM to enter a modified form of bankruptcy, which would help them to restructure. ("Automobile Industry Introduction.," 2010)

Car Safety Regulation Standards

The National Highway Traffic and Safety Administration have the power to regulate vehicle safety standards under the U.S. Code chapter 301. This included everything ranging from: the regulation of break hoses to seat belts. ("Federal Motor Vehicle Safety Guidelines," n.d.)

Benefits U.S. Government Business Relations Model

The benefit of the U.S. government business relations model is that it helping to improve the overall amounts of regulation within the industry. This is because the various financial scandals over the last several years have indicated a shift, where the lack of government regulation was apparent, as it was helping to contribute to some of the problems over the last several years. The increased amounts of regulation, means that executives will build cars that are more fuel efficient, reliable and what consumers demand. This helps to improve the overall quality of cars that the automobile industry is building. (Reich, 2009)

The Drawbacks of the U.S. Model

The drawback of the U.S. model is that is can over regulate the industry. This is where the government will set restrictions that so are cumbersome, that it affects the competitiveness of businesses. During the late 1970's there was a push to loosen some of the different regulations, as many people believed that they help to contribute to the slowdowns that were being seen. The key is to have a balance between the overall amounts of regulation and the free markets.

(Reich, 2009)

The Japanese Government to Business Model

The Japanese government has more direct control of private business. The difference is that it is doing so, as a partner to ensure that the business is able to maintain successful long-term economic growth. The government does not offer subsidies or any kind of bail outs. Instead, they help companies through loans, tax breaks and other forms of assistance. This helped to contribute to the success of the Japanese auto industry by allowing executives to focus on how their organization can grow in the future. (Johnson, 1985)

Business, government and the Liberal Democratic Party in Japan

The Liberal Democratic Party helped to liberalize the relationship that the government would have with the auto industry. As it would be successful in helping Japan to eliminate protectionism; this is something that would allow Japanese cars to become more competitive in markets around the world. (Johnson, 1985) at which point, many of the large auto makers were able to build their own factories in key markets such as North America. This is significant because this liberalized policy would spread to the auto industry, as they were able to lower trade barriers and costs by producing cars in these markets.

Automobile Industry of Japan

The auto industry of Japan is known for building high quality cars and trucks that are competitively priced. This is because the industry was forced to rebuild after World War II, part of the process of rebuilding was to improve the overall quality of automobiles that were being produced. Over the course of time, the Japanese became known as experts on quality and efficiency. ("Japanese Auto Industry," 2010)

Japanese Environmental Regulations

The Japanese government is concerned about working in line with the different provisions of the Kyoto Protocol. This is because they are struggling to cut the overall amount of green houses gases that are being released into the atmosphere. The obvious concerns that the government has are different than in the U.S. because such provisions do not apply. This means that there was less emphasis on forcing automobile manufacturers to increase fuel economy standards in the United States. ("G8's Gradual Move," 2008)

Steps Japanese Automakers are Using to Address Environmental Issues

The Japanese automakers have been designing automobiles that are at the cutting edge of performance and fuel economy standards. Where, the industry has been aggressively developing mainstream hybrid cars and has been designing other cars that do not rely on the gasoline powered engine. ("Japanese Auto Industry," n.d.)

Effects of the Stimulus

The effects of the stimulus package have been disappointing. This is because it was assumed that the effect of encouraging consumers to purchase eco friendly cars would increase sales. Instead, the reaction has been muted and when the stimulus wears off later this year, there are concerns that this could cause further pain. The reason why eco friendly cars were targeted; was to help reduce the number of cars that are polluting large amounts of carbon, as the country is having trouble maintaining the Kyoto caps. (Schmidt, 2010)

Benefits of the Japanese Government Business Model

The benefit of the Japanese government to business model is that it allows businesses the ability to focus on the long-term objectives. This is because the government does not try to dictate what businesses must do, instead it encourages them. Over the course of time, this allows executives to see beyond the short-term, as this encouragement becomes a part of their long-term thinking on building for the future. At which point, designs and models are developed that could be used to benefit the company down the road. (Johnson, 1985)

The Drawbacks of the Japanese Model

The biggest drawback of the Japanese model is that it allows failing businesses to remain open, when they should be forced into bankruptcy. This is because the government believes that if they work with the business, it can be able to fix it various financial problems. This is troubling because in order for some businesses to become stronger, they must be forced into bankruptcy, where they are allowed to reorganize. ("Japanese Auto Industry," n.d.)

Clearly, the Japanese model is superior to the American model because it allows the industry to adapt quicker to changes that are taking place. In the area of fuel efficiency standards, this has allowed the different manufacturers to develop cars and trucks that are the most advanced in the world. Combine this with their ability to manufacture and sell cars across the globe, makes this the best model for the auto industry.