Nevertheless, strenuous efforts by Japanese manufacturers resulted in domestic sales of four-wheeled motor vehicles marking a record high of 5.71 million units in 1986, a 2.7% increase over the previous year.

In contrast, yen appreciation as well as increased local production have contributed to a long-term decline in automobile exports since 1985. Exports of cars, trucks and buses, which posted a record high of 6.73 million units in 1985, have shown an uninterrupted downward trend beginning in 1986, dropping to 4.46 million units in 1994.

Japan's Bubble Economy and Its Collapse
Between 1987 and 1991, Japan enjoyed a period of unprecedented economic prosperity that is commonly referred to as the "bubble economy". Riding high on this wave of prosperity, the automobile industry posted all-time records for production (13.5 million units) and sales (7.78 million units) in 1990. After becoming the world's largest manufacturer of automobiles in 1980 when production totaled 11.04 million units, the record-breaking production and sales figures in 1990 marked a new high for Japan's automobile industry.

In 1991 the asset-inflated economy collapsed, causing the country to enter into a recessionary period. With a very sluggish domestic car market and the ongoing decline in exports, production dropped yearly from 1991 to reach a pre-1980 level of 10.5 million units in 1994.

Under these gloomy conditions, the operating profits of 11 automobile manufacturers plunged between 1991 and 1994, forcing those manufacturers to implement restructuring measures to an extent never before seen in the history of the industry.

The Status of Motorcycle Production
Beginning in 1955, the motorcycle manufacturing industry had enjoyed steady growth in both the domestic and export markets for a period of two decades.

In 1976, a motorcycle boom started which was to boost yearly production figures to an all-time high of 7.41 million units in 1981.

Domestic motorcycle sales started to decline in 1986 as users began shifting from two-wheelers to small cars, and exports have also experienced a steady downward trend since that time.

As a result, total production in 1994 fell below the 3 million mark, but increased parts supplies for local production in Asia reflect a growing demand for motorcycles in developing countries worldwide.

Attention to the Environment
In response to increasing concern about various environmental issues, Japanese manufacturers are making new and vigorous efforts, such as establishing internal organizations to deal exclusively with specific issues and developing charters for comprehensive environmental action. Their objective is to implement decisive, effective measures across the spectrum, from development and design, through manufacturing and sales, to the eventual scrapping and recycling of their products. JAMA has also established forums within its organization to thoroughly assess and address these issues.

Basic issues that the Japanese automobile industry is now addressing in the area of environmental protection and resource conservation are: the further reduction of harmful motor vehicle exhaust emissions, increased fuel efficiency, the development of alternative-energy vehicles, protection of the ozone layer by discontinuing the use of CFCs and trichloroethane, and increased efficiency in plants and infrastructure to reduce air, water and noise pollution.

Recycling is also a critical task confronting the industry. In Japan, vehicles are already being recycled at the rate of 75% of vehicle weight, but new measures must be implemented to further improve vehicle recycling and recycling in the production process.

Traffic Safety
While various measures to promote traffic safety have been introduced by the government, requiring the cooperation of vehicle users with respect to, for example, the mandatory use of seatbelts and helmets, Japanese manufacturers have also been vigorously pursuing programs to ensure traffic safety.

A JAMA action plan which is now being implemented calls for further improvements in vehicle safety features (e.g., car navigation systems, rear watch devices and head-up displays, in addition to anti-lock brakes and air bags), new traffic safety campaigns and educational activities, improvement of driving conditions (road infrastructure), and close government-industry cooperation on traffic accident analysis through the Institute for Traffic Accident Research & Data Analysis established jointly by the government and public sectors in 1992.

New Trends in Automobile Use
During the "bubble economy" (1987-1991), a rapid increase in new car demand on the domestic market brought with it new trends in the use of automobiles.

One basic factor contributing to the rise of new trends was the increase in multiple ownership of passenger cars. In 1989, 29% of all households (or one in every three) owned two or more cars; in 1993, that rate had risen to 32.8%.

Some of the new trends which emerged at this time were: a marked increase in the steady demand for luxury or high-end passenger cars; a continuing increase in female users and an increase in female ownership; and an increase in retirement-age users.

Other factors contributing to market growth during this period included an expanded range of new models in the mini vehicle category, lower automobile taxes in the standard size (over 2000cc) category, the elimination of the higher commodity tax on automobiles following the introduction of the consumption tax in 1990, and improvements in the automobile insurance system.

Another significant trend was the increasing popularity of foreign-made passenger cars, especially in the larger, high-end category. With the further appreciation of the yen following the collapse of the bubble economy, the trend in increased sales of foreign cars continued, surging to almost 280,000 units in 1994 from 50,000 units in 1985, more than a fivefold increase in ten years. Various Japanese manufacturers cooperated in selling foreign-made cars to open up new channels in the domestic market.

The Rise of Luxury Cars and Recreational Vehicles
A marked trend towards luxury cars developed between 1987 and 1991, when passenger car ownership showed an increase in new cars over cars already in use, and an increase in standard size and large cars as well as RVs in new car sales, with a significant growth in market share for RVs (from 4% in 1987 to 8% in 1991).

With increased sales in the "bubble" years of comfortable, high-performance luxury cars typically offering such features as power steering, automatic transmission and DOHC engines, the average purchase price for passenger cars during this period rose from \1.12 million to \1.57 million.

After the bubble economy collapsed, sales of RVs rose a steep 25% between July 1991 and August 1993, confirming the emergence of a new trend in automobile ownership. Another new development at this time was the longer period of ownership for passenger cars, which shifted from a previous average of two years to 10 years or more in the post-bubble recessionary economy, dramatically prolonging the extent of the passenger car replacement cycle.

Growing Number of Female Drivers
The rate of female drivers in households with multiple car ownership increased from 28% in 1985 to 36% in 1989, while the rate of female drivers in the total number of households owning cars rose from 21% to 27% during the same period.

At the end of 1994, gender distribution for Japanese drivers was 81.8% for males and 50.0% for females, a 165% increase in female drivers since 1983. In the coming years, the greater percentage of new car buyers will be Japan's "junior baby boomers" (born between 1971 and 1974), and female users in that age group will doubtless play a major role in the development of new market trends.

Expanding Ties with the United States
As the world economy becomes increasingly borderless, Japanese manufacturers are expanding local production and developing closer ties with overseas manufacturers to promote greater cooperation in an era of growing interdependence for the automobile industry.

In the United States, seven Japanese manufacturers (Honda, Nissan, Toyota, Mazda, Mitsubishi, Fuji Heavy Industries and Isuzu) established local production operations between 1978 and 1989. These operations were undertaken in various ways: independently, jointly with other Japanese manufacturers, or jointly with American manufacturers.

Through direct investment, Japanese manufacturers establish plant facilities and engage in local parts procurement to further promote local production initiatives. Some of the models produced in the United States are exported to Europe and Japan, contributing to an increase in U.S. exports and enhancing local economies.

U.S. Local Production Increases
As mentioned earlier, export ceilings imposed under the Voluntary Export Restraints system limited the number of Japanese car exports to the United States to 1.68-2.30 million units between 1981 and 1991. In 1992 the ceiling was lowered to 1.65 million units and in March 1994 the VER policy was finally abolished, as a result of yen appreciation and increased local production.

During that period, the output of Japanese manufacturers' local production operations in the U.S. had grown from 620,000 units in 1986 to 2.15 million units in 1994.

The U.S.-Japan MOSS Talks
In February 1985, the Market-Oriented Sector-Selective (MOSS) talks were launched between Japan and the United States on the opening of the Japanese market. The talks included investigation of various Japanese markets, the location of possible barriers to market entry, and discussion of possible remedial measures.

One main focus of the MOSS talks was the automobile and auto parts sector. As a result of the discussions, extensive cooperative measures were implemented to increase contacts between U.S. auto parts suppliers and Japanese manufacturers in an effort to substantially expand Japanese procurement of U.S.-made parts.

Rapidly Expanding Purchases of U.S.-Made Parts
Following the MOSS talks, Japanese manufacturers increased parts procurement from American suppliers at a rapid rate. Purchases of U.S. parts by Japanese manufacturers were worth $2.5 billion in 1986. In 1994, that figure had increased to $19.9 billion.

At the same time, the number of American parts suppliers doing business with Japanese automobile manufacturers increased considerably, from 800 companies in 1987 to a total of 2,726 companies in 1994.

Promoting Industry-to-Industry Relations
Significant efforts have also been made at the private sector level to resolve automobile trade issues between Japan and the United States. One such effort was the 1987 launching of a series of general conferences and discussion meetings organized by the Japan Automobile Manufacturers Association (JAMA) and the (U.S.) Motor and Equipment Manufacturers Association (MEMA) to promote U.S. parts procurement by Japanese manufacturers. These meetings have led to the implementation of specific initiatives aimed at establishing closer business ties between Japanese manufacturers and U.S. parts suppliers, including joint committees, the publication of materials explaining the "design-in" process of Japanese manufacturers, the compilation of industry contact lists, and the organization of special events designed to enhance cooperation and mutual awareness.

Japanese manufacturers are also working hard to expand business ties with automobile industries in Canada, Europe, Asia and Australia. Some of their initiatives have been outlined in the JAMA Action Plan for International Cooperation released by the Japan Automobile Manufacturers Association in June 1995.

Ties between U.S. and Japanese Manufacturers Today
Japanese and U.S. manufacturers have an extensive history of capital and technical tie-ups since 1965, despite the trade issues that have arisen between them. Those ties have actually expanded over the years, and today Japanese and U.S. manufacturers have capital, production, import and sales ties, as well as cooperative development ties.

Since the dissolution of capital ties between Mitsubishi and Chrysler, companies directly participating in capital tie-ups at present are GM, Isuzu and Suzuki, as well as Ford and Mazda. Other types of tie-up arrangements (production, sales, product development, finished car supply, etc.) exist between Toyota and GM, Mazda and Ford, Nissan and Ford, Nissan and GM, Mitsubishi and Chrysler, and Honda and Chrysler.

These ties are contributing to investment in the United States and to the strength of the U.S. overseas export market, while exports from independently owned Japanese factories in the U.S. are also increasing each year.

Local Production in the European Union and Ties with European Manufacturers
Europe is the second largest automobile market after the United States, and Japanese manufacturers have been progressively establishing ties in various countries of the European Union over the past decade. Nissan was the first to establish its own independent operations in the United Kingdom in 1984, and other manufacturers quickly followed suit: Honda in 1985, Isuzu (in a joint venture) in 1987, and Toyota in 1989. Outside the U.K., operations include a Toyota-Volkswagen tie-up in Germany, a Nissan tie-up and a Suzuki tie-up in Spain, a Toyota joint venture and a Mitsubishi tie-up in Portugal, and a Mitsubishi joint venture in the Netherlands; Suzuki has also established a joint venture operation in Hungary.

Supply and marketing tie-ups between Japanese and European manufacturers are too numerous to outline here.

In terms of local parts procurement, Japanese manufacturers are actively promoting industry-level cooperation. In March 1995, the Japan Automobile Manufacturers Association (JAMA) held a joint conference with the European Automotive Components and Equipment Industries Association (CLEPA) in Paris, where decision makers from 80 selected European suppliers met with representatives of the Japanese manufacturers to explore potential business opportunities.

Ties with ASEAN Countries
Japanese manufacturers' involvement in the countries of Southeast Asia dates back to 1962, when Nissan and Toyota established assembly plants in Thailand. The fact that the share of Japanese cars now makes up some 80% of the ASEAN market indicates that Japanese automobile manufacturers play a key role in this region. Throughout the 1970s and 1980s, their Asian operations focused on assembling knock-down kits from Japan. In recent years, however, they have begun initiating more strategically conceived involvement. This includes participation in a national car project, as well as programs centering on the expanded development of their host nations' domestic automotive industries.

Japanese manufacturers enthusiastically promote an ASEAN-initiated program, known as Brand-to-Brand Complementation (BBC), in which the flow of auto components between member nations is unrestricted, allowing economies of scale in the region as a whole. They are also making comprehensive efforts to boost regional economies and create jobs, transferring technological know-how through joint ventures, technical agreements and the training of local personnel, and extending support for peripheral industrial activity, such as in metals and electronics.

The Prospect of an ASEAN Free Trade Area (AFTA)
The possible formation in the near future of an ASEAN Free Trade Area (AFTA) has been a further impetus for Japanese manufacturers to enhance both the capacity and capability of local production in the region.

Markets throughout Asia have been steadily expanding in recent years, but the growth of car markets in ASEAN countries has been particularly rapid. Between 1986 and 1990, ASEAN's domestic markets expanded 34%, compared with 22% for Asia's NIEs (and a mere 7% for Japan).

The Asian region is expected to develop into a world-class vehicle production center. Japanese manufacturers are promoting cooperative relations not only in ASEAN countries, where they have a history of close relations with domestic automobile industries, but throughout the Asian region, including India, Pakistan, Taiwan, South Korea and China.