TIME Retrospective: Honda Picks Ohio

A Made-in-America Japanese Car
Jan. 28, 1980
Honda Motor decides to open an Ohio assembly plant

With sales falling, plants closing and layoffs spreading in the crucial U.S. auto industry, manufacturers and union leaders have been complaining about the surge of imported cars, particularly from Japan. At last the Japanese themselves are becoming concerned that the U.S. may erect trade barriers. To head off growing calls for protection, as well as cash in on the U.S. demand for its cars, Honda, a scrappy company that was started in 1948 and has become an aggressive exporter to many countries, has decided to assemble cars in the U.S. and compete on even terms with domestic manufacturers.

Some time this year, Honda will start to build a $200 million auto plant next to the motorcycle factory that it has been operating since last September outside Columbus. Stressing that "the quality of U.S. labor has proved on par or even better than that of ours," Kiyoshi Kawashima, president of Honda, said that the company at first will employ some 2,000 American workers and import engines and other components from Japan. Beginning in 1983, the firm will turn out 10,000 Ohio-built cars a month, roughly a third of its 1979 U.S. sales. The models: probably the two-door, hatchbacked Civic, a compact that lists for $4,049, or the fancier Accord, which costs $5,799.

Detroit's leaders hailed Honda's move in the belief that, once weaned from the protection of their government, Japanese firms will have to compete on fairer terms. They will have to pay American taxes, wages and benefits, and incur the same regulatory costs as do American manufacturers. And when Hondas finally start rolling off the U.S. production line, they will face strong competition from new small models, now being designed by Detroit: Chrysler's K car, Ford's Erika and GM's S car.


Yet U.S. automakers and auto workers also noted that Honda's decision is only a small, first step by the auto division of Japan, Inc. For now, two bigger producers, Toyota and Nissan (which makes the Datsun), report that they are studying the possibility of opening U.S. plants. They have said that often before. Complained Douglas Fraser, president of the United Auto Workers: "Promises, promises, promises, but no action. Our efforts at diplomacy are over. Now is the time to take off our gloves. They must limit exports or build over here." Echoed Henry Ford II, chairman of Ford Motor Co.: "I'm tired of this lip service about 'investigating the possibility.' You can study something to death. At some point, they must make up their minds."

Impatience is rising because imports have surged from 12.9% of U.S. auto sales in 1972 to 16.2% in 1978 and a record 22% last year. They will capture 27% of the market this year and 30% in 1981, predicts the Los Angeles-based market research firm of J.D. Power and Associates.

Almost all the increase in the past five years has been due to the success of the Japanese. They have become even more competitive because the decline of the yen against the dollar since mid-1979 has held down the prices of Japanese goods in America. Yet Japanese automakers argue that the major reason for their success is that the U.S. car companies failed to anticipate and exploit the swing to gas-saving small models. That failure certainly contributed to the U.S. success of Volkswagen, which started producing Rabbits at a Pennsylvania plant in 1978, and has experienced such high demand that would-be buyers sometimes have had to wait months for delivery. The company now plans to expand its U.S. operations.

High Japanese government officials fear that their country's auto exports to the U.S. (up 30.5% last year, to a total of $7.8 billion) may lead to protectionist countermeasures. Earlier this month, the Japanese government warned executives of the nation's car companies of just such rising protectionist sentiments in the U.S. Since Japanese companies depend so heavily on exports to America, they are troubled.

For some time, Honda's chiefs have been considering a U.S. plant. Unlike Toyota and Nissan, Honda has stretched its existing production capacity to the limit. Hence expansion makes sense, whether in Japan or overseas. Also, Honda sends 42.9% of its output to the U.S.; Toyota sends 44.6% and Nissan 43.9%. Honda has much to lose if the U.S., which imposes a rather modest 3% tariff on imported cars, raises higher barriers or otherwise seeks to restrain imports, as Britain, France and Italy have done over the past several years. Admits Kawashima: "I would be less than candid if I said I had felt no pressure from the U.S." That observation is in keeping with the principles of the company's founder and "supreme adviser," Soichiro Honda, 73, who was fond of expounding: "When we do business around the world, we have no choice but to stick to the philosophy of give and take." Until now, the U.S. has been doing the giving, but Honda's move could signal a change.

Source: TIME Archive (Paid subscription required)