Running On Empty

Two years ago, Yasuharu Kondo was overwhelmed with customers at his Toyota showroom in Tokyo. Sales were booming, and most shoppers looking for top-of- the-line models, the best their yen could buy. Those days are gone; today Kondo surveys a showroom full of sparkling new cars -- and not a customer in sight. "In my 30 years as a salesman," he says, "I have never seen it as bad as this."

The lament echoes across the $339 billion Japanese auto industry, which finds itself running low on gas. The industry accounts for 10% of Japan's overall economy; thus its falling fortunes are a major factor in a deepening recession. Domestic car and truck sales are down 13% from the 1990 peak of 7.7 ( million vehicles, and profits for the five biggest carmakers -- Toyota, Nissan, Honda, Mitsubishi and Mazda -- are off about 64% from the same year. Some of the smaller companies, like Isuzu, have been in the red for two years and may soon be joined by the likes of Nissan and Mazda.

In normal times, the automakers would trim expenses, adjust to new market trends and wait for business to improve, but these are not normal times. While the U.S. is making a modest comeback in car sales, Europe and Japan show no signs of a turnaround. And none of the world's major car markets are likely to return to the headlong expansion of the 1980s. That is a particularly painful prospect for the Japanese companies, which have justified continuing investment in new plants and models on the premise of selling ever more cars.

The result is a shake-out among Japan's 11 domestic companies, with the smaller firms suffering the heaviest impact. Their emergency measures include reductions in product lines, severe cost cutting, mergers with other automakers and drastic rethinking of business practices. In mid-December, sixth-ranked Isuzu announced that it was getting out of the passenger-car business to concentrate on its truck business. Second-ranked Nissan is slowly absorbing ninth-ranked Fuji Heavy Industries, the parent of ailing Subaru.

On top of the global slump, Japan's automakers face increasingly tough, lean rivals. In the U.S., where total auto sales increased an estimated 1.5% in 1992 over the previous year, the once burgeoning Japanese share of the market has retreated slightly, to 30%. The strong yen and an attempt to inflate prices overseas to offset weak profits at home have made Japanese vehicles more expensive in the U.S. A mid-priced American-built car now typically costs $1,500 less than its Japanese counterpart. Another factor is that Japanese companies are weak in the light-truck category, where such vehicles as Dodge pickups and the Ford Explorer are driving off with the lion's share of a market niche that grew more than 18% last year, to 4.5 million vehicles.

Japan's setback provides a moment of respite for America's Big Three, which have problems of their own. GM, the most bloated U.S. automaker, plans to lay off 74,000 of its 360,000 workers in a bid to cut costs. Ford will post an estimated $6 billion loss for 1992, largely because of a huge write-off for future retirement obligations. Chrysler remains saddled with $13 billion in high-interest debt.