US-Japanese trade gap perilous, Ford chief warns
If Japan does not adjust its trade practices with Europe and the United States, the world could face ''another 1930,'' warns Donald E. Petersen, president of Ford Motor Company.
In Boston to address the Sloan School of Management at the Massachusetts Institute of Technology on the new Ford contract with the United Automobile Workers union, he asserted: ''There will be reaction - and some of the reaction, if we're not careful, will be very damaging.''
Indeed, it's the most significant issue now being debated among governments today, he said.
''It's a governmental issue that the government has to deal with.''
''It has taken a long time, especially for the US, to become fully aware of the seriousness of the trade imbalance and the magnitude of this imbalance which is solely attributable to automobiles,'' he went on. ''Europe became concerned before the US - and it's just as bad between Europe and Japan.''
(Japan last week agreed to hold passenger-car exports to the US in the next 12 months to the same level - 1,680,000 units - which existed between April 1, 1981, and March 31, 1982.
(Few people seem impressed, however, because during the same time period no more than 40,000 cars from the rest of the world were shipped to Japan.)
''It's important for Japan as a country to understand it cannot do what it's doing - targeting segments of the economies of other countries in the world on a prolonged basis. It creates gross disruption and there will be reaction,'' Mr. Petersen said.
''The grossest risk is a return to a protectionist world. Many people remember what that did to us in 1930 when the Smoot-Hawley bill was passed by the US Congress. It drove the world into the deepest recession it had ever seen.''
''That's the ultimate risk,'' he declared.
Heeding the criticism, Honda is completing a factory in Ohio that will build Accord automobiles beginning later this year, and Nissan (Datsun) is putting up a plant in Tennessee to produce pickup trucks. General Motors and Toyota are discussing joint operations to build small cars for the US market. All three top US carmakers - GM, Ford, and Chrysler - own stock in Japanese car companies.
Many nations now have local-content laws that require that a specific percentage of all materials and labor in a vehicle be supplied by the country in which the vehicle is sold.
The UAW is pressing for a similar law in the US.
Mexico passed such a law in 1980 which said it wanted equity. Ford Motor Company has responded by building an engine plant in Mexico.
''The flow of business between the US and Mexico was all one way,'' Petersen said. ''Everything was shipped from the US as components and were simply assembled and sold in Mexico, so that the balance of trade was grossly to the advantage of the US.
''I find it hard to say the new Mexican law is unreasonable.''
Interestingly, the percentage of North American content in Ford cars now is higher than it was 5 or 10 years ago. On the Pinto, many parts, including the engine and steering, came from overseas. On the new Escort, the engine is built in Michigan and the transmission in Ohio.
Too, Ford no longer ships in the Fiesta and Capri.
Among other issues:
* Wages. Automobile wages are significantly higher than the industrial wage average in the US.
''Our wage rate is about $10 an hour more than the Japanese wage,'' Petersen said, ''and 80 percent higher than the industrial wage average in the US.''
A company such as Toyota, including all the fringes, etc., has a wage rate of about $10 an hour - and this isn't too far off from the US industrial average.
''For a long time we were an industry that could offer a premium income to all of our employees - and we did. Now we're no longer in that position and we've got to work our way out of it.''
I do not fault in any significant way the people who, through the years, took a look at the circumstances and, in their eyes, felt they could afford what was being proposed and still be profitable - so they went along with it.
''Maybe they should have had more foresight and been able to look further into the future and see that at a final point in time we were going to come to a real crunch in the international competition with the Japanese.''But that would have taken a pretty farsighted individual.''
* Front-wheel drive. The No. 2 US carmaker is being forced to commit more cars to front-drive than it wants.''In the US, when you have a company (General Motors) which represents roughly half the market, say that front-wheel drive is the wave of the future, and a media which picks this up and says that, unless you're front drive you're not modern, it's a very difficult tide to swim against.''
Therefore, we're going much more strongly to front drive in the US than I think we would have gone, given our own free choice. We are influenced competitively by the circumstances in which we find ourselves.
''So we will be going front drive on some of the largest vehicles, which could just as well have stayed rear drive.''
In Europe, there are a half dozen companies where both f.w.d. and rear drive have been living together for 15 or 20 years. There is no big swing emotionally among the population which says that you're out of it if you're not front drive or rear drive.
''As an example, both the European and US-built Escort are front drive. However, Ford races the European Escort and ''had to modify it to rear-wheel drive,'' Petersen asserted.
Simply, ''there is a spectrum of applications,'' he added.
Most carmakers agree that front drive is best in the new small cars because of the advantage of more inside space. ''The other extreme would be an all-out race car where, for ultimate handling characteristics and roadability, there is no question but that rear drive is best,'' the Ford chief said.
* Car prices. If the prime lending rate of banks should drop to 10 percent, will there be a significant reduction in the price of automobiles?
''I don't think we're talking in terms of a reduction in the price of a car any more than we're talking in terms of a reduction in the wage rates of employees,'' said Petersen.''
What we're talking about, I think, is a hoped-for, significant moderation in the rate of price increases in the future.
What we've got to do is stop having to make dramatic increases in the price of cars.
''We're still in an inflationary world, but I hope we're in a world that is going to be significantly less inflationary in the US than it has been.''
The Ford boss refused to speculate on car prices in the fall.
''It's too early to tell about the introductory prices of the 1983 cars. The going rate of inflation now is about 6 percent, but I don't know what it'll be by fall.''
The main thing we need, he averred, is a reduction in the interest rates.