FTC gives green light to GM, Toyota car-building plan
Car buyers and automobile manufacturers are now one step closer to seeing significant changes in the US auto market. The Federal Trade Commission (FTC) gave provisional approval Thursday to a venture in which General Motors Corporation and Toyota Motor Corporation would jointly produce a new subcompact car at a plant in Fremont, Calif., which GM closed early in 1982. Final approval of the deal cannot take place until after a 60-day period for public comment.
It is still by no means certain that the new subcompacts will begin coming down the assembly line in early 1985 as now scheduled. The joint venture is still subject to a number of potential legal challenges from Ford Motor Company and Chrysler Corporation, both of which have strenuously objected to the deal.
Chrysler has been particulary outspoken, claiming the linkup "eliminates competition, right in the heart of the critical entry-level market, between the two strongest companies in the world."
Ford "has not indicated which direction it might head," in opposing the joint venture, a corporate spokesman says. A Chrysler official says his firm will "take advantage of the comment period" and will decide on further action early next year.
The GM-Toyta deal nevertheless cleared an important hurdle with the FTC decision not to challenge the joint venture. "This is the single largest joint venture approved by the FTC or the [Justice Department] Anti-Trust Division between horizontal competitors," says Timothy Waters, an antitrust lawyer in the Washington firm Peabody, Lambert & Meyers.
The FTC acted only after GM and Toyota signed a special consent agreement promising not to expand their target of producing 200,000 cars a year or increasing the 12-year maximum life of the arrangement. In addition, the two carmakers agreed not to engage in anticompetitive behavior.
Experts say the joint venture could affect both the industry and car-buying public in a variety of ways including:
* Increasing by 200,000 a year the number of Japanese-quality small cars available to US buyers. There now are long waiting lists for such cars at many imported-car dealers.
"From the point of view of the car buyer, it's a definite plus," says David Healy, auto analyst at Drexell Burnham Lambert Inc. "It will be a new product, probably a good one, and it will be price competitive."
* Improving General Motors' already commanding place in the US auto market. The deal would shore up its position in the subcompact segment, where its key entry now is the aging Chevette.
"They haven't penetrated well in the subcompact market," notes Thomas F. O'Grady, director of automotive services for Chase Econometrics, a consulting firm. He notes that the joint venture provides an appealing way for GM to compete in the subcompact segment while learning from Toyota some of the techniques that give Japanese firms their price and quality advanatges.
* Posing a competitive challenge to Ford and Chrysler, the nation's second- and third-largest auto companies. The joint venture lets GM field a new subcompact "with a minimal [new-car] development investment. Because they won't have to recoup a [huge] investment, GM can come in with a very competitive price ," notes John Hammond, director of the automotive service at Data Resources Inc.
By holding down its investment in the subcompact market, GM also is left with greater resources to devote to the largercar market where GM traditionally has been strong.
* Breaking new ground in the antitrust field, according to some, but not all, experts in the field.
The FTC's decision not to oppose the venture breaks "not theoretical ground, just enforcement ground," says Roger Schechter, a law professor at George Washington University Law School. "It is a decision to let a transaction stand that up until a couple of years ago everyone . . . would expect to be challenged."
Professor Schechter says he thinks there "is a good probability" that if the venture is challenged, the courts will disagree with the FTC.
But other antitrust experts argue that the case does not break legal ground. "I don't regard this as a breakthrough, except in so far as it brings to the surface a general understanding within the profession that joint ventures are often healthy and desirable things," says Columbia University Law School Prof. William K. Jones.
He adds that "large companies are entering into joint ventures with one another all the time. Most never attract an antitrust challenge."
"This was a close case all along," says the Dean of an eastern law school who asked no to be named. "You could come out on either side of this thing." GM-Toyota venture at a glance Plant. A 2.9 million-square-foot former GM facility located in Fermont, Calif., 24 miles southeast of Oakland. The plant was closed March 5, 1982. A new stamping facility is being built. Jobs. Approximately 2,500 workers will be employed at the plant. An additional 9,000 jobs will be created at various suppliers. Start up. Substantial production salated for early 1985. Output. Some 200,000 small, front-wheel-drive cars will be produced a year. The auto is the Toyota's Corolla Sprint version, not currently sold in the US. Components. About half from US; engine and transmission from Japan. Duration. Up to 12 years. Cost. An estimated $300 million, with Toyota putting up $150 million and GM contributing the plant and $20 million in cash. Memorandum of agreement. Signed Feb. 17. Top Management. To be appointed by Toyota. Directors. Half to be appointed by GM, half by Toyota. Marketing. Through Chevrolet dealers.