Japan's First Auto Crisis

FOR white-collar workers at the headquarters of Toyota Motor Corporation in Tokyo, the sound of economic hard times can be heard over the office speakers.

Since early November, workers have been subjected to a children's ditty each day at 5:30 p.m., reminding them that the sun is setting and it's time to say "sayonara."

The song, considered too cute by some, is designed to get employees to quit work far earlier than usual in this workaholic society and thus help Japan's largest automaker lower its costs for overtime pay.

While reducing work hours is a new idea to Toyota, streamlining costs during a slowdown in sales is not. In the past, Japan's auto industry would just trim operations here and there while confidently awaiting a rebound. But this market drop, involving a 30 to 75 percent fall in profits for Japan's 11 carmakers, is no ordinary slump.

"The industry is going down the shoots," says Steve Usher, auto analyst at Kleinwort Benson Securities in Tokyo. "For the first time since the war, the Japanese auto industry is facing a no-growth environment in Japan, the United States, and Europe. They haven't seen this before."

In the past, while the US or European market might be down, automakers could rely on a growing Japanese market. In the 1980s, domestic vehicle sales rose 4.5 percent a year on average. But sales from April to September this year, fell 7.2 percent compared to the same period in 1991. In the month of October, sales dropped 14 percent from a year ago.

Despite this slack in all three major markets, most automakers are making only short-term cuts in costs rather than radically restructuring themselves for what could be a long slowdown.

The industry's overconfidence continues to overflow. Last June, for instance, Toyota's president, Shoichiro Toyoda, announced that the car market in Japan had bottomed out. That premature forecast was then reissued earlier this fall. Now, next summer seems to the earliest for a pickup in the economy.

`WE see the situation as worst ever," says Toyota spokesman Eiji Hirabayashi. Still, short-term cost cutting, such as reducing the number of overseas trips for executives, started only in November. Toyota, as the industry leader with 40 percent of the domestic market, has usually led the pack in shifting strategies. This time Nissan, the second largest automaker in Japan, has taken the most drastic step.

After announcing its first pretax loss since 1946 in August, Nissan set plans to reduce its work force by 6 percent, or 4,000 employees, a somewhat shocking move in a society in which life-long employment in big industries is assumed. Nissan's labor costs (as a percentage of sales) are above average for the industry in Japan.

Since Nissan has a yearly attrition of 3,300 workers anyway, the cut is seen as an easy one and serves more to put employees on notice to work harder.

Nissan is also trying to find new tasks for idled workers. Hiroshi Dobashi, a mechanic at a dealership across from Tokyo's imperial palace, was asked to lay up his tools and go door-to-door to sell new cars. "The purpose is to improve the level of customer satisfaction," he says, "We're placing more emphasis on quality than quantity."

For its part, Toyota plans to reduce the number of variations offered in each car model by 10 to 20 percent. The industry as a whole has cut way back on capital spending, while resisting any shut down of assembly lines.

One problem facing almost all automakers is that they invested heavily in robotics and other labor-saving capital equipment from 1989 to 1991. Now the ability to pay off those hefty investments may be years away, putting a squeeze on profits this year and perhaps next as the companies are stuck with high depreciation expenses.

"The costs of the past few years are catching up with them," Mr. Usher says. Many analysts say Japanese car sales may not pick up until 1994.

Honda Motor Corporation correctly predicted the end of Japan's boom market and cut back on capital investment in 1989, giving the company some advantage in depreciation costs.