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On Guard, Europe


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ON GUARD, EUROPE

In late November, John Cushnaghan, director of production at Nissan Motor Co. in Britain, was in Tokyo comparing notes with his Japanese colleagues. The meeting was interrupted by a news flash: For the first time, European journalists had given their car-of-the-year award to a Japanese model--Nissan's new British-made Micra, a $10,000 subcompact. "This is a significant event for us," exults Cushnaghan.

In snagging the award, Nissan delivered a sobering blow to Europe's own auto makers. They had been counting on their reputations for quality to keep the Japanese onslaught at bay. But the shock delivered by Nissan's six-year-old plant may be the shape of things to come. Just as most of Europe's recession-battered producers are shedding thousands of workers, the Japanese are on a hiring and production binge there. Toyota and Honda are now joining Nissan with big new facilities, and the Europeans are clearly worried by the Japanese. "They will change the competitive balance," warns Bruce Blythe, Ford of Europe Inc.'s head of business strategy.

QUICK STUDIES. The battle in the world's largest car market will be fierce. The new plants are cranking up during an industry slump, with sales expected to fall 3.5% next year, according to DRI/McGraw-Hill. At the same time, the heavy investments--$3 billion in Britain alone--put pressure on the Japanese to make big inroads against European competitors, who are getting more efficient.

Honda Motor Co.'s new plant started up in October, and come Dec. 16, when Toyota Motor Corp. opens a plant at Burneston in Yorkshire to produce the family-size Carina E, all three companies will be assembling cars in Britain. Consumer acceptance of Japanese cars is already high. Now, the Japanese companies are being strengthened by transplants that are free of quotas and 10% import duties. Each has also built a technical center in Europe to tailor models to local handling and styling tastes. Ominously for the Europeans, the Japanese are aiming at--and brashly expect to match--quality and output standards set by their parents back home.

Add it all up, and by 1995 the Japanese are likely to be producing 775,000 cars a year in Europe, 75% of them in Britain (chart). Even before then, Honda may increase its 20% stake in Rover Group if Rover's troubled parent, British Aerospace, bails out. By the end of the century, Japanese makers may account for 20% of the European market, up from 11.7% this year.

Whether Europeans will allow unimpeded Japanese gains in an industry that accounts for 10% of the work force is an open question. Tokyo has agreed to freeze exports at 1.2 million per year until 1999. But transplant production is unlimited as long as the Japanese show "restraint" in selling to Italy and France, where tiny quotas on imports will end on Jan. 1. Brussels is now pressuring Tokyo to lower exports for 1993.

Europe's carmakers are already fighting back with some big gains in productivity and technology. France's Renault is unabashedly copying such Japanese practices as factory-floor teams and lean production. The Japanese will take share away from Renault in the French, Italian, and Spanish markets, admits Philippe Gamba, Renault's marketing director, but he expects offsetting gains in northern Europe. "We fear the Japanese a lot less than we did five years ago," he says. Taking lessons from Mazda Motor Corp., its Japanese partner, Ford is knocking 20 months off the five years it once took to roll out new models. In October, the company informed suppliers it planned to do business the Japanese way, offering long-term deals in exchange for higher quality and lower costs.

None of this is lost on Japanese executives in key European posts.

"The competition has always been high and is getting more severe," says Shojiro Miyake, president of Honda Motor Europe Ltd., from his brick office overlooking the River Thames in Reading. Honda's plans are more modest than those of its two rivals: It will produce 100,000 cars annually at its Swindon (Wiltshire) factory, beginning with the European-built Accord, priced at about $18,750. It is relying on its relationship with Rover, which builds 425,000 cars a year, to spread the costs of what would otherwise be uneconomic production. Toyota will produce up to 200,000 cars annually by the year 2000, while Nissan may be turning out 350,000.

RURAL SITES. Fortunately for Europeans, the Japanese aren't able to run flatout these days. Slow sales at home and in the American market have hurt their profits, and that could crimp European outlays in such areas as dealer incentives and advertising. "Our budget is limited," admits Hidenori Tsutsui, Toyota's European director of marketing and engineering.

What's more, hard times have kept Japanese suppliers from moving to Europe in the way they did to the U.S. That is forcing producers to use local components. But the Japanese usually demand fast service and high quality. "They are doing more than the government to help British industry become competitive," says John M. Neil, CEO of Unipart Group Ltd. Neil, who won new contracts from Honda and Toyota, has embraced such Japanese practices as teamwork and job flexibility.

There may be no stopping the Japanese from setting formidable standards in Europe. Nissan workers are turning out cars in 18 hours, 7 hours faster than the next best--Ford plants in Germany and Belgium--says Daniel P. Jones, a professor at Cardiff Business School. Meanwhile, European dealers warm to the emphasis on quality and service guarantees. "These are Japanese concepts that make sense in other countries as well," says Alfonso Coppola, the largest Nissan dealer in Italy, who is now expanding his operation in Rome.

All three Japanese companies setting up in Europe are using proven formulas from Japan and America. They have selected factory sites in rural areas, then hired a youthful work force with no experience in the industry. In the job-hungry north of England, Nissan received 33,000 applicants for 1,600 openings this year. The company is working with nearby schools to upgrade technical skills. To get ready for its plant opening, Toyota sent several hundred new employees to Japan and the U.S. for initiation. Although Toyota and Nissan are unionized, they have widespread job flexibility.

WHITE OVERALLS. Honda's Miyake admits that senior executives have been doubtful about producing Japanese-quality cars in Britain, just as they worried earlier about the U.S. Smiling, he says: "We've proved we can do it." Workers at Honda's 3-year-old engine plant, which has been supplying Rover and will soon be producing for its own Accord, have now hit output targets with virtually fault-free quality for nearly 300 straight shifts, boasts Andrew J. Jones, the plant manager. Like everyone else in the Honda factories and offices, he wears white overalls. To Jones, who spends as much as three hours a day on the shop floor, the key point of differentiation between auto companies in Europe will be the management--not technology or even products. "The critical thing in the '90s is people," he says.

Of course, adapting to Britain has not been without its problems. Such Japanese-style work habits as hustling in and out of the lunch room at the jangle of a bell have put some recruits off. Developing team spirit is also a new experience. "There can be a problem getting people to communicate freely," says Al Cumming, the 33-year-old manager of Honda's car-inspection unit. "A lot of people aren't used to it."

European suppliers also have some way to go in satisfying the Japanese. Such companies as Britain's GKN and Lucas Industries and Germany's Robert Bosch are used to their high standards. But for others, it's a rude awakening. Recent studies point to big quality gaps and warn that unless the Europeans get their act together, Japanese suppliers will set up shop by mid-decade.

In the great European auto race, it's telling that managers at Japanese plants in Britain have set production and quality targets that match those in Japan. Europe's beleaguered carmakers might be wise to aim just as high.Richard A. Melcher in London, with Stewart Toy in Paris and bureau reports


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