I read an interesting article the other day that describes “tier 2” manufacturers in Japan and the fact that they are profitable whereas larger manufacturers in Europe and even smaller divisions of the Big 3 are struggling.
Many readers will know that Australia has seen its car manufacturing start to reach its end with plants from Ford, Holden and Toyota scheduled to close. Other countries have seen plants mothballed to a point where capacity is much lower than the ability of the facility yet in Japan, the smaller companies have thrived.
The second tier includes Mazda, Mitsubishi, Subaru and Suzuki and they are either owned or have an ownership stake controlled by one of the big manufacturers. Mazda used to have a tie up with Ford until the GFC broke that and I am sure they learnt a lot from that arrangement. Subaru is part of Fuji Heavy Industries so have some dollars (Yen) behind them and they have 16% owned by Toyota, hence the GT86/BRZ/Scion model. Mitsubishi is part of a huge multi-pronged entity that seems to manufacture every conceivable product, so has money behind it.
All seem to be making money and exporting cars worldwide through quality products and great technology. They are not saddled with huge debts and have supportive owners who allow them to continue their businesses with success. They build no more than 2 million cars a year, far lower than many other manufacturers however they are able to sell them for a profit – including the logistics costs of export. This would suggest that their manufacturing costs per unit are much lower than other companies. I could understand a specialist maker selling for a high price and covering costs, however the tier 2 make good quality family cars which you would think would have to be price sensitive to the bigger players.
Perhaps the big guys should figure out how they do it and learn some new tricks – just as they did to replicate the “Toyota Way” many decades ago. Clearly it is not just the financial backers keeping the tier 2s afloat, if they were consistently losing money they would soon close down. That is simple and basic economics.
However, all is not rosy! Car sales are sliding in Japan which affects all the local manufacturers and puts a bigger squeeze on the tier 2 companies. Mitsubishi is the weakest of the tier 2 however they have the biggest backer, so they should survive with exports still intact. The big companies will be happy taking a share of the profits from the smaller ones, however if that reduces they may get concerned and spin them off or close them – just like GM did with Pontiac and Oldsmobile a few years ago.