25 YEARS OF HONDA IN THE U.S.A.: Import curbs stimulated Honda's U.S. growth

When Mike Tolleson started selling cars in Wisconsin 20 years ago, he says customers who wanted to test drive Hondas "lined up like they were waiting for a ride at the fair."

"We told them we could not be sure of the color or the model year" of the cars they would get, says Tolleson, who now is sales manager of Zimbrick Honda of Madison, Wis.

The reasons for the frenzy: Demand was high and supply was low.

Gasoline shortages and price increases rattled Americans in the 1970s. Broader economic turmoil continued into the early 1980s.

Many consumers demanded reasonably priced cars that were more fuel-efficient and reliable than those they had come to expect from the Big 3.

But supplies were tight. Honda Motor Co.'s Ohio assembly plant was in its infancy. The Japanese government, pressured by Washington, was limiting annual car exports to the United States to 1.68 million vehicles. Honda's share of that total was 400,000 cars a year.

The limits were called Voluntary Restraint Agreements, or VRAs. They later would be called Voluntary Export Restraints, or VERs. They were in effect from 1981 to 1994.

The restraints did not cause Honda to start making cars in the United States. The automaker said in 1979, two years before the formal restraints took effect, that it would build the plant. Production began in 1982.

But the restraints contributed to Honda's rapid expansion of its U.S. manufacturing base, analysts say.

Historical mileposts

VRAs and VERs were noteworthy landmarks in a long period of trade friction. Partly as a result, import-brand automakers evolved from controversial outsiders into members of the U.S. manufacturing and sales community.

Some argue that VRAs and VERs also were monuments to bad policies by the industry's old guard toward newcomers.

"It was a breathtakingly ill-conceived strategy" by the Big 3 and UAW, says Walter Huizenga, former chief counsel of the National Automobile Dealers Association and former president of the American International Automobile Dealers Association.

Honda cars earned their popularity on merit. But tight supplies gave them "cachet that otherwise would not have been there," Huizenga says.

Word spread quickly throughout a neighborhood whenever a buyer who had been on a waiting list brought a new Honda home, he recalls.

The distorted market enabled Honda dealers to charge thousands of dollars over sticker price for each car they sold. As a result, some dealers now concede, they cared less than they should have about treating customers well.

U.S. market conditions also encouraged Japanese automakers to move upscale - to make and sell more-expensive vehicles, historians assert.

The distortions were a factor in the bribery scandal that rocked Honda in the mid-1990s. Some observers called it the worst case of commercial corruption in U.S. history- at least before Enron's collapse.

By 1997, federal courts had convicted 18 former executives of American Honda Motor Co. of shaking down Honda dealers for more than $50 million in gifts, cash and favors over about a decade and a half. In exchange for the payoffs, the executives provided hard-to-get Honda dealerships and cars.

"There was no small amount of mischief in those days," Huizenga recalls.

Economic calculus

Debate continues over the extent to which American attempts to restrict Japanese imports contributed to Honda's decisions to produce and expand in the United States through Honda of America Manufacturing Inc.

Ed Cohen, vice president for government and industry relations at Honda Motor America Inc., says the company and its affiliates have long had a philosophy of manufacturing where they do business. The company also makes motorcycles and power equipment.

It is a Honda credo "to go to the spot," Cohen says. "It turned out to be a smart economic decision."

Corporate patriarch Soichiro Honda was a latecomer to the car business and was not part of Japan's tightly knit manufacturing community. He was an independent thinker and early internationalist, historians say. These factors helped lead to Honda's decision to make his company the first Japanese automaker to open a U.S. assembly plant.

But a decision to build a factory in the United States also had to make sense economically, says Bill Duncan, a longtime director of the Japan Automobile Manufacturers Association in Washington.

Regardless of trade pressure and other factors, Honda had to conclude that a U.S. plant could achieve economies of scale, Duncan says.

Import-brand companies and the Big 3 generally have achieved a peaceful coexistence over the past decade. So it is easy to forget the level of distress over the future of the U.S. automobile industry in the late 1970s and early 1980s.

It was a time of high inflation and then recession in the economy. The Big 3 were slow to respond to the demand for reliable, economical small cars. They closed factories, laid off workers and rapidly lost market share and money.

Chrysler Corp. needed a bailout from the federal government.

There was already a 25 percent tariff on imported light trucks.

Some domestic industry executives warned that without government intervention, Japanese automakers would capture more than half the U.S. car market in a few years.

Members of Congress proposed quotas on Japanese imports. That sent a signal that something had to change, says Steve Collins, who was then international affairs director for the Big 3's former trade association, the Motor Vehicle Manufacturers Association.

Not a slam-dunk

"It was not a coincidence" that Honda's investment in the United States grew after the "voluntary" restraints were imposed, Collins says.

Collins is president of the Automotive Trade Policy Council, which represents the Big 3 on trade issues.

In any case, Honda deserves credit for its achievements against sometimes long odds, he says.

Some leaders of import-brand companies chortle privately that U.S. auto executives and their UAW allies should have been more careful about demanding, mantra-like: "If you want to sell here, invest here." Import-brand automakers now build more American-made vehicles each year than they ever imported.

But the success of U.S. factories opened by Honda and other automakers was not guaranteed. U.S. executives felt, for example, that they had pushed back Volkswagen. VW's plant in New Stanton, Pa., opened in 1978, struggled and closed in 1987.

"We look back and say it was a fait accompli," Huizenga says of the growth of auto plants such as Honda's Ohio factory. "But it was not a sure thing."

Contact Automotive News