Workers' wages are higher than in emerging markets. The domestic production footprint is buried in overcapacity. And reliance on exports often leads to huge foreign exchange losses.
But the bigger question is what to do about it. Nissan is pioneering a possible solution.
This week Nissan Motor Co. said it was studying a plan to spin off its Kyushu assembly plant, its biggest in Japan, by the fall of 2011. The goal is to shed the burden of high costs.
By reincorporating the factory as a separate company, Nissan may be hoping to renegotiate labor and supplier contracts toward more internationally competitive (read: lower) levels.
Talk of restructuring Japan's domestic auto manufacturing base -- the backbone of Japan Inc. -- is traditionally taboo, especially if it involves closing plants, shedding jobs or cutting pay.
But Nissan's end run of spinning off a jewel of local production might work. If any company can get away with it, it might the Japanese brand that was saved by, and still run by, a foreigner, CEO Carlos Ghosn. Once again, Japan may have to look outside for innovation.
And if Nissan succeeds, others in worse need of restructuring, such as Toyota, may follow.