Fraser MacKenzie went to Japan in October hoping to land new business.
The hype surrounding the Tokyo auto show and talk of a rebounding Japanese industry had his leather supply company optimistic. Instead, he came back empty-handed.
Japanese automakers are on a mission, says MacKenzie, who is vice president of sales and marketing for Eagle Ottawa Leather in Grand Haven, Mich. But it won't mean opportunity as usual.
'Clearly,' he says, 'the thinking is about getting the cost down and decontenting.'
Linguists aren't the only ones who cringe at the word. Mention it around Japanese automakers and you might as well say their products are cheap.
But pushed by the strong yen, thinning profits and in some cases red ink, the Japanese are trying to take even more cost out of their vehicles, this time by taking content out of them. It may mean using simpler technology, or lower-grade parts. It could mean deliberately taking quality out of areas the customer never sees. Or doing without those touches, like lit vanity mirrors, that once helped set Japan's products apart.
'It's going to blow you away what they're going to take out,' said James Harbour, president of Harbour & Associates, a Troy, Mich., based manufacturing consultancy. 'They're not going after nickels and dimes. They're looking to redesign with a 40 to 50 percent cost reduction.'
Echoes George McCabe, senior vice president at Mazda Motor of America Inc.: 'We haven't seen decontented cars come to market in full bloom yet.'
In the process, the movement is forcing the Japanese to consider some unfamiliar questions:
How good is good enough? Where do you draw the line between changes car owners see and those they don't see?
Will a part made more cheaply today be more likely to break tomorrow? If so, what happens to Japan's vaunted reputation for quality?
As the yen has soared against the dollar in recent years, the Japanese have pursued cost-cutting strategies.
They simplified subassemblies. They reduced the number of parts and built several vehicles on the same platform. They deleted slow-selling models and shifted more production to the United States.
Yet even with the yen's recent return to penny parity, Big 3 cars have up to a $3,000 price advantage. The Europeans have become more competitive, too.
Why the move to less content? The Japanese have run out of costs to cut. And in an age where vehicle prices are at alarming heights, automakers can ill-afford to raise stickers any more. A $15,000 Toyota Corolla is fighting a Chevrolet Lumina instead of a Cavalier.
So the Japanese are taking their cost-cutting a step further by cutting content. Every component and every gadget is being scrutinized.
Supplier MacKenzie says the use of leather is waning. 'They're looking to take it out of programs where it would be standard, or at least an option. We're talking Camry-level vehicles here.'
LARGELY INVISIBLE SO FAR
So far, the decontenting wave has largely involved parts the customer never sees, such gas tanks that are no longer being painted. But the movement is becoming more visible to the customer and creeping into major components, such as the engine, suspension, brakes and interior.
Last year, Nissan eliminated the independent rear suspension on the Maxima and Sentra. The company says the switch yielded a 10 percent savings over the old design.
No factory-installed cassette decks come in any version of the new Honda Civic. If you want one, you have to go through the dealer or the aftermarket. And Mazda and Mitsubishi have cheapened the interiors of some of their products. (See box at left.)
Historically, as Japanese model lines have evolved, they've tended to pick up frills and gadgets as they've been redesigned.
While they may be models of efficiency, the next generation of Japanese vehicles will be hard-pressed to provide those pleasant surprises, analysts say.
They point to the next Toyota Camry and Corolla at the crest of the wave of change. Indeed, some U.S. Toyota executives have admitted that the current U.S. Camry and Corolla are 'too good' for their segments and price points.
The Japan-market Corolla serves as an ominous example. In an attempt to make last year's new model more affordable, Toyota made the new Corolla a bare-bones model. Consumers dismissed it as plain. Sales are down, and incentives are in full swing.
This failure has Japanese executives questioning whether Toyota may have gone too far.
'Customers don't just want to buy inexpensive cars,' cautioned Hiroyuki Itoh, Honda Motor Co. executive chief engineer for automobile operations. 'They want to buy good cars that are inexpensive. We shouldn't misunderstand the customers' desires.'
CONTENT VS. COST
Consultant Harbour notes that cutting content is a much faster way to reduce sticker prices than reducing manufacturing costs.
'It takes a lot of simplification to have one hour less assembly time, which will save $30 a car. But redesigning one part by using cheaper materials can save $30 right there,' Harbour said.
In other words, 'good enough' may be the watchword at automakers.
Said Akihiro Wada, Toyota Motor Corp. executive vice president in charge of research and development and product development: 'We have to reduce the number of bolts and parts. Those building blocks need to be reduced.
'I hate to say it, but (Big 3) cars have fewer parts and need fewer processes for mounting the parts. That's something we have to learn from the Americans,' Wada said.
Toyota needs to be careful in its decontenting efforts. To hit a price point, it is reasonable to take out items the customer doesn't really care about. But automakers must be shrewd in where they draw the line, he said.
'The question is whether the users need them. It's not a good idea to take features out just to reduce the price,' Wada said.
'The most important 'cost-down' is not changing the product or taking features out, but using ingenuity to change the part to a less expensive one. There are some instances where we've had to reduce the quality, and there have been a lot of complaints. In the future, I think we'll avoid such a practice.'
Toyota is lucky; it has $30 billion in cash reserves. Others, such as Mazda Motor Corp. and Nissan Motor Co. face a more critical situation.
Consultant Harbour notes: 'Japan has to get a car that's cost-and price-competitive. Nissan lost $750 a car last year. Toyota made $400 a car, but they lost money once you take out the interest they made from their piles of cash.'
Mitsubishi is also wrestling with the decontenting issue. It markets itself as having more gadgets and technology than the other guy.
'Is it really necessary for the five people sitting in a Montero to have seven armrests and 10 grabhandles?' said John Warren, vice president of strategy and operations planning at Mitsubishi Motor Sales of America Inc. 'We've gone so far in adding content that in economic terms we've hit diminishing returns. At some point you start to wonder if it's possible to go overboard.'
Warren sees Mitsubishi's decontenting efforts involving technology more than comfort and convenience items. He calls it 'design-out.'
The biggest change for Mitsubishi involves its engines. While Mitsubishi wants to keep its fleet of four-valve-per-cylinder engines, its snazzy dual overhead cams are to be replaced with a cheaper single overhead cam design, Warren said.
'Everyone's paying for what only a handful of people can appreciate,' Warren said. 'Do you notice the fuzzy logic on your automatic transmission when you're commuting on a flat, straight road every day?'
THE DURABILITY QUESTION
Analysts and consultants said the Japanese will rely primarily on using parts built to less-exacting specifications. It is the least noticable change, since the components usually are invisible to the buyer. And it may not necessarily reduce initial quality.
Long-term durability is another question. But in an era of three-year leases, that may not matter as much as it once did, analysts say. After all, does a trunk seal need to last 25 years when a 10-year lifespan is probably sufficient? Must the power window motor raise or lower the window in two seconds when three seconds will do?
In addition, automakers are returning to using lower-cost steel and iron instead of saving weight with aluminum, said Marc Santucci, president of the ELM International consulting firm in East Lansing, Mich.
'Say a 10-pound cast-iron (suspension) knuckle costs $8, and a six-pound aluminum knuckle costs $13. Is the four pounds in weight savings worth the extra $5 in cost?' Santucci said. 'You will see the Japanese specifications loosened up to use parts they wouldn't accept in the past. It may make for a noisier car or certain parts that may not last as long,' he said.
THE DOWN SIDE
The challenge is taking out content 'without taking away what makes a car a Honda or a Toyota,' Santucci said. In other words, is saving $5 on a seat cushion worth risking the car's essence?
'You will see the Japanese keeping their ears to the ground to see if it affects sales at all,' he added. 'They know that it takes a long time to lose your reputation, but that it takes even longer to gain it back.'
But not every vehicle line is being decontented. Luxury models have to keep their premium image alive. And in some cases, one model line has seen content reduced, but another line has added frills to stay competitive.
Isuzu, for example, cut the dual overhead cam V-6 engine from the upscale Trooper, which meant it gets the same sohc engine that powers the less-affluent Rodeo. But the Rodeo, meanwhile, has added dual airbags, 16-inch wheels and shift-on-the-fly four-wheel-drive.
Another problem is that many parts can't have content reduced or specifications lowered. New requirements for airbags, emission reductions, and side-impact protection all add cost and complexity.
With so much of a vehicle's cost fixed by regulators, it has become harder to offer more visible touches and still hit a price point. And since there are fewer parts that can be decontented, there's a better chance that one of the cheaper parts will be noticable to the customer.
What's more, the Japanese aren't just competing against the yen. Big 3 vehicles are getting better. New vehicles like the Taurus are competing toe-to-toe with the Japanese in vehicle quality, amenities and price.
Notes Mazda's McCabe: 'Unless we can lower the cost of building cars, the domestics will have the advantage - especially if they can get their gizmos to work as well as the ones on Japanese cars do.'
Staff Reporter James B. Treece contributed to this report.