A Tale of Two Countries

The most telling similarity between Japan and the United States is not our shared addiction to baseball, but our shared dependency on imported oil for our survival.

Roused to action by the first Gulf War and memories of the destructive impacts of the oil shocks of 1973 and 1979, both the Japanese and American governments made a major reduction in oil imports a matter of national security and national urgency. Both launched major initiatives to accomplish this goal. Both focused on the transportation sector, by far the largest consumer of petroleum.

And there the similarities end. For although the public sectors in both countries formulated similar strategies and supported them with comparable levels of funding, the private sectors responded in starkly different fashion to their respective governments' challenge.

In Japan, the private sector willingly agreed to carry out the public directive. Their corporations publicly -- and perhaps more importantly -- privately assumed responsibility for achieving the public goal. U.S. corporations willingly accepting almost $1 billion in public money; but privately, upper management never embraced the public goals and spent much of their time successfully opposing efforts by the government to mandate higher efficiency standards.

This tale of two countries is instructive.

In the U.S., the centerpiece of its effort to improve automotive efficiency was the Partnership for a New Generation of Vehicles (PNGV), a $120 million a year, seven-year program launched in 1993.

In Japan, the centerpiece was the Popularization Plan, launched in 1994. Both programs focused on developing and commercializing a new type of automobile, the hybrid car. A hybrid car is propelled by both an electric motor and an internal combustion engine. Such a configuration promised to improve fuel efficiencies by 50-150 percent.

PNGV funds were available only to American companies. Recipients agreed to unveil a concept car by 2000, a preproduction prototype by 2004 and be in full production by 2010. All three, Ford, GM and DaimlerChrysler introduced concept cars in early 2000. And there development stopped. Why? Because the American car companies refused to commercialize a car they would initially lose money on, even if the losses would be temporary.

Daimler/Chrysler, for example, announced in 2000 that it would not commercialize its diesel hybrid (ESX3) because it cost $7,500 more to make than their comparable gasoline powered car, a Dodge Intrepid. As late as April 2002 General Motors' CEO and President G. Richard Wagoner Jr. told Business Week, "How will the economics of hybrids ever match that of the internal combustion engine? We can't afford to subsidize them."

Japanese corporations adopted a different mindset that encouraged a more farsighted strategy. The Honda Insight, Honda's first hybrid car, sold for about $6,500 below cost when first introduced. Toyota initially was losing as much as $16,000 per car on its first-generation Prius. But as Hisao Suzuki, president of Honda's European R&D Division answered when asked why they would sell a car at a loss, "We are investing in the future."

In 1997 Toyota launched its money-losing hybrid with a production capacity of 1,000 per month. In December 1997 Business Week sorrowfully surveyed the entries in a recent car show. "While Toyota launched the world's first production hybrid gasoline and electric car, General Motors countered with a big new Cadillac and Chrysler showed off its gas-guzzling Dodge Viper muscle car." Detroit pooh-poohed the Japanese companies' achievements. "I don't see six months difference in anything that's being done," harrumphed GM Chairman John F. Smith Jr. As Business Week reported, "the only difference, say the Big Three, is that Japanese manufacturers are willing to accept huge losses."