Section 1. Voluntary Restraints Imposed on Exports to U.S.
Item 3. U.S. Sales Structure Strengthened amid Voluntary Restraints
In fiscal year 1981 (ended June 1982), the first year that the limit of 1.68 million vehicles was imposed on exports to the United States, MITI monitored monthly export figures from each Japanese automaker in accordance withthe Foreign Exchange and Foreign Trade Control Law1. The quota allocated to each company was based on the export results of 1979 and 1980.
In effect, this meant that the road was closed to the expanding demand in the market that Japanese automakers had worked hard to develop. TMS was worried that the cap placed on the number of units that could be sold as a result of the voluntary restraints would have a negative impact on the income of dealers and lower their morale. In order to avoid this situation, the company implemented a number of special measures.
Firstly, it reviewed the model mix of the limited number of vehicles available for sale in order to efficiently improve profitability. The best example of that initiative was the redesigned Celica, launched in autumn 1981. TMS promoted the Celica's high performance and quality, succeeding in expanding the vehicle's sales to the extent that the Celica stood side-by-side with the Cressida in terms of profitability. The Celica Supra, in particular, which won Motor Trend magazine's "'82 Import Car of the Year" award, helped improve the image of Toyota's technology in the public's eye.
At the same time, TMS also established a specialized logistics company, Vehicle Processing Inc., in an effort to improve the efficiency of logistics operations. Then in 1982, Toyota's first finance company, Toyota Motor Credit Corporation, was established to strengthen Toyota's sales support to dealers. Also that year, TMS upgraded its own facilities, building a new head office complex in Torrance, California, and relocating and expanding its San Francisco regional office.
Given that there was constantly a short supply of passenger vehicles, TMS embarked on increasing sales of Toyota trucks. Together with passenger cars, Japanese small trucks had become popular in the United States. In the five years leading up to 1980, annual exports of small trucks had increased almost three-fold, to 590,000 units. In May 1980, the U.S. government announced a change to the tax category of small trucks, effective from August that year. What had been classified as a "chassis" (chassis with a cab and no rear deck) and subject to a four percent customs duty, was reclassified as a "truck" and subject to a twentyfive percent customs duty.
In November 1971, Toyota had commenced outsourcing production of truck beds to a local company in California, which it fitted to chassis with cab exports from Japan. After confirming with the U.S. government that the chassis with cabs to be exported from Japan would be classified as "chassis", Toyota gradually increased its investments in the United States. In 1974, when the local truck bed manufacturer was facing financial difficulty, TMS stepped in and restructured the company entirely with its own capital. Then in 1980, TMS made a further 5 million U.S. dollar injection, renaming the company Toyota Motor Manufacturing USA (now, TABC) and introduced the Toyota Production System to enhance the company's efficiency and quality.
It was at that point that the U.S. government decided to change the tax classification. TMC and TMS jointly made an objection to the U.S. Department of the Treasury, and filed a suit in the U.S. Court of Customs and Patent Appeals. However, Toyota lost both the initial suit and the appeal, forcing the company to give up hope of taking the suit to the U.S. Supreme Court.
Although the increased customs duty forced TMS to increase the price of the trucks, the company had instituted a number of initiatives to increase truck sales, because, starting in fiscal year 1981 (ended June 1982), restrictions had been put on the number of passenger cars that could be imported into the United States. One such initiative was the new employment of so-called truck managers charged with enhancing sales to large corporate customers and state governments. Other initiatives included encouraging dealers to set up "truck centers," establishing the "Toyota President's Truck Club" for dealers who performed particularly well, and the introduction of a special awards system for dealers.
In 1978, following improvements made to it, the Hilux pickup truck became the No. 1 vehicle imported into the United States. In order to maintain that position Toyota moved to enhance product strength, introducing a four-wheel-drive model in 1979, followed by diesel and extended-cab models in 1981.