Section 2. Automobile Prototypes

Item 7. Toyoda Automatic Loom Works Designates a Licensed Company under the Automotive Manufacturing Industries Law

In the early 1930s, the Japanese automotive market was dominated by vehicles assembled by Ford-Japan and GM-Japan. Even before Ford and GM entered the Japanese market, the Ministry of War supported the manufacture of military trucks, but this did not lead to the development of a domestic automotive industry. Ford-Japan and GM-Japan steadily increased the volume of automobile parts imported from the United States for assembly, contributing to the expansion of Japan's trade deficit. The establishment of a domestic automotive industry became an urgent matter from the perspective of national defense as well.

The Ministry of Commerce and Industry created the Automobile Industry Establishment Research Committee within the Ministry in May 1931 and began investigating the plan for domestic automobile manufacturing. As a result, three private automakers were combined to design and manufacture automobiles according to Ministry standards, and nine prototype vehicles were completed in March 1932. The Ministry plan, however, collapsed two years later, and establishment of a national automotive industry was not achieved.

It was under these circumstances that Kiichiro Toyoda launched the Toyoda Automatic Loom Works automotive business in September 1933 and Yoshisuke Ayukawa established the Automobile Manufacturing Company (now Nissan Motor) in December of that year. As discussed above, the Ministry of Commerce and Industry and the Ministry of War gathered seven automobile manufacturing related companies in April 1934 to submit their opinions concerning the creation of domestic automotive industry, and at that time, Ayukawa presented the idea of establishing the domestic industry through an alliance with GM. The plan called for the creation of a tie-up with GM, the manufacture of automobile parts to start, and the nationalization of Chevrolet over 20 years.1

Automobile Manufacturing Company's nationalization plan was not carried out because of opposition from the Ministry of War, but it led to changes in existing national policy. The government provided support to private companies that voluntarily developed domestic industry in accordance with the policies and conditions set by the government, rather than simply subsidizing private companies.

In order to determine these policies and conditions, the Ministerial Conference on Establishing an Automobile Industry was established and held its first meeting on August 10, 1934. The participating ministries included the Ministry of Commerce and Industry, Ministry of War, Ministry of the Navy, Ministry of Railways, Ministry of Finance, Ministry of Home Affairs, Resources Bureau, Ministry of Foreign Affairs, and Department of Overseas Affairs (the Ministry of Foreign Affairs and Department of Overseas Affairs participated starting from the 13th meeting).

At the seventh meeting, held on September 4, 1934, Kiichiro expressed his opinions, as previously mentioned, while President Yoshisuke Ayukawa of Nissan Motor and President Tomonosuke Kano of Automobile Industries also shared their opinions. Chairman Koshiro Shiba of Mitsubishi Heavy Industries, Ltd. and Senior Managing Officer Bungo Shimoda of Kawasaki Motor testified at the sixth meeting on August 29, and Chairman Tamaki Makita of Mitsui Mining testified at the eighth meeting on September 7. The result was that Toyoda Automatic Loom Works and Nissan Motor, which actually begun plant construction with the aim of mass production of automobiles, were designated as the first licensed companies.

The Automotive Manufacturing Industries Law was promulgated on May 29, 1936 and came into effect on July 11.2 Toyoda Automatic Loom Works immediately applied for a license under the Law on July 23 and was designated a licensed company by the Ministry of Commerce and Industry on September 19. On the same day, Nissan Motor was also designated a licensed company. Later, Tokyo Automobile Industries Co., Ltd. (renamed Diesel Automobile Industry Co., Ltd. on April 30, 1941) was designated on April 9, 1941 to become the third company licensed under the Automotive Manufacturing Industries Law.

When Toyoda Automatic Loom Works was designated under the law, the director of Ministry of Commerce and Industry's Engineering Bureau instructed the company to use domestically-produced materials and parts for automobile manufacture. The use of domestic parts became obligatory starting in 1938.

When the Automotive Manufacturing Industries Law came into effect, assembly production by Ford-Japan and GM-Japan became difficult to maintain. Production volumes were limited and duties on imported parts were sharply increased, including an increase of the duties on engines from 35 percent to 60 percent of the value. As a result, Ford-Japan sought to establish alliance with Toyota Motor Co., Ltd. and Nissan Motor and conducted negotiations in 1938 and 1939, but no agreement was reached. In the end, Ford-Japan and GM-Japan had to suspend production in 1939.3

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1
The plan is said to have called for the construction of an enormous plant of 1.32 million square meters for large-scale mass production (Nihon Jidosha Kogyo Shi Ko (3), p. 34), Volume 3.
2
A summary of the Automotive Manufacturing Industries Law is set forth below.
1)Annual production of more than 3,000 motor vehicles (monthly production of 250 units) with engine displacement of 750 cc or more required a license, and a majority of the capital, directors, shareholders, and voting rights holders had to be Japanese citizens or Japanese corporations.
2)Licensed companies were exempt from income taxes and operating revenue taxes for five years, imports of government-approved machinery, tools, and materials were exempt from import duties for five years, and capital increases and bond issuances were subject to special treatment.
3)Licensed companies had to comply with government orders and supervision in various respects including orders concerning the manufacture of military vehicles and other matters necessary for military purposes.
4)Companies engaged in business prior to enactment of the law were exempt from the provisions in (1) as existing rights; provided, however, that existing rights were limited to the scope before August 9, 1935.
5)In cases where imported vehicles impede the establishment of a domestic automotive industry, import restrictions or import duties equal to no more than 50 percent of the imported product value may be imposed.
3
Later, Toyota Motor Co., Ltd. and Ford conducted negotiations on a technical tie-up in June 1950, negotiated for about one year starting in mid-1960 on a joint venture business for joint production of the Publica in Japan, and conducted negotiations in 1980 concerning a joint venture business in the United States, but none of these negotiations led to an agreement. Recalling these developments, former Toyota Motor Chairman Eiji Toyoda said, “We negotiated with Ford a total of four times both before and after the war, but nothing ever came of it. I guess it was not in the cards.” (Toyota: Fifty Years in Motion, p. 189: by Eiji Toyoda).