Dodge Line Recession and liberalization of vehicle production and sales

After World War II, a new international order was established and a clear contrast between East and West emerged. With this change in the international situation, the economic policy of GHQ shifted from a focus on the democratization of Japan to stabilization and liberalization. In December 1948, the Japanese government was instructed to implement the Nine Point (Economic Stabilization) Program; in order to provide guidance on an appropriate economic stabilization policy, Joseph Dodge, the chairman of the Detroit Bank, arrived in Japan as special ambassador and financial advisor to GHQ on February 1, 1949.

Dodge introduced a set of economic stabilization policies known collectively as the Dodge Line. The basic policy was to reduce the money supply in order to bring inflation under control. One example of the concrete measures implemented was the policy of budgets balanced with a surplus, which was designed to control total demand. Under Dodge's guidance, the fiscal year 1949 budget put an end to the deficit budgets of thitherto with a severely austere budget balancing.

These abrupt measures to control inflation led to a rapid stabilization of prices, but at the same time the reduction in the money supply plunged industry into a serious shortage of funds, leading to unemployment and a series of business failures constituting the so-called 'Dodge Line Recession'. In the automotive industry, where the demand for regular trucks slackened from April 1949, there were even dealers who declined the vehicles assigned to them under the rationing system. In July and August of the same year, because of dealers withdrawing from receiving vehicles, Toyota Motor Co., Ltd.'s vehicle inventory at one stage exceeded 400 units.

One of the Dodge Line's economic stabilization policies was a uniform exchange rate of 360 yen to the dollar introduced on April 23, 1949. This policy, aimed at restoring a functioning market economy, was accompanied by the abolition of subsidies and the removal of a range of restrictions and controls.

On August 25, 1949, coal rationing was ended and in the next month, September, the subsidy for coal as a raw material for steelmaking was abolished. In the same month, the controlled price of iron and steel was raised by around 32 to 37 percent, but the officially fixed price of automobiles remained at the same level. An inspection of the controls on the automotive industry at the time shows that production materials were subject to rationed allocation with officially fixed pricing, while sales were also subject to rationed allocation with officially fixed pricing and distribution by application. Despite strenuous efforts by Toyota Motor Co., Ltd., to reduce costs, it was therefore difficult to cover the difference between the fixed prices of materials and products and the monthly deficit of approximately 22 million yen was forecast to continue.

Against this background, on October 25, 1949, GHQ issued the Memorandum Regarding the Comprehensive Removal of Restrictions on Vehicle Production and Sales. This led to the liberalization of vehicle production and sales-in principle-but as the system of rationed allocation under the Ministry of International Trade and Industry remained in place in the supply of production materials, the price of materials and vehicles remained controlled. Moreover, while controlled material prices were raised successively thereafter, the controlled price for vehicles remained unchanged until April 1950. This made it very difficult for the automotive industry to balance costs.

The deteriorating business situation affected not only Toyota Motor Co., Ltd. but also Nissan Motor Co., Ltd. and Isuzu Motors Limited. Following the announcement in October 1949 of more than 1,000 job cuts, both these companies were hit by fierce labor disputes.

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