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Musings on the Past

Will the automotive world experience another “1989”?

It is hard to imagine what life would be without Japanese cars. We would probably be living in a glorious age of rehashed 20-year old cars heavy in the rich tradition of being literally banged together by hammers with an engine that would sputter to life when a union says so and customer service is judged on how polite you were to the dealer. 

That doesn’t sound too bad, without those pesky Japanese meddling in the market, there would still be plenty of choices to go around, especially with General Motors owning half the United States, the latest British Leyland creation being peddled in identical spec through fifteen different brands, and Lancia would still be around to sell you a fine hatchback with the ability to rust and combust! How did the west, the birthplace of the automobile, lose control of the world one has to wonder?

Photo by Boris Stefanik

In the real world, the ascension of the Japanese automotive industry was inevitable from the get-go. Unlike western carmakers who were riding high on its own significance in the decades after World War 2, the Japanese got to work on cars that ignored all frivolous excess in decorum and decor in favour of unerring simplicity and clockwork reliability, the boring lot of them. 

Though at the time, who would have guessed that thousands of car buyers just wanted their car to get them to work on time rather than make it to the pub next to their local garage. The Japanese concept of making cars cheaply and reliably worked for a growing middle class, though despite its popularity, the Japanese could never overcome its image as a maker of staid cars for boring people with no aspirations and dreams beyond their front lawn. 

Looking at automotive culture today, that obviously isn’t the case now. Yes, Japanese cars are still typified by characterless family SUVs that will reliably do the school run even amidst a cataclysmic event of nature, but those of an affluent disposition won’t be the least bit dissuaded by the badge of a Lexus limousine that could humiliate a Mercedes-Benz or a Nissan that will make a Porsche cry “uncle”. How did this change come about? 

Pundits will inevitably point to the rise of Japan’s “Bubble era” cars as instrumental in turning the tide of public opinion on Japanese cars. Born from the unhindered exuberance that typified Japan’s asset price bubble of the mid-1980s, these cars were built with near-unlimited budgets to capitalise on the extravagant spending of the newly minted Japanese rich whose fortunes were made by one of the biggest economic booms in modern history. How about building luxury grand tourer coupes equipped with revolutionary CRT touch screen systems? Go right ahead. A “Kei” sports car with gullwing doors? Nothing wrong with that. Design a near-indestructible inline-six just to punt out 205kW? Go nuts. Truly a time to be alive.

That being said, even though these “Bubble era” cars were the stuff of early-internet legends, it never quite made an impact to the general public outside of Japan, besides a handful of enthusiasts who shared stories of these incredulous forbidden fruit through the internet and learnt of its existence through the Gran Turismo video game series and videos on ebaumsworld. Online media back then never had the outrage mob of Twitteratis it has now, and its influence only grew an underground fanbase that went as far as sowing the seeds for the Fast and Furious franchise. Far from the industry-changing force, its proponents would like to believe. 

However, the same series of events and circumstances that sent the Japanese economy skywards also laid the foundation from which three remarkable cars, from three different manufacturers, all of which coincidentally made its debut 30 years ago and tilted the world’s axis forever. The Lexus LS400, the Honda NSX, and the Mazda MX-5. 

It wasn’t as though all three cars were gunning for the prestige and performance market that shocked the world, it was that nobody saw it coming. Out of the blue Toyota landed a hammer blow with a limousine that could outclass the S-Class, Honda schooled the supercar industry with the world’s first all-aluminium production car, and Mazda perfected the “European” roadster formula. While Japan’s roaring export economy certainly gave the manufacturers the resources and confidence to embark on such projects, it was the 1985 Plaza Accords that set off both Japan’s asset bubble and its ascension in the automotive world. 

By the 1980s Japanese cars were already part of the crucial North American market following the disastrous 1973 oil crisis. From a meagre 6.5 per cent market share of the US automobile market around the time of the crisis, Japanese imports grew to account for more than a fifth of the market by 1980. This trade imbalance, of course, alarmed the American government and in 1981, the country imposed Voluntary Export Restraints on the Japanese, limiting the number of imports allowed into the United States in order to protect its own local industry.

Photo by Andy Feliciotti

These restraints did little to curb the popularity of cars from Japan, even though it was reported to have increased the average price of Japanese imports by USD900, and instead forced Japanese car companies to bridge the Pacific and open factories on US soil. With protectionist policies not working both economically and politically, the United States government convinced the five leading industrialised nations – France, West Germany, Japan, the United Kingdom, and the United States – to agree to the 1985 Plaza Accords to devalue the US Dollar in relation to the Japanese Yen and the German Deutsche Mark. The idea was sound, if you can’t cap the numbers, make it cost-prohibitive to export to the United States in the first place. Like all roads to hell, this was paved with good intentions. 

In the story of the Japanese asset bubble, the devalued US Dollar came at an opportune time for the Japanese, whose economy was reaching new heights and the populace was flushed with cash from personal savings. This, coupled with banks having more leverage to lend from an overvalued Yen, opened the floodgates that caused a vicious cycle of buying up properties, appreciating its value, using it as collateral to obtain more finance, and repeat till unsustainable levels are achieved. 

Photo by Jezael Melgoza

From an automotive point of view, the lower profit margins from exporting cheap econoboxes forced Toyota, Honda, and Nissan to either raise prices or big and gun for the luxury market, a strategy that BMW found success with decades before. All things considered, the three did, with Honda being the first with its Acura brand in 1986, followed by Nissan’s Infiniti a year later, and Toyota rocking up to the party with the game-changing LS400 in 1989. 

According to the book, Lexus: The Relentless Pursuit, Toyota’s decision to approve of the no-expense-spared development of what would become the LS400 was a “natural one”, as its goal was to secure car customer loyalty by allowing them to upgrade to a more “premium” car and to safeguard the company’s revenue with the threat of US import barriers looming.

Over at Honda, the team who were working on the establishment of Acura was said to have communicated to the company the need for a car that would serve as a link to its successes in Formula One. Mazda might not have gone the way of its larger contemporaries and established a separate luxury arm, but the concept behind the MX-5 was first suggested by Mazda’s North American product planning and research arm and was an answer to the yawning void left in the market due to fears over American legislation banning the use of convertibles.

The product offensive Toyota, Honda, and Mazda undertook was the tipping point that elevated the status of the Japanese car industry from an adopter to a leader. No longer were Japanese car makers being the butt of copycat jokes. The LS400 was said to have caused Mercedes-Benz to blow the budget of its S-Class successor, costing its chief engineer his job. Gordon Murray shifted his source of inspiration for the McLaren F1 from the 911 to the NSX. Whereas the MX-5 is still being referred to as the affordable sports car yardstick. 

As mentioned before, the LS400, NSX, and MX-5 weren’t Japan’s first attempts at creating prestige and performance cars, but where previous creations were always met with a certain level of indifference, these three “sons” of 1989 truly showed the world that Japanese carmakers could make cars that could beat its western counterparts at their own game.

The question now is whether we will see something like 1989 again? The obvious answer would be one of China’s many car manufacturers, but there are a lot of factors that count against that ever happening any time soon. 

Photo by Li Yang

At the moment China draws plenty of similarities with Japan’s boom years. It is a manufacturing and tech powerhouse that has gotten American policymakers up in arms, with China ascending to the position as the world’s largest economy and producer and the United States mulling a second Plaza Accord. Like Japan, the economy is also controlled by the government, with the Chinese government keeping tabs on the value of the Renminbi, and not to mention the rise of the rich in China. 

While the economic circumstances are broadly similar, the players in China are vastly different from their Japanese counterparts. For one, the Chinese car market never had the privilege of growing in isolation, with foreign players like Volkswagen establishing an early lead in the emerging Chinese market in the 1980s. With trade more globalised than it was following the war, the world’s carmakers already had their playbook ready to swoop into China’s emerging market from the moment the Middle Kingdom opened its doors to trade in 1978.  

The constant presence of foreign brands meant that the local manufacturers never quite got the opportunity to set out and define itself. Adding to the challenges is that brand prestige and recognition comes in as the second-highest influencing factor in the buying decisions of China’s consumers rather than pure national favouritism, a key differentiator to the way the Japanese carmakers grew their customer base in the post-war years. 

Although Chinese carmakers might make a breakthrough in global markets with their drive to develop electric cars, spurred on thanks to China’s own drive to prop up its own electric car market, the need to cater to the local market rather than for exports will end up pigeonholing these companies, stymying its abilities to produce cars that are competitive aboard. Likewise, China’s position as the world’s largest car market, and its potential to grow further despite its phenomenal growth over the past decade means that there is greater incentive to supply the local market than export. This is in stark contrast to the position of Japanese carmakers who had an eye on exporting their wares to North America and Europe. 

This isn’t to say that we won’t experience another “1989” flying the Five-starred Red Flag, but it might not even happen in this coming decade or the next, not until Chinese carmakers are able to gain a foothold in their local markets and start casting its aspirations abroad. That being said, the automotive world might be heading in the direction of another “1989” or it has already happened, albeit on a much smaller and less impactful scale, only this time it will be flying the Taegukgi of South Korea. 

South Korea’s automotive industry shares similar characteristics with the Japanese. It is largely homogenous with the local brands having a strong foothold in the local market, and a strong focus on making headway in the developed North American and European markets. 

Both Hyundai and Kia have already established themselves in key markets abroad, building up a solid reputation for affordable and reliable cars. This success has given them the resources and will to rope in international talents like former BMW M head Albert Biermann, former president of Audi of America Mark Del Rosso, Bentley and Lamborghini’s former lead designer Luc Donckerwolke, and several key executives and engineers from European carmakers. 

In fact, we are already seeing the first fruits of South Korea’s “charm” offensive with Hyundai’s first bonafide hot hatch competitor, the i30 N, the bold Kia Stinger, and spinning off the Genesis model line into its own luxury brand. Not to mention producing risky niche models such as the hydrogen-powered Nexo and the electrified Ioniq model range. When was the last time you ever considered Korean cars a blatant uninspired rip-off of its western counterparts?

At this stage, it is not quite a repeat of “1989”. Neither Hyundai and Kia have produced something that has put its established competitors into an existential crisis in the same way Lexus, Honda, and Mazda did with their creations. Considering how globalised and demanding the market has become in the intervening years, it seems unlikely that we would ever experience something as impactful as the close of the 1980s ever again. Or perhaps such a time is just waiting for the right moment to spring forth. That is the thing about change, we won’t see it happen until it does. 

*Footnote: Where was Nissan in all this?
1989 also saw the introduction of the seminal Nissan R32 Skyline GT-R, 300ZX, and Infiniti Q45, while they were incredible pieces of engineering and icons in its own right, its impact in its day was relatively minuscule. And not because this author has beef with Nissan in any way. Aside from a hundred units imported into Australia, the Skyline GT-R was only sold in Japan with the only people outside Japan familiar about its performance being Gran Turismo players. Similarly, the Infiniti Q45 was an exclusively North American product – a few examples were also sold in Australia to no success – that didn’t sell well and failed to change the mindsets of the rest of the world. As for the 300ZX, despite being loaded with snazzy features, many lambasted it for being more of a soft and heavy cruiser rather than the spritely sports car its 240Z predecessor was. These cars would later gain recognition several years later, but unfortunately for Nissan in the context of this article, it wasn’t in the immediate years following 1989.

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