Demise of the bubble economy and factors relating to deterioration in competitiveness

As recently as fifteen years ago, the Japanese automobile industry was said to be the most efficient and internationally competitive, having eleven major automobile makers, including truck manufacturers, to the US and Europe's two or three. However, toward the end of the bubble economy, figures from the Japanese auto makers began to deteriorate rapidly. The profits of the eleven auto makers, which reached ¥1.1 trillion between the 1980s and 1991, had fallen to less than half that, ¥400 billion, by early 1993. Three out of the eleven companies went into deficit, and people began to question what had happened to Japan's competitive power.

Until the economic bubble burst, signaling the start of the Heisei recession, Japanese auto makers had shown steady growth every year, even during periods of reduced production following the 1973 and 1981 oil shocks. Yet in both cases this was only for a year before production increased once more. So four consecutive years of reduced production following the collapse of the bubble economy was unprecedented.

Reduced production on each occasion was greatly influenced by a reduction in domestic demand, but after the two oil shocks, an increase in exports led to greater production. Immediately following the first oil shock, exports to the US and the Middle East increased, and after the second oil shock, exports to Europe grew.