The Impact of Japan’s Automobile Tax Regulation for Competing against the Detroit Three
The purpose of this study is to examine the impact of government policies contributing to the success of the Japanese Auto Industry in the U.S. market in the 1970s. Previous studies have focused on a political contribution led by the Ministry of International Trade and Industry (MITI). In contrast, this study focuses on other ministries that regulated the automobile size standards through their ‘tax’ policies. Four separate ministries got involved in establishing the size standards for the excise and automobile tax laws, mandating that much lower taxes were to be imposed on small size cars than regular size cars. Most Japanese automakers narrowed their product lines to fit small size standards, unlike in the United States, where automobiles of various sizes were produced, according to industry standards. The difference between the two countries had a significant impact on the business performance in the 1970s. During the two oil crises, Japanese automakers focused on selling small passenger cars in the U.S. market, since all of their exports were small-size, as prescribed by Japan’s legal standards. Meanwhile, American automakers increased their small-size car sales but suffered from a low turnover of inventory of mid- and full-size cars. This study concludes that what ensured Japanese automakers’ competitive edge originated in the legal standards specified in the tax policies, enforced two-three decades before the oil crises; moreover, by prioritizing the small-size car standards the ministries did not necessarily intend to win the international competition, like the MITI intended.