"The fundamental economic issue here is that by pricing high in the protected home market, Japanese automakers can powerfully subsidize their prices abroad. The policy is underpinned both by traditional Japanese cartel dynamics and by governmental “guidance.” Basically, the Japanese consumer unwittingly foots the bill for much of the Japanese industry’s consistently heavy investment in R&D and ever more efficient new production processes. This leaves cartel members free to price abroad at little more than low variable costs (which means they need aim to recover merely the cost of direct labor and immediate inputs such as components).
The cartel’s profitability is further bolstered by Japan’s so-called sha-ken system of car inspection. This is so rigorous that most Japanese drivers trade in their autos every three years. Choate comments: “Japanese autos, of course, last far longer than three years. But to keep up revenues, the industry has a market of captive customers that keep buying new. Japan is the land of new cars—virtually all Japanese made.”
Worn down for four decades by such unequal competition, the Detroit companies have been chronically starved of funds to invest in R&D and new production processes. The result is they have gone from leaders to laggards in quality and productivity."