Shutdown of Nissan plant in Zama stuns Japan Closing symbolizes harsh new reality

ZAMA, JAPAN — ZAMA, Japan -- The call came at 4 p.m. Tuesday.

The head of Zama's most important employer, the Nissan factory, told Mayor Katsuji Hoshino that Nissan's officers had made an announcement in Tokyo: The plant will close its assembly line and move 2,500 of its 4,000 workers to other parts of Japan by 1995.


With that, this Nissan community of 116,000 became the first automaking town in Japan ever to join cities like Flint and Ypsilanti, Mich., on the ever-lengthening list of places where competition and harder times are yanking the hearts out of local economies.

By week's end, it also had become a nationwide symbol of how badly Japan's managers and bureaucrats have underestimated the restructuring the world's No. 2 economy now faces.


"When historians try to date the beginning of the end of the 'Japanese economic miracle,' this week will be a candidate," said Martin Lank, a partner in MercurMetrics, an economic consulting firm.

"The only other recession Japan has had since World War II was in the 1970s, and it was caused by the Arab oil embargo," he said. "This is Japan's first experience with the normal kind of business-cycle recession the rest of the world lives with. Government and senior management are both inexperienced at this, and now it's time to pay for some big misjudgments."

By any measure, it was a chilling week.

In addition to Nissan, Japan's No. 2 automaker, the household-name corporations that made shocking economic news included:

* NTT, the national telephone company and the country's biggest employer, which added 30,000, or 15 percent of the remaining work force, to the 40,000 jobs it already planned to cut in the middle years of this decade.

* Sony Corp., the electronics giant, which said it is deciding whether to give up an eight-year attempt that never broke above 10,000 in annual sales in the fiercely competitive word processor market.

* Matsushita Electric Industrial Co., maker of National and Panasonic brands, which announced that pretax profit fell 60 percent in the last three months of calendar 1992 and that its president will resign.

What made the week distinctive was its many signals that Japanese managers are beginning to realize that they now face a mature economy.


No longer can they assume that world-beating growth rates will help them solve problems, mask errors and pay hundreds of thousands of redundant employees kept on under the traditional "lifetime employment" system.

As if to underscore that reality, the government closed the week with an announcement yesterday that industrial output in January was down 7.6 percent from the year-earlier period. It was the sixteenth straight month of year-to-year declines, the longest string since the 1970s oil recession.

And the Bank of Japan announced that outstanding bank loans grew by only 2.2 percent from the end of 1991 to the end of 1992, the lowest one-year increase on record.

Any immediate growth prospects tightened further in recent weeks under pressure from European and American authorities alarmed by Japan's record-breaking $107 billion trade surplus for 1992. They spoke publicly of a need for a stronger yen to curb Japan's exports and encourage its imports. The yen responded by gaining nearly 7 percent against the dollar in two weeks.

Virtually all analysts agree that this week's news is only the beginning of a restructuring that will deepen for most of the rest of 1993.

"Managers and the government have consistently done too little too late since the 'bubble economy' burst in 1990," a Western embassy economist said.


In one sense, this week's gloom is really good news, she said, because it means the stewards of Japan Inc. are catching on to how differently they will have to operate from now on.

"They will still fight to salvage what they can of lifetime employment, but whether it's by attrition, or by lower hiring targets, or by talking people into early retirement, or by outright layoffs, they have to get the fat out of their payrolls," the economist said.

Layoffs are not unknown in Japan, but big companies maintain large cadres of "lifetime employees" who by tradition are not supposed to be subject to such treatment. Nissan, NTT and other firms that have announced big staff cutbacks have promised thus far to do it by attrition.

Late last year and early this year, a handful of companies tested the waters by targeting a few scores of "lifetime" employees for layoffs or high-pressure "voluntary" departure, touching off a furor that made some of them back off.

Many economists believe that this slowdown is deep enough and will be long enough that some big-name companies will have no choice but to resort to the unthinkable and lay off substantial numbers.

If companies no longer can persuade stockholders that growth is making up for low dividends, they will have to start paying attention to the bottom line, the Western embassy economist added.


"Japanese companies may become more profit-oriented and less growth-driven, and that would force them to compete in a way that would be more comprehensible to their American and European competitors," she said.

Many analysts see Nissan's 29-year-old Zama plant as a study in how cruelly a slowing economy can undercut a company that chases growth at all costs.

"What brought Nissan so low was that they wouldn't stop trying to catch Toyota in market share, even though the effort drove their production costs up," said Norino Matsushima, chief researcher at the Nikko research Center.

"That's why they were stretched so thin when the slowdown hit," he said. "Now, they've admitted that they can't compete with Toyota and that they need to concentrate on profits, even if their growth is zero."

In Zama, people are groping for answers to what the end of "economic miracle" growth rates may mean at the city level.

"We didn't expect this news, and we are just starting to gather information," Yasuhi Seto, the city planning department's business promotion chief, said yesterday.


How many thousands of additional jobs could be lost if suppliers close or follow Nissan out of town, how many schools might have to close, what might happen to already depressed real estate values and thus to city tax revenues -- these and scores of other questions as yet have no answers, he said.

What, for example, will happen to the factory, which Nissan hopes to sell in what Japanese magazines call a "scrap-and-build strategy" to help finance its restructuring onto cheaper land elsewhere?

As a factory, it pays taxes -- about 21 percent of the city's revenues, by some estimates -- and demands little in public services.

If it is sold to developers who use the land for housing, that would mean not only a loss of jobs and a potential reduction in tax revenues but also much increased demands for city services.

"Converting that land to residential use could seriously affect our city's planning," Mayor Hoshino told senior local bureaucrats at a meeting yesterday morning. He set up a task force to take up the question with Nissan.