The day I discovered Japan peaked: March 16, 1991.
Has Japan Peaked?
Japan gazers have always tried to see a signal that Japan has reached the peak. They look at changes in workforce’s in behavior; if the high Yen can break the export machine; how many TVs or cars are recalled because of defects and so on. I have also expected (we are Japan-gazers as well, aren’t we?) to see a signal that Japan have peaked. My assumption was; if I ever see a signal that Japan had peaked it would be when a manufacturing group go financial.
Because western manufacturing companies that goes financial aren’t competitive in their original business.
•Ford finances car loans for customers directly, often making more money on the car financing than on car manufacture.
•General Motors Acceptance Corporation (GMAC) is now one of the country’s largest financial institutions...virtually as large as American Express, Metropolitan Life, or Manufacturers Hanover. GMAC contributed a quarter of 1985 GM’s $4 billion net earnings and around one-third of its 1986 profits. Davis, Stanley M., Future Perfect, Reading Mass., Addison-Wesley Publishing, Inc. 1987.
By my knowledge of (Siemens) “...With liquid assets regularly exceeding DM 20 Billion (about 1% of West German GNP), Siemens is more like "a bank with sidelines in electricals" (a much resented charge) than an innovative electronics company. The Economist, Jan. 21, 1990.
“Phillips&Drew calculates that the 50 largest non-financial companies in West Germany receive interest income that is equivalent to 6% of their pretax profits.” The Economist, Feb. 3, 1990.
Once a company is flushed with cash its core manufacturing fades in importance. “Siemens has been forced to buy an increasing number of products, to sell under the Siemens label, from faster, more innovative manufacturers. [Siemens is an example of a European company in danger of being hollowed out,’ says Robert R. Bishop, head of Silicon Graphics Inc’s international Operations.]” BusinessWeek International, Feb. 20, 1989.
Moreover companies which manage their pension funds have its policies distorted: “Siemens personal costs are 43% of sales. Two third higher than G.E.’s. Last year (1989) 40.000 people from head office were transferred to marketing and finance. By January 1990 Siemens had $12.2 billion in cash and equivalent. Mostly in German government bonds. This produced a $1.1 billion in interest income in 1989. Two third of Siemens total pretax profits of $1.6 billion. For the first half of the fiscal year of 1990, ending in Mar. 31, the company recently reported that net profit climbed 15% to $440 million. While revenue rose 16% to $17.9 billion. Higher interest rates in Germany boosted profits. German Government bonds yield sharply higher. Forbes, May 28, 1990.
“...with over DM23 billion in liquid cash (half of it reserve for provision for severance pay for retirees)... Der Spiegel, 12/1988.
Because of these reserves for severance pay for retirees, the company keep them in the payroll not to pay out the cash. The result is the company has lots of idle improductive people. In Munich they are called ‘wasserkopf’. Most of their time is spent from office to office attending each others 25 years jubilee. There is even one of them whose specialization is to organize such parties. Bring in the barrel of beer, serve it etc. Some who has been abroad comes back get an office, a title but nobody even asks what does he do there.
“German management consultant Jochen Kiembaum notes that managers comprise 25% of the work force at electronics maker Siemens, twice the level at Bayer and three times that of Volkswagen. And with German companies still among the least computerized in Europe, Kiembaum estimates that increased automation could force out as many as 8% of the nation’s accountants and administrators over the next few years”. BusinessWeek International, Nov. 26, 1990.
Now it seems that the Japanese financial engineer will take over the production engineer. “Toyota, Japan’s biggest carmaker and its wealthiest industrial company, has taken a first cautious step into financial services business. Its buying a 40% stake in Merril Lynch’s Japanese fund-management subsidiary...Known in Japan as ‘Toyota Bank’, Toyota Motor, the Japanese parent company, had ¥2.2 trillion ($16 billion) of cash at the end of December and no bank debt. Add in other group companies and the amount of cash that Toyota needs to manage exceeds ¥3 trillion...Toyota seems to have two business goals in mind . First, it would like to manage its own pension fund. This was worth ¥248 billion ( $1.8 billion) at the end of March 1990, and is growing at more than 10% a year. Such expertise could later de developed into a specialized investment-management business managing other companies pension funds, much as General Electric Credit Corporation does in America.
Second, Toyota wants to build a ore general financial-services business, rather like General Motors Acceptance Corporation. The Economist Mar. 9, 1991
With my example of Siemens I want to explain that when the wealthiest Japanese industrial group goes financial it means something. Japan has finally peaked. |
