The General Motors-Toyota Joint Venture and Its Competitive Implications

This report reviews the economics of joint ventures by focusing on their implication for market competition. It also reviews the legislative history of mergers and joint ventures with special emphasis on aspects of the law that are directed at reducing market concentration.

-- . . - C o n g r e s s i o ~ a iResearch Service -rie Library of C o ~ g r e s s I 1 NORTHERN KENIUCfiY Ui': i~ERS'TY LIBRARY - : ;b. -. COMPLIMENTS OF Gene Snyder GOVERNMENT P)(X;UMENTS wLLECJJOfi This paper e x m i n e s t h e prooosed General Motors-Toyota from an e c o n o m i c p o i n t o f v i e w . joint venture I t p r o v i d e s a n o v e r v i e w o f t h e v e n z u r e and t h e f i n a n c i a l s t a t u s o f t h e companies i n v o l v e d . The r e p o r t r e v i e w s t h e e c o n o m i c s o f j o i n t v e n t u r e s by f o c u s i n g on t h e i r i m p l i c a t i o n s f o r m a r k e t cmpetition. It a l s o r e v i e w s t h e l e g l s l a c i v e s i s t o r y o f m e r g e r s and j o i n t v e n t u r e s w i t h s p e c i a l e m p h a s i s on a s p e c t s o f t h e l a w t h a t a r e d i r e c t e d a t reducing market c o n c e n t r a t i o n . S t a t i s t i c a l measures o f market c o n c e n t r a t i o n a r e a ~ p l i e di n a s s e s s i n g t h e c o m p e t i t i v e i m p l i c a t i c z s 3 f t h e p r o p c s e d v e n t u r e . - F i n a l l y , t h e paper l o o k s a t p o t e n t i a l employnent e f f e c t s , I. INTRODUCTION AND SUMMARY FINDINGS S i n c e 1 9 7 3 t h e r i s i ~ gp r i c e f o r g a s o l i n e and f o r , h e r i c a n - a a d e a u t o s , combined w i t h p e r i o d s o f r e c e s s i o n have s i g n i f i c a n t l y a l t e r e d t h e U. S . a u t o m o b i l e market. I n a d d i t i o n , t h e i n r o a d s made b y f o r e i g n c a r m a n u f a c t u r e r s i n V . S . world a u t o m a r k e t s have c a u s e d problems f o r U . S . u n i t s a l e s h a s swung from boom t o b u s t . automakers. and The l e v e l o f r e t a i l T n e r e h a s been a pronounced s h i f t i n p r e f e r e n c e s away from l a r g e c a r s t o s m a l l e r , more f u e l - e f f i c i e n t o n e s , and t h e o v e r a l l demand f o r new a u t o m o b i l e s - h a s slowed n o t i c e a b l y . During t h e l a s t s i x y e a r s , t h e s h a r e o f s m a l l c a r s i n t h e t o t a l U.S. m a r k e t ( b a s e d on u n i t s a l e s volume) h a s i n c r e a s e d d r a m a t i c a l i y f r o n 4 8 . 7 p e r c e n c i n 1 9 7 5 t o 6 1 . 6 p e r c e n t i n 1982. full-sized 3y c o n t r a s t , r e t a i l s a l e s o f Lntern.eli;:e and ( e x c l u d i n g l u x u r y ) a u t o m o b i l e s dropped from 4 6 . 7 p e r c e c t c f t o t ~ l a u t o s a l e s i n 1976 t o 3 1 . 5 p e r c e n t i n 1982. I n t h e e a r l y y e a s o f t h i s t r a n s i t i o n , t h e C . S . a u t o i n d u s t r y wes ille q u i p p e d t o meet t h e i n c r e a s e i n demand f o r f u e l - e f f i c i e n t c a r s . 9o~esti.c p r o d u c e r s have s i n c e downsized t h e i r c a r s and i n t r o d u c e d modeis ui:h frcnt- wheel d r i v e e n h a n c i n g t h e i r a b i l i t y t o compete w i t h f o r e i g n m a n u f a c t u r e r s i n m e e t i n g t h i s demand. The s u c c e s s c f t h e d o m e s t i c i n d u s t r y ' s r e s q o n s e t o c h i s change i n consumer denand i s c r u c i a l co t n e i n d u s t r y ' s f u t u r e g r a w t h . z o w e v e r ? 2 ~ r c n a s ep r r c e s 3 f c a r s , e s p e c i g -- ,-y t o comes:ic c o s c of a u t o ss:es. s u S c o n ? a c t s h a s been a s u 3 s : a n : l .s ~ - n.e t e r r e n : Ic e x p l o r i n g ways o f m e e t i n g :he s 2 r i o u s f o r e i g n com- ?reduction a n d , i n t u r n , t h e ? u r c h a s e p r i c e o f : h e i r au:omoSiies, d o m e s t i c m a n u f a c t u r e r s have c o n s i d e r e d a n > m b e r o f a l t e r n a t i v e p r o d u c t i o n t e c h n i q u e s and b u s i n e s s arrangemen:s. One such a r r a n g e m e n t i s t h e proposed G e n e r a l Motors-Toyots j o i n t v e n t u r e . T h i s p a p e r examines t h e proposed G e n e r a l Xotors-Toyota an economic p o i n t o f v i e w . j o i n t v e n t u r e from . S e c t i o n I 1 p r o v i d e s an o v e r v i e w o f t h e v e n t u r e and t h e f i n a n c i a l s t a t u s o f t h e companies i n v o l v e d . S e c t i o n 111 r e v i e w s t h e economics o f j o i n t v e n t u r e s by f o c u s i n g on t h e i r i m p l i c a t i o n s f o r m a r k e t c o m p e t i t i o n . a l s o b r i e f l y reviews t h e l e g i s l a t i v e h i s t o r y of U . S . It law r e g u l a t i n g m e r g e r s and j o i n t v e n t u r e s w i t h s p e c i a i emph-asis on a s p e c t s o f ' t h e law t h a t a r e d i r e c t e d a t reducing market c o n c e n t r a t i o n . S e c t i o n IV a p p l i e s s t a t i s t i c a l m e a s u r e s o f m a r k e t c o n c e n t r a t i o n i n a s s e s s i n g t h e c o m p e t i t i v e i m p l i c a t i o n s o f :he Section V looks a t the potentis: proposed v e n t u r s . employment e f f e c t s , w h i l e S e c t i o n i71o f f e r s a few summary o b s e r v a t i o n s . The g e n e r a l c o n c l u s i o n s of t h i s p a p e r a r e a s f o l l o w s : , Both GM and Toyota s t a n d t o g a i n s u b s t a n t i a l l y from t h e proposed j o i n : venture. Through t h e GM c o n n e c t i o n , Toyota would a c q u i r e a i n o s c i n s t a n t a c c e s s t o t h e U.S. r n a r ~ e t f r e e from i m p o r t q u o t a s i o r v o l u n t a r y e x p o r t r e s t r a i n t s ) . For i t s p a r t , GM w i l l o b t a i n e n t r y i n t o a modern f r o n t w h e e l - d r i v e f a c i l i t y i n t h e t h e h i g h l y c o m p e t i ~ i v esubcompact f l e l c , i n which i t h a s , t o d a t e , f a i l e d t o compete s u c c e s s f u l l y . , The employment e f f e c t s a n t i c i p a t e d by t h e p a r t i e s t o t h e v e n t u r e i n d i c a t e t h a t t h e p l a n t p r o b a b l y w i l l be h i g h l y automated and used t o p r o d u c e p a r t s t h a t c a n be done u s i n g mass p r o d u c t i o n methods f o r f i n a i a s s e m b l y . GY o f f i c i a l s have e s t i m a t e d t h a t t h e v e n t u r e w i l l p r o v i d e a p p r o x i m a t e l y 3 , 0 0 0 j o b s a t t h e Fremcnt p l a n t and a c a d d i t i o n a l 9 , 0 0 0 L n d i r e c c i y ic s u p p l y i 3 g i n d u s t r i e s p l a c i n g t h e total e r n ~ l o p e n te r r e c t c a t 1 2 , 0 0 0 persons. > . On t h e n e g a t i v e s i d e o f t h e l e d g e r , t h e resu1:s p r o v i d e e v i d e n c e t h a t :he p r o p o s e d v e n t u r e " g e n e r a t e s f i n d i n g s s f t h r e s n o i d a n : i : r u s ~ r i s i c . " rL? a p ? l i c a t i o n o f s t a t i s t i c a l m e a s u r e s o f concenCraCion shews :hat t n e CRS- 3 v e n t u r e c a u l 2 be vie we^ a s p r o v i d i r i g t h e p o t e n t i ; : f ~ zr r e d u c z i o n of c o ~ p e t i t l o ni n t h e subcompact n a r ~ e : w i t h a s s o c i a t e d a d v e r s e e f f e c t s on c o n s m e r w e l f a r e . Tne F e a e r a i T r a d e C o m i s s i o n i s examining t h e c o m p e t i t i v e e f f e c t s o f t h e j o i n t v e n t u r e and w i l l r e n d e r a C e c i s i o n i n Septenber , 7 - . ,. .- i, LAW PXGPOSZ3 G:+-TOYOTA JOINT V i K T U E On F e b r u a r y l L , 1 9 8 3 , G e n e r a l Motors announced t h a t i t had r e a c h e d an a g r e e m e n t w i t h Toyota Motor C o r p o r a t i o n t o form a j o i n t v e n t u r e : c a l l s f o r t h e e s t a b l i s h m e n t of a jointly-owned The agreement company t o b u i l d f r o n t - w h e e l drive subcompact c a r s s t a r t i n g w i t h t h e 1985 model y e a r which b e g i n s i n l a t e 1 9 8 4 . Under t h e 12-year a g r e e m e n t , GM and Toyota w i l l name a n e q u a l number of d i r e c t o r s t o t h e new company's board o f d i r e c t o r s , Under t e r m s worked o u t between t h e two c o m p a n i e s , Toyota w i l l name t h e P r e s i d e n t and C h i e f E x e c u t i v e O f f i c e r o f t h e new e n t i t y . Each company w i l l c o n t r i b u t e $150 m i l l i o n i n a s s e t s t o t h e v e n t u r e and e a c h w i l l own 50 p e r c e n t o f tiie new f i m ' s s t o c k . GM w i l l c o n t r i b u t e i t s c l o s e d Fremont, C a l i f o r n i a , a s s e m b l y p l a n t and $20 m i l l i o n i n c a s h w h i l e Toyota wi 1; c o n t r i b u t e S l 5 0 n l ? l i o n i n Cash. 11 - GK o f f i c i a l s e s t i m a t e t h a t t h e v e n t u r e w i l l p r o v i d e a p p r o x i m a t e l y 3 , 0 0 0 j o b s a t - Ene Fremont p l s n t and w i l l c r e a t e a n a d d i t i o n a l 9 , 0 0 0 a t s u p p o r t f a c i l i t i e s . 2,' The new u n i t , which w i l l h a v e t h e c a p a c i t y f o r b u i l d i n g between 200,000 and 3 0 0 , 0 0 0 c a r s a n n u a l l y , w i l l m a r k e t t h e s e c a r s t n r o u g n C h e v r o l e t d e a l e r s i n t h e United S t a t e s . The new GX-Toyoia t h a t one-half c a r w i l l h a v e 50 p e r c e n t " f o r e i g n c o n t e n t . " T h i s means t h e v a l u e added i n t h e p r o d u c t i o n o f a u t o m o b i l e s i n c l u d i n g t h e pro- d u c t i o n o f e n g i n e s and t r a n s m i s s i o n s w i l l o r i g i n a t e i n J a p a n , and t h e r e m a i n d e r w i l l o r i g i n a t e i n the United S t a t e s . -1,' -2 / indus:ry G e n e r a l Motors P r e s s R e l e a s e , F e b r u a r y 1 4 , 1983. G e n e r a l M o t o r s ' o f f i c i a l s assume t n a t f o r e a c n job c r e a t e d i n t h e a u t o i h r e e n o r e 2 r e c r e a t d i n t h e economy a t l a r g e . T h i s e s t i ~ a t ei s nigh. I n c u s t r ~a n a l y s t s ? i a c e t h e f l g u r e a t 2 2 . 5 r n d i r e c t j o b s f o r e a c n job I n t n e a,Zs :r.cdscry. - Gezerz: -. . i-. ,--.: , e s , se:Jnc k - t ~ r sI s c u r r e c t ! y r e l z t e c 327:s :;rgesc l~.cus:r;zl s z l z s ~ z ca s s e r s . > , -3 ana e n g a g e d i n :he p r o a u c c i o c and s a l e o f m o t o r :kroughou: accessories :he world. 3-12 company 1 s Erie c o r ~ o r a t i o n ic t h e C n i t e d S t a t e s m e a s u r e d o y b o t b t o t s 1 I- 1 3 E 2 , C3 r e p o r r e d a ne: i n c o n e o f $ 9 6 3 = i l l i o n on s a ; e s o f .. s a n e y e a r , i t s o l c 3 . 5 mi::ion ~~ 1 , ~ 1 o c .3u-' L A n g :se ;nciuaing 537,500 subcompacts. c a r s i n t h e Unired S t a t e s , As t h e n m i b e r o n e a u z o m a n u f a c t u r e r i n t h e U n i t e d S t a t e s , i t p r o d u c e d 3 . 1 m i l l i o n c a r s d u r i n g 1982 c o m p r i s i n g 6 2 p e r c e n t o f t h e domestic market. -h.A t h 17 GM i s a l s o t h e l e a d i n g w o r l d m o t o r v e h i c l e m a n u f a c t u r e r p e r c e n t of t o t a l worid p r o d u c t i o n d u r i n g 1982. 4 s an i n t e r n a t i o n a l m o t o r v e h i c l e m a n u f a c t u r e r , GM h a s e q u i t y i n t e r e s t s i n a number o f f o r e i g n a u t o m o t i v e c o m p a c i e s , i n c l u d i n g o w n e r s h i p o f 34 p e r c e n t o f I s u z u M o t o r s , L t d . and 5 p e r c e n t o f S u z u k i Motor Company, b o t h J a p a n e s e a u t o m o b i l e nanufacturers. B e g i n n i n g i n 1985, GM p l a n s t o buy a t l e a s t 2 0 0 , 0 0 0 s u b c o m p a c t c a r s p e r y e a r from I s u z u M o t o r s . >e so;c T h e s e c a r s , r e f e r r e d t o a s t h e R-body, will b y t h e C h e v r o l e t and ? o n r i a c Divisions. The 2 0 0 , 0 0 0 t a r g e t f i g u r e i s e q u i v c l e ~ - ; t o t h e c m S e r o f c a r s t h a t GX and T o y o t a p l a n t o b u i l d a s a r e s u l r . . of :he j o i n t v e n t u r e . A-t a b o u t t h e same t i m e G?l w i l l buy 9 0 , 0 0 0 S u z u k i K-body . . = l r , i c & r s per year f o r s a l e by C h e v r o l e t . I s u z u f o r m e r l y s u p p l i e d GM w i t h t h e Buick 3 2 e l . T!e T o p o t a X o t o r C a r p o r a t i o n , t h e o t h e r p a r t y t o t h e j o i n t v e n t u r e , i s a l s o e n g a g e d Ic t h e p r o d u c t i o n and s a l e o f m o t o r v e h i c l e s , r e l a t e d p a r t s and a c c e s s o r i e s w i t h s a l e s made t h r o u g h o u t t n e w o r l d . Toyota i s a J a p a n e s e based c o r p o r a t i o n . I n 1 9 8 2 , t h e c o n p a n y e a r n e d $555 m i l l i o n o n s a l e s o f $ 1 5 b i l l i o n . :he :hire l a r g e s t no:sr 7 s r c e n t :f 5cbi;e v e h i c i e producer worldwide. w a t l l z u t r -roluc:icc I: s a l e s i n t h e United S t a t e s . 1982. Toyota i s The c a r - m a k e r p r o d u c e d 8 . 6 Since 1 9 7 5 , It h z s l e d f ~ r e i g zz u t o - Tne company i s r a n k e c f o u r t h i n t e r m s o f - total iassezger cars ss-c -~ r .-- 3 6 2 , csrs. 337,5:? . 17. t h e UzL:et S t a t e s a n l t n i r d :n s a l e s o f subcompact Yoyczs s z 1 2 5 3 0 , 0 0 0 p a s s e n g e r c a r s i n t n e Vn::ec Scstes l x l u c ~ n g sc5co~?i:t~. ,,.. ,.. ,., $-+ -.\,I i -A . T'..~-- s:;.n: 52;:: t: s c b s t a n t i a l l y from :he ji?:nt i e r m s o f g e n e r a l t r a a e r e l a ~ i o n s , T o y o t a ' s i n v o l v e m e n t c o u l d he:? friction b e t w e e n t h e U n i t e d S L a t e s and J a p a n . t r a d e and c u r r e n t - a c c o u n t v ~ n t u r e . In e s s e t h e growing Currently, Japan is running l a r g e s u r p l u s e s , and t h e r e s u l t i n g a n t i - J a p a n e s e a r e of c o n c e r n t o i t s l e a d e r s . sentiments P r o t e c t i o n i s t m e a s u r e s aimed a t J a p a n h a v e f o r c e d - i t t o c u r t a i l i t s e x p o r t s of c e r t a i n products, including automobiles. Japan v o l u n t a r i l y r e s t r i c t s i t s e x p o r t s o f p a s s e n g e r c a r s t o t h e United S t a t e s , Canada, Germany and E n g l a n d . B i l l s b e f o r e t h e U.S. t o t h e American m a r k e t e v e n m o r e . l e g i s l a r l o n (H.R. :rucks df C o n g r e s s would l i m i t J a p a n ' s a c c e s s For example, proposed C.S. domestic c o n t e n t 1234 and S . 7 0 7 r 9 8 t h C o n g r e s s ) would r e q u i r e t h a t c a r s and sold i n l a r g e q u a n t i t i e s i n the United S t a t e s contain a c e r t a i n percentage &erican par:s and l a b o r . As a p e n a l t y f o r n o t m e e t i n g t h e r e q u i r e d r a t i o s , a u ~ o n a i c e r s would f a c e i m p o r t q u o t a s on b o t h f i n i s h e l v e h i c l e s and p a r t s . U n i i k e T o v o t a ' s two l e a d i n g J a p a n e s e c o m p e t i t o r s , Honda and N i s s a n , t h a t h a v e bock s e t up o v e r s e a s o p e r a t i o n s , T o y o t a h a s had o n l y l i m i t e d e x p e r i e n c e I n b u i i d l n g p l a n t s o u t s i d e o f J a p a n , a l t h o u g h i t i s b u i l d i n g a p l a n t i n Taiwan and h a s a f a c i l i t y i n C a l i f o r n i a t o p r o d u c e p i c k u p t r u c k b e d s . Through t h e GM c o n n e c t i o c , T o y o t a would a l s o a c q u i r e a l m o s t i n s t a n t a c c e s s :o f r e e from i m p o r t q u o t a s ( o r v o l u n t a r y e x p o r t r e s t r a i n t s ) . t h e U.S. m a r k e t And i t g a i n s a c c e s s t o t h i s m a r k e t a t a much l o w e r p r i c e t h a n t h a t p a i d by Honda and N i s s a n , which .. L a v e s t s d c o a s l c e r ~ b l yn o r e :c :ne e s t a b i l s h t h e i r own U.S. a s s e m b l y p l a n t s . i t s ? a r t . G? s h o u l d ~ b t z i na n o d e r n f r o n t - w h e e l d r i v e \-ehicle In n r g n l y c o m p e t i t i v e subcompact f i e l d , l a wnlch i t h a s , t o d a t e , f a i l e d .,,-. c m p e z e :he - . "-DOC:: GX's o n l y e r . t r l s s 1~ t h e su5:onpact successf-!iy. . . a g i n g rear---..-,,,vc . C h e v ~ o l e t Chevecce,'?ontis: . p e c t e d :hat ;33G model anc :he .. . . z cls~?po;z:lr.g t c r n e d 1: c a r s , w~:cr. ha-:. - - c u e s , C h e v r o l e z may be a b l e t o c r r e r t n e GX-?oyoca p r i c e :han :he front-$rive s i l e s performance. 5 e n e f i t of Japanese p a r t s , s a a g e n e n t w i t h :he fizl: riave oeen c a r a: 1: i s ex- an^ p r o d u c ~ i o r . i e c h n i - a acre conpetirive J-body c a r s . I . JOLKT VSETURES AhTD LEGISLATIVE EISTORY A j o i n t v e n t u r e c a n be d e f i n e d a s t h e c r e a t i o n o f a j o i n t l y owned b u s i n e s s - e n t e r p r i s e b y twc o r more c o r p o r a t i o n s . 3 / I t p r o v i d e s a means by wnich r e s o u r c e s c a n be pooled and r i s k s s h a r e d , t h u s making p o s s i b l e t h e c o m p l e t i o n of p r o j e c t s which would n o t have o t h e r w i s e been u n d e r t a k e n . By t h e i r v e r y n a t u r e , j o i n t v e n t u r e s r e s u l t i c an exchange o f i n f o m a t L o n among p a r z i c i p a n t s t h a t h e l p s r e d u c e r i s k and u n c e r r a i n t y . '1 p a r t o f t h e i n f o r m a t i o n exchanged r e l a t e s t o f u t u r e p l a n s o r p r i c e ? s p e c : ~ t ~ o r s ,t h e n a l a r g e measure o f t h e u a c e r t z i n t y s u r r o u n d i n g e x p e c t e c rival's reactions c o m p e t i t o r s a r e brought in;3 suca c l o s e c o n t a c t with each o t h e r r a i s e s d i s t i n c t anticom?eci:lve . i s removed. Furthermore t h e f a c t t h a t . ~oss:sI,::~~s. The most o b v l o u s a r g m e n t a g a i x s t j o i n t v e n t u r e s i s t h e l a r g e n u n b e r of in:erfim cor,tac:s ne:zss;:a:sb 3:i . . sac?, a s s t c : a t ~ o n s . These c o n c a c t s c r e a t e a n i n t e r d e p e n d e n t e n v l r o m e n t wnicn n a y p r o a u c e an a n r l c m p e t i t l v e e f f e c t n o t n e c e s s a r i l y e v i d e n t a: :?,e ~ L c r o - l e v e l . F o r exanple, i z z e r d e p e n a e n c y may e n c o u r a g e l e a d i n g p r o d u c e r s :c 2Lrsue a t a c l t p o l i c y o f j o i - c p r s f i t maxinization t h a t a p p r c x i n a t e s a c t i o n s bassd oa a c t u z ? c o l ? u s i o n o r c o n s c i o u s p a r a i i e l i s n . - T r ~ f e s s o r;-fez=, i n h i s c l a s s i c a l p i e c e , l i s t s t h r e e economic c o n c e r n s : i / . . . C o z p e z l t i o a m o a g n o r i z o n t a ! l y r e l a t e i r:ms n a y > e r e s : r s l n e d Decause :ne s n a r i n g o f i n f o r n a t i o n l e s s e n s t h e c o m p e t i t i v e c r i v e between f i r m s . 2. If t h e r e i s a v e r t i c a l r e l a t i o n s h i ? bet wee^ t n e paren: f i r m s , a a a r k e t i o r e c l a s u r e i s s u e n a y a r i s ? from p r e f e r e n t i a l c r e a t x e z t o f :he new entity. 3. Wnen two o r more f i r m s engage i n a j o i n t v e n t u r e , t h e r e i s a n e t g a i n o f one new semi-independent f i r m i n t h e i n d u s t r y e n t e r e d b u t p e r h a p s a t t h e e x p e n s e o f p r e c l u d i n g e n t r y by one o r more of t h e p a r e n t s s e p a r a t e i y . F u r t h e r , p o t e n t i a i c o m p e t i t i o n due t o f u t u r e e x p a n s i o n i n t o p r o d u c t s and m a r k e t s s e r v e d b y a p a r t n e r may be p r e c l u d e d o u t o f an i n t e r e s t i n p r e s e r v i n g a harmonious parental relationship, * . - Mead a l s o o f f e r s f o u r economic j u s t i f i c a t i o n s f o r j o i n t v e n t u r e s . 5/ 1. A j o i n t v e n t u r e may be t h e b e s t means f o r o b t a i n i n g e n t r y i n t o a n i n d u s t r y o r g e o g r a p h i c m a r k e t where c a p i t a ! r e q u i r e m e n t s are excessively high. 2. A j o i n t v e n t u r e s p r e a d s t h e r i s k among :he reduce a major b a r r i e r t o e n t r y . 3. h j o i n t v e n t u r e 0 2 y ? e m i t t h e new f i r m s i r t e r e s t e d i z p e r f o r m i n g - partners thus helping t o a g i v e n f u n c t i o n t o j o i n t o g e t h e r and n o t o n l y s a f e g u a r d w h a t e v e r .. l e ~ i t l r a t eeconcmlc i c t e r e s t r s i ~ v o l v e db u t n2y 6 c s o e f f i c i e n t l y z s wei 1 . L. h j o i c t v e n t u r e nax be j u s t i f i e d vhere a I z r g e i n v e s t a e n t i s expected t o produce i m p o r t a n t e x t e r n a l economies t h a t a c c r u e i n d i s c r - h i n a t e l y t o f i r m s I n a g i v e n I n a u s t r y , r a t h e r t h a n primarily t o t h e i n v e s t i n g firm. I n the 2enn-GiLn c a s e , ; r , ~ f i r s t j o i n t v e n t u r e c a s e which t h e Supreme Court e s a n l n e c under S e c t i o n 7 cf t h e C l a y t o n A c t , J u s c i c e C l a r k s u g g e s t e d 2. The backgrounl , The relationship of their lines of commerce 35 their growth 5 .,,,;,a 5. The setting in which the joint venture was created 7. The reasons and necessities for its e s i s ~ e n c e Tne competition existing between them and the power of each in dealing +. :he competl:ors of the other 8. The joint venture's line of commerce and the relationship thereof to that o f its parents 9. 10. 11. .L L , I 13. The adzptabiliry of its line o f commerce to noncompetitive piactices The potential power of the joinr venture in :he relevant narke: h appraisal of what the c m p e t i t i o n i? the relevant zarkec would have Seen if one o f the joint vec:arers had entered alone The effect, lz Enr event of tnls (?! ll, ~ c c u r r e n c e ,a f :ne ocher joinr venturer's potential conpetition And o t h e r fac:ors a s might lsdicate potential risk. hccoraing to ;he Justlce ~ e p a r t m e n t ' sXovember 1980 Antitrust Guide Concerning Research Joict VenEures, o f :he th2 Aiititrust Divisian's firs: consideration in anaiyzing f i n s engaging in tne Froject. Evaluation of z n e c o m p e t ~ t i v erelationshi? . . 3 e : ~ e e r f i n s e n g s g l n g i n jci?,: S e c t i o n 1 o f :he - S h e z a n Xcc 7 r e s e a r c h g e n e r s l l y i n v o l v e s an a p p l l c a c i o n of and S e c c i o z 7 o f :he Claytor. hc:. -S -s v e r y coc:rac:, cornbina:ion i n t h e f3m o f t ~ u s to r o t n e r w i s e , o r c o n s ? i r a c y , 1~ r e s : r a i n t o f t r a d e o r commerce m o n g t n e s e v e r a l S t a t e s , o r with f c r e i g n n a r i o n s , i s hereoy declared i l l e g a l . S e c t i o n 1 r e q u i r e s t h e e x i s t e n c e o f two o r more p e r s o n s , s i n c e a c o n t r a c t , comb i n a t i o n , o r c o n s p i r a c y m u s t b e formed a s a p r e r e q u i s i t e t o a f i n d i n g o f i l l e g a l i t y . Agreements between c o m p e t i t o r s t o f i x p r i c e s , a l l o c a t e g e o g r z p h i c m a r k e t s , o r boycot: . t h i r d p a r t i e s a r e p r a c t i c e s condemned a s p e r s e i l l e g a l by t h i s s e c t i o n - o f t h e Sherman A c t . 9 1 S e c t i o n 7 o f t h e C l a y t o n ~ c t a, s amended by t h e C e l l e r - K e f a u v e r ~ ~ c i z e r g e r - A c t , p r o v i d e s i n p e r t i m e n t p a r t t h a t : 101 Xo c o r p o r a t i o n e n g a g e d - i n commerce s h a l l a c q u i r e , d i r e c t l y o r i n d i r e c t l y , t h e w h o l e o r a n y p a r t o f :he s t o c k o r o t h e r s h a r e capi:al and no c o r p o r a t i o n s u b j e c t t o t h e j u r i s d i c t i o n O F t n e F e d e r a l T r a d e C ~ m i s s i o csi-,sl: a c q c i r e t h e w h o l e o r a n y par: o f :he a s s e c s o f a n o z n e r c o r p o r a : i c n e n g a g e d zilso i c c o m e r c e , w h e r e , i n m p l i n e s f I:=m e r c e i n a n y s e c t i o n o f t h e c o u n t r y , t h e e f f e c t o f s u c h a c q u i s i t i o ~n a y be s u S s t 2 n t i a l : y t o ; e s s e n c o m p e t i t i o n , a r :o :end t s c r 2 a t e 2 m o n o p o l y . The p r o v i s i o n s o f t h e C l a y t o n Act a p p l y t o s p e c i f i c t y p e s o f b u s i n e s s cond u c t t h a t may o n l y " t e n d t o c r e a t e a n o n o p o l y , " a s o p p o s e d t o t h e a c c o m p l i s h e d n o n o p o l i z a t i o n o r monopoly a s f o r b i d d e n by t h e S h e m a n A c t . R e standard of i i i e g a l i t y f o r t h e s o r t s o f c o n d u c t named i n t h e C i a y t o n Act e x r e n c s beyond -7 / 26 S t a t . 209 ( 1 8 9 0 ) ; 1 5 U.S.C., S e c . 1. -8 / 38 S t a t . 731 ( L 9 5 0 ) ; 64 S t a t , l i 2 5 ; 1 5 L . S . C . -9 1 ?lodeis. E u g e c e :<. S i z g e r , ,.,?ri:rusr Xew J e r s e y , T r e n t i c e - H a l l , Sec. 18. -L : ~ z ~ ~ c Ss e:l e c t e d L e g a l C a s e s 2 z c Ecsn3mic I n c . , 1958. p . 9. E tenC2ncy :o c r e a z e . .. i , - . I s s s e r : co=lrJ;t::;on. . . . . n:2:: . . E . zsnopoly, t c i - c l z t e alsz I.. , 3the: te?de2cy 2 - 4 o r 5 ~ , : 5 e C l a y ~ a cA: was I z z e n i e c :o pro- . . - . su5s:an:iillp :3 rn t r i e > r ~ n c l ? l e n c y , s c z s v ~ i c ni r a c c c z p l i s h e C , x c a ~. c>r ~ l o l a t i v eo f . , the Sheman Act. ~ 0 1 ~ 2m ; ergers 'Tn? t ? i ! i r - K e f a u u o r a c c o z p l i s h e ? 5o:k ,,,- Ac: -,.. -'--,..-+ ze??nsnt br3zle:?c a s s e t ?ur:nases as . . . ~ 7 . 2 s s s c t i o z :a 32;: a s zhrough t h e . . s t o c k p u r c h a s e s p r o h i b i t e l i n t h e o r ~ g ~ Sx e ic t i o n 7 . The o r i g i n a l i n t e n t o f S e c t i o n 7 o f t h e C l a y t o n Act ( a s amended by t h e C e l l e r - K e f a u v e r A C S ) was t o a r r e s t i n c i p i e n t t h r e a t s o f r e d u c e d c o m p e t i t i o n w h i c h w e r e n o t o r d i n a r i l y a d d r e s s e d u n d e r t h e p r o v i s i o n s o f :he Yndsr t h e C l a y t o n Act a c t u a l r e s t r a i n t s o f t r a d e need no: Sheman Act. be a e n o z s t r a t e d . The r e q u i r e m e n t s o f t h e anendmenr a r e s a t i s f i e d when a " t e n d e n c y t o v a r d s monopoly" o r t h e " r e a s o n a b l e likehood" of a s u b s t a n t i a l l e s s e n i n g of c o m p e t i t i o n i n t h e r e l e v a n t m a r k e t i s demons-trated. . 12,' - COXF'ETITIVE EFFECTS OF TEE PROPOSEG G2-TOPOTA JOINT VEXTURE In l i g h t of the l e g a l s t i p u l a t i o z s outlined m o v e , i t i s useful t o csnslder t h e p r o p o s e d GM-Toyota Claptcc Act. j o i n t v e n t u r e under t h e g u i d e l i n e s of Section The Act r e q r l r e s t h z t :he and g e o g r a p n i c m a r k e t b e d e f i n e d . re:evzc: 7 c f the l ~ n eo f c m a e r c e ( p r o d u c t m a r K e t , The l i n e o f comnerce ( m a r k e t ) g e r m a n e t o t h i s ? & p e r i s t h e p r o d u c t i o n and s a l e o f z u z s z o s l : e s . j o i n t venture l i m l t s the agreeaent t o the S i z c e :he ?reduction p r o p o s e d GI?-Toyott of subconpact c a r s , t h e l i n e o f coumerce i s l i m i t e d t o t h l s c a t e g o r y ( s u b m a r k e t ) . CBS- 1! a u t o m a ~ e r . 50:- in a S.S. .. o f t h e s e f l x s p r o a u c e an5 s e i - c a r s JZ :he wsrle ~ z ~ k e : . a l a n t ; t h u s t h e r e l ? v a n t g e 0 g r a p F . i ~n a r k e c i s c o n s i c s r e d t o be t h e To c l a r i f y t h e i m p o r t a n t economic r e l a t i o n s h i p s which may be i d e n t i f i e d i n j o i n t v e n t u r e s , t o g e t h e r with t h e i r competitive consequences, i t i s necessary t o p r o v i d e a means f o r s y s t e m a t i c a l l y c l a s s i f y i n g j o i n t v e n t u r e s t r u c t u r e s . The GM-Toyota proposed u n d e r t a k i r i g z a y be termed a p u r e h o r i z o n t a l j o i n t v e n t u r e s i n c e t h e companies a r e h o r i z o n t a l l y r e l a t e d . T h i s form o f merger o r j o i n t v e n t u r e o c c u r s when f i r m s f o r che same b u s i n e s s a r e combined. As s t a t e d a b o v e , t h e two companies i n v o l v e d produce t h e same o r s i m i l a r p r o d u c t s ( a u t o m o b i l e s and r e l a t e d ? a r t s ) f o r t h e same m a r k e t . - This union a l l o w s t h e p a r e n t conpanies t o expand t h e i r o p e r a t i o n s i n an e x i s t i n g p r o d u c t m a r k e t and r e d u c e s r i s k t o a d e g r e e t h a t i s n o t iinmediately a c h i e v a b l e i n che a b s e n c e o f t h i s a g r e e m e n t . - P r o f e s s o r Mead i n h i s a n a l y s i s o f j o i n t v e n t u r e s makes two p o i n t s t h a t a r e v e r y much i p p l i c a b l e t o t h e CX-Toyota ( t h e p a r e n t companies) proposed j o i n t v e n t u r e and which shed a g r e a t d e a l o f l i g h t on t h e p r o b a b l e a n c l - c o m p e t i t i v e imp1 i c a t i o n s . - He i n d i c a t e s t h a t : 131 . . .-we- n u s t d i s t i z g u i s h innocen: e x p a n s i o c from e x p a n s i o n wr,Lch Lcvoives h a z a r d s t o c o c p e t i t i o n . h%es one f i n expands i t s f a c i l i t i s s i n a n o t h e r g e o g r a p h i c m a r k e t by b u i l d i n g a new p l a n t and p e r h a p s c r e a t i n g a s u b s l a i a r y f i r m , and i f no u n f a i r metnods o f c o m p e t i t i o n a r e i n v o l v e d , s u c h expansion i s not normally s u b j e c t t o a n t i t r u s t prosecution. A hazard t o c o n F e t i t i o n a r i s e s , however, when a second f i m i s i n v o l v e d a s a p a r e n t i n t h e j o i n t v e n t u r e . The m a r r i a g e between two o r more f i r m s f o r t h e p u r p o s e of e n g a g i n g i n a j o i n t v e n t u r e i n t r o d u c e s t h e p o s s i 5 i i i : y o f harmony r a t h e r t h a s c o n p e t i t i o s between t h e F a r e n t s . E a n o n y bezween ?lead, o p . c i t . pp. 825-832. . .dc-ecz anc. 15s horizontal expazsicz is to je expectec anc does not l far com?e~ition. The invoivenen: of co2s:iru:e a 22: a t c i ~ i o n ~probisn a sacond parent raises twc conpeti~ive issues: ( 1 ) 3robaLle cooperation a o . g :he ?arezrs, azd ! . 2 ) ? r o ~ a b l e cocpera:13:: 5e:weez a second paren: t k s ..- , . -.+.. - .;ezr>,--&e.., ".,, ^fl> "-r -, A Lrnere the parent f i n s have a community of interest between them iz is necessary for them to see: together and cooperate in the management of their joint operation. Nhere the joint venture is in a horizontal relationship to the parent firms, important dimensions of competition such as price and non-price competition, as well as levels of output and geographical markets to be served must be decided upon.... A pure horizontal joint venture raises a third anticompetitive issue--a - loss in potential conpetition from the join: venture. 141 Once the joint venture has been consummated, then entry by either parent separately in direct competition with the interests of either joint venture or the other parent is probably precluaed. Competition with the joint venture is unlikely since any such parental entrant would be competing with its own profit share. Competition with another parent may be precluded by the need for cooperaticn among the parents arising out of the joint ownership situation. In a recent analysis of tne antitrust im?lications of joint venrures Joseph Erodley, r e n o h ~ e d?rofessor of Law at 3oston University, finds that agreements similar in nature to the horizontal arrangement ~ r o p o s e dby GM and Toyota can have very significant adverse effects on con?etition. - He states: l5/ ... Of all joint ventures the horizontal is inherently the most anti. . csnpet:tlve, becsuse 2 : :nvoives t n e fazatlon of 5 jo;:,: venture In markets in which the parents operate a horizontal joint venture ralses thresnold antitrust concern wnen (1) tne joict ventcre enters a concentrated market, ir. which ( 2 ) :he parents are actual or yimminent competitors having a subs:axtial market share. The proposed standard wouid not generate findings of threshold antitrust risk when the partlcipants have little or no power to affect price or output, because it requires tnat they have a suostential naricet share of 2 concentrated market. (Emphasis ~ d d e d . ) ... - 1 5 / Joseph Srodley, " ~ o i n tVentures and Antitrust Pol5cy ," Earvard Law Kevirw 3 5 : ; !-fay 1982, ;j;4 - l j 8 9 . ? r2-r 3rocley, a su~stani:a! a f :ne m r k e t . least 1 5 percect Be suggests three stztistlcal xeasures for defining a con- cecrratec market: chreshc:j narKec scare con?rises a: - (1) a four-fim concectra~lonratio of 75 percent; 16/ - incex of 1300. 1:/ Using these statistical definitions, Table l lists market share data for domestic passenger czr sales in 1982. in the relevant line of commerce (sub- compact cars) GM is ranked number one and Toyota is third. GM holds a substantial narket share with 21.7 percent of the subcompact market. of 13.7 percent falls slightly Toyota's market share el ow Srodley's threshold definition of a "suSstan- tial market share." An application of Brodley's measures of market concentration is found in Table 2. Currently the subcompact portion of the automobile industry has a four- f i m concentration rario of 66.0 p%rcent, a two-firm concentration ratio of 39.2 percext and a Xerfindahl index of 1355. Based upon these figures the subcompact portion of the auco industry would no: be considered a highly concentrated nerket using Brodley's four and rwo-firm concentration ratios. Xowever, the Herfindahl index for this niarket indicates some degree of concentration. 1 6 / A four-firs concentration ratio gives :he percentage of the narket basehela by the top four firns. 17/ The Herfindahl index is a measure of concentration that takes account b o t h T i the number of firms in aa industry and of the size inequality m o n g the wnere x ( i ) is the size of firm i firms. It is defined as Z[(x(i)/~)(x(i)/X)] in terns of saies or any other market market base and X is the total size of :he Industry, the narket base held by all f i m s . ,41:ernatively, the Herfinlahl . lzccx L s the see of :3e squares of the slze of each f i r , 12 ac ixdcscry, w h e r e * . r;m size is expressed as percentage of :he industry; that is, the s - a of :he > + u a r e s of the market share of 2ach f i m r e l a c i v a L o the overali size of the ~ncustry. , Fo rc Chrysler Honda Volkswagen Xazd a Subaru c -LY Others - 2 j Xernorandum on B e h a l f o f t h e Chrysler Corporation C o n c e r n i n g t h e ?rooposec G e n e r a l ? f z r o r s - T o v o t a J o i n t V e n t u r e . I f we a s s k r e :ha: t h e j ~ i x tv e n t ~ r ei s t h e same a s a a e r g e r , we c a n exzend t h e a b o v e a n a l y s i s t o m e a s u r e t n e impac: on :he -i r- subcom?acr c i r m a r k e t . . . o f t h e p r o p o s e d GY-Toyota j c l n t v e n t u r e Tne r e s u l : i n g e f f e c t s a r e l i s t e d i n Table 2 . . . . t h e join: v e n t u r e m a r e r l a i r z e s , t h e f o u r - f i m c o n c e c t r a t i c n r a t l a r i s e s from 5 6 . 0 p e r c e n t t o 75.7 p e r z e n t , t h e t w o - f i m c a a c e n t r a : i o n r a t i o r i s e s fro= 39.2 p e r c e n t t o 5 2 . 9 p e r c e n t , and t h e H e r f i n d a h l i n d e x g o e s from 1355 t o 1 9 5 4 . U s i n g S r o d l e y ' s c r i t e r i a t h e p r o p o s e d j o i n t v e n t u r e would " g e n e r a t e f i n d i n g s o f t h r e s h o l d - a n t i t r u s t r i s k " 1 8 1 l e a d i n g t o a r e d u c t i o n o f c o m p e t i t i o n i n t h e subcompact m a r k e t . and p o s s i b l e i l l e f f e c t s on t h e c o n s u m e r . F u r t h e r m o r e , in 1 9 8 1 , t h e D e p a r t a e n t o f j u s t i c e d e v e l o p e d n e r g e r g u i d e l i n e s i n which a H e r f i n d a k i i n d e x o f 1 8 0 0 was s e t a s z t h r e s h o l d t h a t was i n d i c a t i v e of a h i g h l y concentrated mzrket. estsblished 2 :hreshcld I n a d d i t i o n , t h e Department of J u s t i c e h a s f o r "likely- e n f o r c e n e n t , " %e t h r e s h o l o o c c u r s when t h e c h a n g e i n t h e E z r f i n d a h l i n t e x e x c e e d s 100 p o i n t s a s a r e s u l t o f a m e r g e r . this linit. I f t h e v e n t u r e r e s u l t s i n t a c i t c o o r d i n a t i o n i n m a t t e r s e x t e n d i n g beyond t h e j o i n t v e n t u r e and t h e two p a r e n t s c e a s e c o m p e t i n g w i t h e a c h o t h e r , t h e n t h e r e l e v a n t i i x e 3 f commerce f o r a n t i t r u s t c o n s i d e r a t i o n would h a v e t o Fnc l u d e t h e p r o d u c t l o a a x ! s a l e o f a l l p a s s e a g e r c s r s and r e l a c e d p a r t s ; i n s u c h a c a s e , t h e GX-Toyota v e n t u r e would h a v e e v e n g r e a t e r a n t i c o m p e t i t i v e e f f e c t s . Using Y r o d l e p ' s , c r i t e r i a t o c l a s s i f y a " s u b s t a c t i a l m a r k e t s h a r e i n a c o n c e n t r a t e d m a r k e t " i t i s shown i n T a b l e 1 t h a t G e n e r a l !4otors, t h e a u t o l e a d e r , h o l d s a -- &fore --- . - bfcet Se f o r e -1-1 . o 53. 5 66.0 -- 2-Finn Concentration Ratio 60.9 67.5 Her findahl index 2463 3054 1355 1954 c-firm Concencra: i o c R a t i o Source: C a l c u l a t e d by a u t h o r . ~ : 2 r I > . / - s c 5 s t ~ > t l i lsn;r? 7 - i - t I. z a c. . . . a 2;gri-1: . A cor,:entre:ed r a r k e t does e x i s t . a -.-: , - ~ n e r zsacerbatlon of E!FLOi?"LE;KT EFFECTS :nac The j o i n t v e n r u r e would o n l y d i ~- -z. i c u l t y . Tne :wo . ' t k i s danger by I h ; t ; n g n o w e v e r , t r i e d :o n:niz:ze C. . o f t h e s a l e s o f F a s s e n g e r c a r s and i t i s ~ 2 d i c e : e c i n T a b 7c- OF companies n a v e , t h e s c o p e o f :he venture. THE PROPOSED J O I K T VENTURE GM o f f i c i a l s h a v e i n d i c a t e d t h a t t h e p r o p o s e d j o i n t v e n t u r e w i t h T o y o t a w i l l g e n e r a t e 3 , 0 0 0 new j o b s (man y e a r s ) i n t h e v e n t u r e i t s e l f . i s t o produce 200,000 - Since the venture 300,000 v e h i c l e s p e r y e a r , t h i s i m p l i e s t h a t between 00 and 1 0 0 c a r s w i l l be a s s e m b l e d a n n u a l l y f o r e a c h w o r k e r e n p l a y e d . The o f f i c i a l s a l s o assume t h a t t h e a r r a n g e m e n t w i l l c r e a t e an a d d i t i o n a l 9 , 0 0 0 j o b s i n d i r e c t l y i n s u p p l y i n g i n d u s t r i e s , p l a c i n g t h e t o t a l empioyment e f f e c t s a t 12,000 jobs. On t h e b a s i s o f i n p u t - o u t p u t a n a l y s i s t h e s e enploymen: projections, &lthough .. p e r h a p s somewhat o v e r s t a t e d , may n o t be f a r o u t o f l i n e . &I e 2 r : l e r found t h a t f o r a n e t i n c r e a s e i n demand o f $ 1 3 b i l l i o n i n :he CXS study z z t s n o b i l e industry, - a g r a n d t o t a l o f j 8 8 . 5 t h o u s a n d j o b s ( d i r e c t and i n d i r e c t ) would b e c r e a t e d . 1 9 / his m o u n t s :a . . a a e t ~ z j e c t i o no f $ 1 6 , 9 9 2 f o r e a c h j o b c r e & : s t z j - :he industry. Using t h i s r a t i o a t a p r i c e o f $ 5 , 0 0 0 p e r s u b c o m p a c t , a n a v s r a g e o f 3 . 4 c a r s would be r e q u i r e d t o g e n e r a t e one j o b econoop-wide . It i s g e n e r a l l y assumed t h a t f o r e a c h d i r e c t j o b c r e s t e d i n t h e subcompact automobile i n d u s t r y 2.3 i n d i r e c t jobs a r e c r e a t e d i n supplying i n c u s c r i e s . a s a r u l e o f thumb e a c h a u t o w o r k e r h a s t h e p o t e n t i a l f o r p r o d u c i n g 1 1 t o 1 4 1 9 / Gwenell 5. B a s s , An i n c e r - I n d u s t r y -Analysis o f :ne S e n ~ .: : : .- . ~. l t ~ ~cf ~ n d u s t r i a lO u t p u t and EmpLoyment t o Changes in t h e Demanc f o r k c t o m o o l i k s , CRS R e p o r t S O . ?>-LO E , Fe5r:ar:; 2 i , I???. Hence, .. cars axua,,y 2s: :n t n s curre-: y e z r a l a n n e c f z r 22::. C.S. wcrcer - zdr- . : 1 u s t r . fr,e ;c:nf a u ~ x a r e zu s e c n s s s ?racuc:lo:: a n c far f ~ ; . , a l a s s c l s > l y . r?s:?ocs d e p e n c e n t tison ~ y ~ ~ ; l c L -C+-. ; - " E- S ? ~ : : Z ~ ; : - t s Y . is 3i v e n t u r e i n d l c a t ~ s:s2: ? r D > a ~ : y ~ 1 1 12 e 2:grily :J Tne a v e r a g e 3 5 :O 1;C c a r s the 3 r m u c e p a r t s t h a t can ~e cone u s r n g 1: 'tanpower SL:?~: T~;:OS a r e sigr,ly ~ z p r o v e a 5;- : e c r , z o l o g y . IS I: .. p r o b a ~ l ea l l automeicers a r e z o v l s g t o w a r s 3 u : ~ d l n g h i g h l y a u t o m a t e d p l a n t s , Some o b s e r v e r s h a v e i n d i c a t e d t h a t :he subcompact planned f o r t h e j o i n t v e n t u r e w i l l s u p p l a n t t h e C h e v r o l e t C h e v e t t e and e l i n i n a t e t h e J o b s r n v o l v e d l n bullding that car. The C h e v e t t e i s c u r r e n t l y s e i n g b u i l t i n W i l m i n g t o n , D e l a w a r e . The p l a n t e m p l o y s a p p r o x i m a t e l y 4 , 7 0 0 w o r k e r s . In addition t o the Chevette, the D e l a w a r e p l a n t p r o d u c e s t n e P o n t l a c 1 0 0 0 , P o n r l a c ' s v e r s r o n o f t h e C h e v e t t e , 2nd t h e Acadian, t h e Canadian v e r s i o n of t h e C h e v e t t e . The C h e v e t t e was a l s o p r o d u c e d a t a p i a n c i n G e o r g i a b u t o e f a u s e o f weaK demana :hat i d l e s i n c e SeptemDer 1 9 8 2 . I f , i n d e e a , t h e GH-Toyota plan: has been c a r replaces the Chevrolet C h e v e c t e , t h e n t h e w o r k e r s a t t h e F r e n o n t p i s c t i n C a l i f o r n i a w i l l r e ~ l a c et h e X i l m i n g t o n , D e l a w a r e worKers and t n e r e would De no n e t g a i n i n e n p ; o > m e n t . In e i t h e r c a s e t h e C h e v e t t e i s l i k e l y t o b e p h a s e d o u t o v e r t h e n e x t few y e a r s . GM o f f i c i a l l y c l o s e a l t s i d l e Fremont p l a n t . hs i n d i c a t e d e a r l i e r t h e c h i e f e x e c u t i v e and m o s t o f t h e t o p management w i l l come f r o m T o y o t a Motor Co. This a r r a n g e m e n t a l l o w s t n e j o r n t v e n t u r e t o qualify a s a cew company u n a e r N a t l o n a i L a b o r R e l a t i o n s Boarc r u l e s f o r c i n g t h e U n i t e d Auto Workers (uAK) t o negotiate a new c o n t r a c t u r a l a g r e e m e n t w i t h t h e new p l a n t . The a b s e n c e o f a UAW c o n t r a c t a t :he Fremont p l a n t d o e s n o t n e c e s s a r i l y mean t h e Union h a s no b a r g a i n i n g power w l t h GY. On t h e c o n t r a r y , u n i o n o f f r c a i s s t i l l h a v e t h e o p t i o n t o s r r l k e a t o t n e r GM p l a n t s . CRS- 1 9 h-nile I t h a s 3eer. r e p c r c e c :hat .,,,es .- - a: :he s&s:an:ial 2 X 2nd Toyota a r e p r e p a r e d :3 pa:; .. * 7 . LAH wag2 assemkly p l a n t f o r t h e new s m a l l c a r , t h e c o m ~ a n i e sp l a n t o a s k f o r :oncessions t h e y can wark ou: EF, on work r u l e s and b e n e f i t s . The companies s a y t h a t u n l e s s agreement t h a t s h a r p l y r e d z c e s t h e l a b o r c a s r d 1 f f e r e n c ; - 1 - between a e r l c a n and J a p a n e s e c a r s , t h e j o i c t v e a t u r e w i l l be c a l l e d o f f . 2 0 1 P e r h a p s t h e most s e n s i t i v e i s s u e i n t h e l a b o r t a l k s w i l l i n v o l v e s e n i o r i t y . To h o l d down c o s t s , GM and T o y o t a a r e e i t h e r s e e k i n g t o a v o i d p a y i n g w o r k e r s on t h e b a s i s o f t h e i r f u l l b e n e f i t s u n d e r t h e p r e v i o u s GM c o n t r a c t o r a r e h i r i n g t h e w o r k e r s who have a c c r u e d t h e l e a s t b e n e f i t s . But t h e r a n k and f i l e a r e p u s h i n g t h e u n i o n l e a d e r s t o demand t h a t t h e j o i n t v e n t u r e r e h i r e w o r k e r s s t r i c t l y ac- - c o r d i n g t o s e n i o r i t y . 21/ VI . CONCLUS iONS Both GM and T ~ y o t as t a n d t o g a i n s u b s t a n t i a l l y from t h e proposed j o i n t v e n t u r e . T o y o t a ' s i n v o l v e m e n t s h o u l d h e l p e a s e t r a d e f r i c t i o n between t h e U n i t e d S t a t e s and Japan. For i t s p a r t , GM s h o u l d be a b l e - t o o f f e r 8 new subcompact c a r a t a more c o m p e t i t i v e p r i c e t h a n s i m i l a r d o m e s t i c models b e c a u s e o f t h e app1ica:ion of J a p a n e s e management and p r o d u c t i o n r e c h n i q u e s and procurement o f J a p a n e s e p a r t s . A high d e g r e e of c o n c e n t r a t i o n e x i s t s w i t h i n t h e automobile i n d u s t r y . The i n d u s t r y c o u i d become somewhat more c o n c e n z r a t e d a s a r e s u l t o f t h e v e n t u r e . A l t h o u g h , GX and Toyota have a t t e m p t e d t o r e m a i n w i t h i n t h e t h e a n t i t r u s t g u i d e l i n e s established for j o i n t ventures, the competitive e f f e c t s of the venture a r e b e i n g reviewed by t h e F e d e r a l Trade Commission which w i l l r e n d e r a a e c i s i c n b y September 1983. 20/ " 3 m p y Xoal -Ahead: Gl-Toyota V e n t u r e S t i r s Y a j o r h t i z r u s : ? r o b l e n s , " Wall S t r e e t J o u r n a l , J u n e 1 0 , 1 9 8 3 , p p . 1 , 1 8 . and Labor