It’s been said the essence of Japan is its
contrast between old and new, the traditional and the ultra-modern.
A land of startling opposites.
High-rise buildings dominate the skyline of
major cities, such as Japan and Osaka; neon lights flash the messages
of Sony and Hitachi 24 hours a day; and traffic – bumper to bumper
traffic – lines the city streets.
Close your eyes and picture it. Does it look
something like Times Square in New York City?
On the surface, it may seem that Japan is
very similar to other industrialized nations. In fact, economists
and historians grapple with the question of how a feudal nation
could transform itself into a powerful industrial giant – an economic
powerhouse – in such a short period of time.
But, if you look a little closer, the differences
between Japan and the United States become apparent.
Envision that big city again – the one that,
at first glance, resembled Times Square. Now picture a tiny, old
house nestled between two skyscrapers. Can you see it there –
a remnant of days past contentedly sitting in the shadow of modern
architecture?
Even now, during this last decade of the 20th
century, modern culture and traditional culture exist side by
side in Japan. While the Japanese are often susceptible to Western
influences – Nike’s AirMax sneakers are the latest rage – and
have embraced their country’s (and the world’s) high-tech innovations
– from bullet trains to cell phones to robots that paint and golf
– the real heart of the Japanese is said to be found in the dojo
– the training hall. It is there that, every day, people immerse
themselves in the traditional arts, such as Chado, the Way of
Tea; Shodo, the Way of the Pen; Ikebana, the art of flower arrangement;
and Budo, the Martial Way, which includes Judo, KIendo and Karatedo.
For the Japanese people, these Ways represent
more than a hobby – more than the flower-arranging course your
wife attends at the local college or the karate class your son
takes at the YMCA. To the Japanese, the intense study of one of
these Ways represents training for life itself.
It’s here, upon delving deeper into Japan’s
traditions, that a unique culture is discovered – a culture that’s
distinctly Japanese.
As we take a closer look at Japan, its auto
industry and particularly its collision repair industry, remember
that whatever similarities are found between Japan and the United
States aren’t nearly as similar as our differences are different.
On the surface, the two countries may have striking resemblances
(it appears that Japan’s collision repair industry is following
in the footsteps of ours), but Japan’s centuries of tradition
– from Shinto temples to Sumo wrestlers – still play a dominant
role in shaping this country, its people and their way of life.
Japanese Industry
It’s been said that how Japan came back after
World War II is nothing short of an economic miracle.
Today, Japan manufactures more musical instruments,
stereo equipment, bicycles, skis, radios and tape recorders than
anyone in the world; more watches than the Swiss; more cameras
and optics than the Germans; more ships than North America and
all of Europe combined; and more steel than any other nation.
In fact, its legendary automobile industry – until recently –
produced more exports than Detroit.
This recent decrease in auto manufacturing
is a direct result of the restructuring of Japanese auto manufacturers’
global production strategy. Some manufacturers – including Toyota,
Nissan and Honda – have shifted a part of their production lines
abroad to avoid cost disadvantages of importing finished products
from Japan.
Another notable trend in the Japanese automotive
industry is a dramatic increase in sales of imported vehicles
– up from 22,000 imports in 1990 to 39,000 in 1996. This increase
is due, in part, to the fact that Japanese manufacturers’ overseas
production vehicles are considered "imports."
But others factors also contribute to the
increase.
Traditionally, imported vehicles were considered
a luxury item, and it was a common belief that they cost much
more to purchase and maintain. But these perceptions are becoming
a thing of the past.
It’s interesting to note that this wouldn’t
have happened 30, 20 or even 10 years ago. Since World War II,
the Japanese government protected its own markets from foreign
competitors by imposing rigorous import quotas and duties. In
recent years, though, international pressures have convinced Japan
to allow foreign companies access to domestic Japanese markets.
But that was only half the battle.
Finally allowed access to Japanese markets,
foreign companies then encountered unyielding resistance from
the Japanese, who preferred to buy Japanese-made goods. While
this loyalty is still evident today, the Japanese have also become
more cost conscious – in the process, becoming more open to buying
imports.
With Cars Come Crashes …
Imagine if California added another 100 million
people to its current population of 24 million and three-fourths
of those people lived in cities?
That’d be overcrowding at its worst. That’d
be one really big mess come rush hour. That’d be Japan.
With 75 percent of Japan’s 123 million people
concentrated in urban areas, jam-packed city streets are accidents
waiting to happen – and a collision repairer’s dream come true.
Such favorable collision conditions help to
explain why 45,000 collision repair shops do $1.5 billion worth
of business per year in a country that’s slightly smaller than
California. By way of comparison, the United States has about
58,000 collision repair shops total – doing about $20-25 billion
per year.
Of those 45,000 Japanese shops, about 99 percent
are independents, while 1 percent are OE dealer owned. About 40
percent of the independents (18,000 or so) also provide mechanical
repair services.
About 11,000 collision repair shops belong
to the Japan Auto Body Repair Cooperative Association (JABRA).
It’s said that, in general, JABRA members are the better equipped,
better informed and better managed shops.
The average annual gross sales volume for
a Japanese collision repair shop is about $453,330 – not far below
the average U.S. collision repair shop’s sales volume of $468,911.
While smaller Japanese shops are experiencing higher sales volumes
than in past years, larger shops are suffering from sluggish growth.
Case in point: According to the 1995 JABRA survey, the number
of monthly repair orders for the average collision repair shop
was 51.4, a figure that remained relatively unchanged since 1987
– relatively unchanged, that is, except for shops with 16 or more
technicians. For these larger shops, average monthly repair orders
dropped from 202.2 in 1987 to 166.1 in 1995.
The average collision repair shop hourly labor
rate is estimated at roughly $52.50 in Japan (roughly $20 per
hour higher than here in the United States). This figure ranges
from a low of $50 per hour in the southern remote prefecture of
Miyazaki to a high of $59.25 in metropolitan Tokyo. While JABRA’s
local chapters discuss and set a guideline labor rate every year,
insurance companies have a great influence in setting this rate
in that particular locality. (Sound familiar?)
In terms of gross profit margin (GPM), JABRA’s
1995 survey reported an average of 39.8 percent, up slightly since
the last survey in 1992 (and slightly higher than the U.S. average
of 33.7 percent). Breaking this figure down: 91.3 percent is from
labor sales, 5.3 percent is from parts and materials sales, and
3.4 percent is from subcontracting sales.
The reason parts and material sales account
for such a small percentage is that, in Japan, more than 70 percent
of repair orders for independent shops are referred by OE dealers
and other mechanical repair shops – which often supply independent
shops with all replacement parts to be used in repair jobs. This
practice leaves virtually no profit margin on parts sales to independent
shops.
As if that’s not bad enough, even when performing
nonreferral work, independent shops are left with gross profit
margins on parts sales of 10 percent – at best – due to the complex
auto-parts distribution network established by the auto manufacturers.
It appears – there’s really no appears about
it – that if it weren’t for the profit from labor (which attributes
to 91.3 percent of the GPM), Japanese collision repair shops would
be in need of repair themselves – financial repair!
Unfortunately, the independent shop’s overdependence
on OE-dealer and mechanical repair shops is resulting in another
serious consequence: In addition to not being able to make any
profit on parts sales on OE dealer-referred repair orders, independent
shops are now expected to pay back 30 to 35 percent of labor sales
as a referral commission. As the competition to secure repair
orders from OE dealers and mechanical repair shops becomes more
intense, it’s not uncommon to find some independents agreeing
to pay commissions as high as 45 percent!
But not all independents are so agreeable.
Much like a minority of zealous U.S. shop owners have boycotted
DRPs, some Japanese shop owners are boycotting dealership work.
"Our industry is considered unattractive
by many, and I personally feel a great deal of frustration not
being recognized fairly for our superior craftsmanship,"
says Yoshihiro Yukimoto, owner of Yukimoto Bankin Toso Kogyo,
a seven-person shop in Kishiwada City, Japan. "To improve
this situation, I believe that we have to make our operations
more profitable so we can provide our employees with the compensation
they deserve. That’s the reason we stopped taking repair orders
from our dealership customers – who would demand 30 percent of
labor sales as a commission. In addition, they wouldn’t allow
us to make a profit on parts sales when performing repairs for
their customers."
For these reasons, Yukimoto’s shop has gone
to 100 percent "direct" customers.
Besides receiving commissions and keeping
the parts profits to themselves, OE dealers and mechanical repair
shops also are starting to direct repair orders to shops with
modern equipment and more competent skills, while insurance companies
have also begun referring customers to more reliable shops.
Although a few shop owners like Yukimoto are
refusing to make concessions to OE dealers and mechanical shops,
most shop owners are more concerned with keeping their shops alive
than with becoming part of a crusade. Yamato Jidosha, an eight-person
shop in Japan’s Wakayama prefecture is a good example. According
to manager Fuminari Akizuki, the shop’s biggest problem is a decrease
and an inconsistency in repair orders. To battle this, Akizuki
is putting an increased emphasis on building relationships.
"It’s more difficult to market directly
to customers to bring in their damaged vehicles because, in Japan,
most customers contact their dealerships [if they’ve been in a
collision]," says Akizuki. "So we try to establish good
relationships with customer service representatives at local dealerships
[so they’ll] refer their customers to us and secure a constant
flow of repair order volume."
Although many Japanese independents, such
as Yamato Jidosha, view OE and mechanical repair shops as sources
of work, they may soon view them, instead, as competition. In
1995, the Japanese government simplified the Sha-ken – a detailed
mechanical inspection required for vehicle registration – by cutting
inspection items in half. Since this simplification, mechanical
repair shops have experienced sales reductions of about 20 percent.
To make up for these losses, many are planning to enter the collision
repair industry.
Japan’s Technicians – and Lack Thereof
The average Japanese collision repair shop
has 7.9 employees – with 5.9 being technicians – and shops with
fewer than five technicians comprise 72 percent of the total.
These figures demonstrate the nature of the Japanese collision
repair industry: a collection of extremely small businesses.
For now.
The percentage of repair shops with 11 or
more technicians increased from 5.9 percent in JABRA’s last survey
in 1992 to 8.4 percent in 1995, showing an increasing trend for
repair shops to grow larger.
In Japan, most collision repair technicians
are full-time employees on a regular monthly payroll, and the
annual income for the average technician is $37,250 (up 15 percent
since 1992). Is this good money compared to other professions?
It’s not bad. The annual income made by a first-year Japanese
university graduate is currently about $25,000.
But, by no means, is it easy money.
Mirroring the United States, Japan’s collision
repair technicians are constantly challenged by changing vehicle
structures and materials. In fact, Japan’s collision repair techs
need immediate education on a variety of topics, such as the structural
characteristics of unibody vehicles, damage analysis, measuring
principles and techniques, and straightening systems and techniques
– just to name a few. But sufficient education and training in
this field is not yet provided.
To help with the education crisis, the not-for-profit
Association for Auto Body Repair Technology Promotion (AARTP)
was established in 1994, with many JABRA local chapters operating
as board members. AARTP manages Body Repair Technical Center (BRTC),
an independent training center specializing in collision repair
education – the first attempt to establish a more systematic education
and training system in the Japanese collision repair industry.
And, in 1995, the United States became involved with the Japanese
collision repair industry when AARTP entered into a partnership
with I-CAR. In fact, in February of this year, AARTP launched
the first I-CAR Advanced Vehicle System course.
Besides the AARTP/I-CAR partnership, Japan’s
Saitama Technical College and Utah’s Salt Lake Community College
(SLCC) have also joined forces. Five years ago, Saitama Technical
College (located just north of Tokyo) asked for help in teaching
automotive skills to its students and, since then, more than 500
Japanese students have learned American collision repair techniques.
"They want Salt Lake Community College
to teach their students the skills they don’t emphasize in their
automobile program," says Alan Uyehara, SLCC director for
the Center for International Studies, who coordinates the exchange.
"The Japanese attitude in approaching collision repair is
a bit different than ours. Take a dashboard for example. They
would replace it rather than fix it because they don’t plastic
weld. … We’re introducing them to things they’re not teaching
in Japan."
Uyehara says the Japanese students’ basic
skills, like welding and painting, are very good, so the main
benefit of Salt Lake’s two-week program is the additional knowledge
the Japanese gain, such as trying the various plastic, MIG and
oxy-acetylene welding and plasma cutting techniques.
"Our automobile curriculum is created
to prepare students for our national exam [which isn’t career
specific]," says Takashi Sato, dean of Saitama Technical
College, adding that this program is beneficial not only for the
technical skills taught to the students, but for the international
human relations aspect. It brings together two distinctly different
cultures.
Uyehara agrees. "The Japanese are typically
very confined – in a vacuum of only working with Japanese,"
says Uyehara. "This program helps to show them other diverse
cultures and to expand their horizons."
The program also provides SLCC faculty instructors
a chance to gain a global perspective. For instance, the instructors
were impressed at how precise, focused and diligent the Japanese
students are – and how willing they are to work. The instructors
also were impressed with the subtle and not-so-subtle ways the
Japanese express respect, such as bowing to the instructors before
and after class. "It kind of gives you goosebumps the first
time it happens," says welding instructor Neal Grover. "The
kids also do this other thing to show respect – usually the last
day of class – where they stand up, put their hands above their
heads and yell ‘Bonsai!’ "
Why do they do this? "I have no idea,"
says Grover. "But imagine 70 kids standing up and yelling
‘Bonsai’ at the top of their lungs!"
While these idiosyncrasies may take a bit
of adjusting to, the real challenge for instructors is the communication
barrier. "Try translating, ‘Disconnect the battery before
welding or a spike current could burn up the internal CPU,’ "
says Grover, adding that after five years, his Japanese still
leaves a lot to be desired.
Saitama’s Sato says the 19- and 20-year-old
students appreciate – and are often amused – by the professors
attempts to speak broken Japanese. (To help with the translation
challenges, three interpreters from local colleges and universities
help SLCC’s faculty.) Besides enjoying the language faux pas,
students also enjoy the classes themselves because U.S. professors
joke around, have fun and allow more freedom than what these kids
are used to – such as being allowed to have something to drink
in the sweltering auto labs (pink lemonade is the drink of choice,
says Grover).
And sometimes, just sometimes, a student enjoys
himself too much – proving that 19-year-old boys will be boys,
whether they’re Japanese or American.
Despite the fun – and fiascoes – the program
really is a learning experience and continues to increase in enrollment
each year. Next year, the private two-year Japanese college –
which has a 99 percent placement rate for autobody graduates –
plans to make the program mandatory.
The fact that these autobody graduates find
jobs isn’t surprising, considering that Japan’s collision repair
industry is suffering from the same problem as ours: a chronic
shortage of qualified, entry-level technicians. The reasons for
this shortage also parallel the United States: Traditionally,
Japan’s collision repair technicians have worked under unfavorable
conditions, including low wages, long working hours, and hazardous
work environments. The industry also suffers a bit of an image
problem.
By possessing the proper knowledge and skills
to demonstrate professionalism – through systematic education
and training for techs – the industry hopes to break away from
the stereotypes and start attracting more capable young people.
The Japanese Insurance Industry
It’s been estimated that the total annual
insurance payment in Japan for collision repair is approximately
$1 billion or 69 percent of the total dollars spent – that’s more
than 5 million repair orders annually with an average repair cost
of $2,000 per repair order.
After a long period of virtual monopoly by
a limited number of insurers, the Japanese government – as part
of its deregulation campaign – recently revised the Insurance
Act for the first time in 56 years – allowing life insurance companies
to offer property and casualty insurance. As of October 1996,
six life insurance companies had begun offering auto insurance
services – further crowding an already competitive market.
Two months later, the Japanese government
– due to continuous pressure from U.S. trade negotiators – also
gave insurance companies the freedom to set their own premiums.
Since these changes – which are forcing insurance
companies to become more efficient and to cut overhead – some
auto insurers have begun selling policies by "direct telemarketing."
To complement this telemarketing approach, insurance companies
are also expected to employ new techniques in cutting claims-handling
costs. In fact, three insurance companies recently announced that
they’ll start a new claims-handling program in which collaborating
repair shops will directly write damage estimates for their customers’
vehicles. These "collaborating" shops are expected to
eventually submit estimates electronically with digitized images
of a damaged vehicle.
Although it’s difficult to predict the future
relationship between collision repair shops and insurance companies,
it’s probably realistic to say that before long, insurance referral
will become an important source of work for shops. In fact, many
repairers have already expressed an interest in becoming DRP shops
for these insurers – in part, because the money is better.
The money is better?
It is, for now. When performing repairs for
insurers, there’s still at least a 10 percent profit margin on
parts sales for Japanese repairers. In addition, insurers aren’t
– yet – requiring many discounts on labor sales.
Still, despite the predicted profit potential,
shop owners are torn on the issue of DRPs. Following in our industry’s
footsteps, the battle lines in Japan have been drawn – with some
shop owners for DRPs and some against. Those who are left don’t
seem to understand what all the fuss is about – it appears they’ve
put on rose-color glasses and aren’t clearly seeing how DRPs will
change how they do business – an obscured view that, perhaps –
considering how DRPs have changed U.S. collision repair businesses
– may cause some Japanese shop owners to be blindsided by their
own industry.
"We believe that we will not be affected
a great deal by any new events that take place in the insurance
industry," says Yukimoto of Yukimoto Bankin Kogyo. "Our
customers are average drivers like you and me, not insurance companies.
We do not wish to participate in DRP schemes because doing so
will take away our control in running the business. It’s essential
that we meet with customers in person prior to their decisions
to have their vehicles fixed at our place. We’re very skeptical
about having customers come in because they’re told to do so by
someone else."
Yukimoto’s somewhat naive opinion on DRPs
– justifiable concern regarding his autonomy coupled with an unwillingness
to accept the impact insurers will make on the industry – contrasts
Akizuki’s pragmatic opinion. "We’re having an adversary relationship
with one particular appraiser [right now], but we realize that
it’s in our best interest to improve relationships with all insurance
appraisers," Akizuki says. "But, it’s sometimes not
so easy to convince those appraisers to be our friends."
Regardless which side of the fence a shop
owner falls on, once insurance companies succeed in convincing
their policy holders to take their damaged vehicles to DRP shops,
it’s predicted that DRPs will rapidly become a mainstream claims-handling
process – and a profitable alternative for collision repairers
to OE dealers and mechanical repair shops. How long they stay
a profitable alternative remains to be seen.
The Fate of Japanese Collision Repairers
Will Japan’s collision repairers take a stand
like many U.S. shop owners have to protect their independence
as business people, or will they submissively acquiesce to their
fate, allowing the insurance industry – along with OE dealers
and mechanical shops – to gain more and more control of their
industry?
"[There are] differences in culture,"
says Junnosuke Inoue, a writer for "Body Shop Report"
magazine, based in Osaka, Japan. "However, this doesn’t always
hold true when it comes to business. … [Many shop owners] oppose
quite openly any practices of insurance companies referring ROs
to shops.
"[Many] are determined to protect the
industry from anyone who will do harm. But the question is, ‘Who
and what do they have to protect the industry from?’ Is it insurance
companies? Or is it those OE dealerships who take away 30-35 percent
of sales on referral ROs and build megashops on the side? Or [is
it] mechanical repairers who are actively seeking to enter the
[collision] market?"
And once the enemy is determined, what Japanese
shop owners actually do to protect their industry remains to be
seen, considering that the Japanese aren’t usually an outspoken
group of people. Individualism isn’t highly regarded in Japan,
and the Japanese typically maintain two levels of dealing with
the world – called tatemae and honne. Tatemae is surface behavior,
and honne is what they really think. It’s rare to see honne from
the Japanese because both women and men are of the opinion that
it’s better to maintain harmony than to argue a point. They also
believe that group wishes and decisions are more important than
individual ones.
This thinking – a stark contrast to the individualism
displayed in our country – makes comparisons between our industries
seem trivial, considering how incredibly different our cultures
are.
For this reason – along with the dealer and
mechanical-shop obstacles, which aren’t obstacles in our industry
– the future of Japan’s collision repair industry can’t be predicted
by what’s happened in our industry or by how our industry has
reacted. Only the Japanese can determine their fate. And only
time will tell if Japanese collision repairers will take an active
role in determining their fate or if they will allow it to be
determined for them.
Writer Georgina Kajganic is editor of BodyShop
Business.
Special thanks to Repair-Tech Publishing,
Inc. in Osaka, Japan, which provided much of the research for
this project.
Facts About Japan
- The Japanese have ensured that only a small number of foreigners
settle in their country. Inhabitants of nonJapanese origin crept
over the 1 percent mark for the first time in 1993. - Earthquakes are common in Japan because the country sits over
the junctions of four tectonic plates – huge sections of the Earth’s
crust that slip against each other, sometimes gently, sometimes
violently. Within the plates are fault line where slippage is
rarer, but can be catastrophic. - In the late ninth century, the samurai developed as a distinct
warrior class. Over the centuries, the samurai established a code
of conduct that came to be known as Bushido (the Way of the Warrior).
The components of this code were drawn from Confucianism, Shinto
and Buddhism. Since a samurai’s honor was his life, disgrace and
shame were to be avoided above all else – and ritual suicide was
an accepted means to avoid dishonor. Even at their height, the
samurai accounted for less than 6 percent of the - population.
- At an age as young as three or four, Japanese children enter
nurseries that start preparing them for one of the most grueling
education systems in the world. - Japan is one of the only countries where studying abroad,
even at a prestigious university, can be a detriment in landing
a good job because the returned traveler is considered just a
little bit less Japanese. - Japan’s population is slowly becoming less entranced with
working long hours and taking short vacations. Still, although
Japan’s 16 annual leave days and 20 holidays (a total of 36) are
not as good as the best Western European levels, they’re not nearly
as bad as those in the United States. The Germans get 40 days
of annual leave and holidays per year, the French 33.5, the British
33 and Americans just 23. The Japanese, however, don’t usually
take all their annual leave – on average, they utilize only nine
of the 16 days – but that’s gradually changing. - Company management in Japan tries to control all aspects of
its employees’ lives. To help workers escape an employer’s eagle
eye, a Tokyo department store has set up telephone alibi booths.
Callers can select a tape with a suitable background – a hospital,
railroad station or airport – and then phone the boss to make
an excuse for being late or taking the day off. There are also
"kitchen sounds" for the absent housewife who wants
to convince her husband that she’s happily at home doing housework. - Sumo is Japan’s national sport and can also lay claim to being
the world’s oldest sport: Its roots can be traced back to mythology,
where it’s said to have been popular with the gods. - Top Sumo wrestlers in Japan are comparable to Hollywood stars
and treated with respect normally only given to royalty. They
also have their pick of Japanese women – who, apparently, find
these enormous men irresistible! - Shinto, a religion unique to Japan, and Zen Buddhism, practiced
for more than a thousand years, have exerted a significant influence
on Japanese history. Kami-No-Michi, "The Way of the Gods,"
Shinto has its origins in the myths of ancient Japan, while Zen
Buddhism is probably best known in the West for the inspiration
it’s provided to Japanese martial arts.
