Leading Article: Competing to keep new car drivers happy

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AT FIRST it is hard to see the link between the formal opening last week of Toyota's new British car assembly plant and the rushed announcements by three Western car makers - Ford, Rover and Vauxhall - of new guaranteed refunds or exchanges for those who buy new cars but are not happy with them. Yet there is a link all the same. Pressure in Europe from Japanese makers is becoming more intense, and those who sell cars in EC markets are having to respond.

So far it is in the United States that Japanese competition has cut deepest. Until the Japanese arrived, the American makers were bloated businesses with high costs, appalling industrial relations and bad quality records. The market share of the 'Big Three' makers (General Motors, Ford and Chrysler) has fallen sharply since the Seventies; indeed, Honda briefly made the phrase redundant by overtaking Chrysler in US car sales. General Motors alone is in the middle of a massive restructuring programme that will close 21 factories and make 74,000 workers redundant.

Change has come more slowly in Europe. The EC is stricter than the US in the limits it places on Japan's car exports, so Japanese cars cost more and win lower market shares here than on the other side of the Atlantic. But even at inflated prices, Japanese cars have forced European makers to transform the quality and reliability of vehicles. One sign of that improvement is in warranties. Ten years ago, few buyers could hope to hold manufacturers responsible when something went wrong; today, many new cars are guaranteed against mechanical failures and rust for three years or more. With three big Japanese makers cranking up to full-steam production in Britain, the pressure on local competition is increasing. Most car firms in Europe are taking drastic steps to cut their costs and the time it takes them to bring new models to market. Volkswagen recently poached from General Motors a top purchasing executive, renowned for his ability to negotiate lower parts prices from suppliers - it required a seven-figure contract.

The Japanese are not invincible, however. The American makers have already begun the long climb back from hell; this year, a more efficient Chrysler is doing sharply better in the US market than Honda, which has been hit hard by the strong yen. Well-managed car plants in Europe can remain competitive if they are not crippled by high non-wage costs. Nissan finds that its Sunderland employees make cars every bit as efficiently as those at its Tokyo factories. Rover, which is partly owned by Honda, has made tremendous strides to improve, and is giving BMW and Mercedes-Benz a run for their money, even in the German market itself.

Making the necessary changes is inevitably painful for European manufacturers and their employees: it demands more work for the same money and radical changes to management style. Yet it is only pressure from outside that provides an incentive to change. And when improvements come - as can be seen by last week's new money-back guarantees - it is consumers who benefit.

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