In Japan, the decision to stop production of a product or to close down a plant has different cost consequences than in the United States. One principal difference is that Japanese managers are much less likely to fire workers who are displaced by an event such as a plant closing. Japanese managers would simply try to move the displaced workers to active plants. However, this concept of permanent or lifetime employment can be awkward to manage when economic times become difficult and prudent financial management suggests that activities, including employment, be scaled back to cut costs. One Japanese company found an interesting solution:

Nissan Motor Co., in a sign that its severe slump may be worsening, took the unusual step of loaning some of its idle factory workers to a rival automaker.

Nissan assigned 250 of its production employees to work for six months at factories run by Isuzu Motors Ltd., a 37% owned affiliate of General Motors Corp.

Nissan’s spokesman, Koji Okuda, called the move an attempt to deal with the company’s sharp drop in auto output in Japan. Nissan’s Japanese auto production had fallen 26% from a year earlier. “Demand is low,” Mr. Okuda said.

“We have to adjust our operations.”

SOURCE: Michael Williams, “Nissan Will Loan Workers to Rival Amid Low Demand,” The Wall Street Journal (June 24, 1994), p. A4. Permission conveyed through the Copyright Clearance Center.

a. What specific types of costs might Nissan have considered relevant in its decision to loan employees to Isuzu?

b. Why would Isuzu be interested in hiring, on a temporary basis, workers of Nissan?

c. What are the likely impacts of this arrangement on quality of the output at Isuzu? The quality of output at Nissan?