(FORTUNE Magazine) – THE NEW 1991 models will soon be rolling out, and all the attention is focusing on the superslick $64,000 Honda NSX, Japan's costliest sports car and its designated Ferrari fighter. Car buffs have all but ignored the relatively mundane Honda Accord station wagon, due to arrive in dealer showrooms in late November with a base sticker price of about $16,000. Don't be misled. The Accord wagon is a revolutionary vehicle, one likely to excite consumers and unnerve U.S. carmakers. Designed by Americans in Torrance, California, and built at Honda's burgeoning complex in Marysville, Ohio, it is the most American car ever produced by the Japanese. The Accord wagon adds a third dimension to Japan's North American auto strategy. The Japanese began as importers of their own cars, reaching a peak of 2.4 million in 1986. Their next move was to assemble the cars in America. Today, Honda, Toyota, and Nissan are well on their way to becoming nearly autonomous producers, able to research and engineer as well as to build and design the cars in the U.S. Except for their ownership, these top Japanese automakers are beginning to appear as American as General Motors, Ford Motor, and Chrysler. Already the world's most proficient producers of cars, the Americanized Japanese will reap big gains in marketing acumen, development time, and operating costs. Many industry analysts forecast that the Japanese, who already produce more than one in four passenger car sales in the U.S., could boost their share to one in three in the mid-Nineties -- approaching GM's. Putting designers and factory experts closer to customers gives the Japanese an extra edge. Honda figures the Accord wagon will reach buyers two months sooner than if it had been developed in Japan because production engineers did critical work at the Ohio plant, rather than 6,600 miles away. By making their cars more American, the Japanese will also help reduce trade / frictions, limit exposure to currency fluctuations, and quiet Japan bashers. Says Leif Soderberg, a principal at McKinsey & Co. and a consultant to the auto industry: ''It certainly is not going to be any easier to compete with the Japanese in five years than it is right now.'' The irony is that the Japanese were forced to set up shop in the U.S. because of import restrictions agreed upon in the early 1980s. The big profits they reaped from intense consumer demand for their cars and trucks helped pay for their U.S. plants. Within a year or two, Honda's Accord wagon will be followed by giant steps from the other major Japanese automakers. In 1991, Toyota will start building a new Camry model in Georgetown, Kentucky, which will be three inches wider than the Camry sold in Japan. That will just about put the popular Camry bumper to bumper against such mainstream sedans as the Ford Taurus and the Chevrolet Lumina, and generate thousands of additional sales to rental car fleets. During 1991, Nissan expects to build a U.S.-designed successor to the compact Stanza with a futuristic, streamlined configuration that will look nothing like the version sold in Japan. The Japanese will also develop more models exclusively for Americans. Toyota scored a hit this year with its ladybug-shaped $22,000 minivan, the Previa LE, which was designed in California. Now it is considering U.S. production of a big pickup truck -- unsuitable for Japan because of the narrow roads -- that would compete against full-size trucks made by Detroit. Big pickups, which usually sell for under $20,000 each, are the best-selling vehicles in the U.S. and return the highest profits in their price class. Says John Wolkonowicz, an industry strategist at the Arthur D. Little consulting firm: ''Why would the Japanese let GM, Ford, and Chrysler have 100% of the most lucrative vehicle segment?'' Honda is studying whether to develop minivans and sporty Jeep-like vehicles for the U.S., reports Thomas Elliott, its top American executive. Says he: ''If we can win between 5% and 8% of those markets, that's a sizable growth opportunity for us.'' Honda also is looking into a new minicar, smaller than the subcompacts it now sells. ''We want to have an entry-level vehicle for new customers,'' says Elliott. Honda's smallest four-door model, the Civic, can cost as much as $12,841. The Japanese are adding a new dimension to their offensive just in time. True, higher gas prices prompted by Iraqi aggression in the Middle East will ; boost sales of the many Japanese models with four-cylinder engines, which sip rather than slurp gasoline. But Japan's other traditional advantages are waning. Their longtime edge in quality has dulled because domestic cars are better made than before. Increased competition in small cars has shrunk profits in a segment the Japanese have long dominated. And General Motors, whose problems in the 1980s the Japanese fully exploited, is fighting harder under new CEO Robert Stempel. Making the transition to autonomous U.S. operations will be difficult. Just coordinating the automakers' different divisions would provide employment for an army of management consultants. Toyota and Honda each maintain separate U.S. subsidiaries for sales, manufacturing, engineering, and R&D that report individually to the home office in Japan. Hiring American designers should help the Japanese divine the seemingly fickle tastes of U.S. buyers. Americans like bigger engines, with faster acceleration from a standing start, than Japanese drivers do. They prefer subdued interiors over fuzzy velour, and they have a limited tolerance for exotic features such as four-wheel steering. Nissan's California design center, for instance, tripped on the Pulsar, its gimmicky sports car with detachable trunk.

FOR ALL THEIR Americanization, Japan's automakers still prefer to buy major tools and parts from home or from some of the Japanese suppliers who have set up more than 250 plants in the U.S. Although Honda has built cars in Ohio since 1982, it still imports from Japan the costly, precision-machined dies used to stamp out body parts. Toyota ships engine blocks, cylinder heads, and other vital parts for four-cylinder engines to Savannah and then trucks them to its Georgetown, Kentucky, plant for assembly. Managers of Japanese assembly plants still complain about the quality of some U.S. suppliers. Pressure to act like good citizens and reduce the trade deficit occasionally forces them to ''buy American'' against their wishes. ''We have several suppliers that most American companies would have scuttled,'' says Alex Warren, senior vice president of Toyota's Georgetown plant. ''We work with an inventory of only 1 1/2 days, so if an American supplier can't make shipment deadlines, he could shut us down.'' The problem is so acute that while Toyota uses American-made door-trim panels and small metal castings on the assembly line, it keeps emergency inventories of identical parts made by Japanese suppliers. + Even with supplier problems, operating inefficiencies, and the high cost of importing parts from Japan, the Japanese build cars in the U.S. more cheaply than Detroit does. According to an authoritative industry source, the Japanese produce a compact car in the U.S. for about $800 less than an American company. When the Japanese make the same car in Japan and ship it to the U.S., the cost advantage is even greater: around $1,100. In the 1980s the Japanese changed the rules of automotive competition in the U.S. They propelled their share of car sales from 16.6% in 1979 to 27% so far this year. They built eight assembly plants with total capacity of nearly two million vehicles a year. They shed their econobox image and started selling luxury models for more than $40,000. And last year the Honda Accord displaced the Ford Escort as the best-selling car in the U.S. In the Nineties, Japan's gains may be equally dramatic. Toyota already sells more cars in the U.S. than every GM division except Chevrolet, and it is well poised to pass Chrysler. New models have boosted Toyota's U.S. sales 31% this year -- no small accomplishment in a weak market. The company is spending $400 million on a 12,000-acre test track in Arizona and on new engineering and design studios in Ann Arbor, Michigan, and in Newport Beach and Torrance, California. In the next several weeks it is expected to announce a 30% increase in its U.S. factory capacity that could boost production to almost 700,000 cars and trucks in three years. Toyota makes the reasonable prediction that by mid-decade it will sell 1.5 million cars and trucks in the U.S., up from around one million this year. TOYOTA HAS to drive fast to stay ahead of Honda, which sells nearly as many vehicles with less than half as many models. Honda leads all Japanese automakers in U.S. production and the use of locally made parts. Its giant Ohio complex will turn out 510,000 Accords and Civics this year, and build 500,000 engines from scratch. The company has opened a 7 1/2-mile test oval in California's Mojave Desert that complements a large track at its Transportation Research Center in Ohio, and it is doubling the size of its staff at its Ohio R&D center to 500 professionals. As Honda's cars get bigger, they challenge more domestic models. The 1992 Civic will be as much as seven inches longer than its predecessor, according to industry sources. Honda expects to increase U.S. sales from 850,000 cars this year to one million by 1993. Nissan is quicker to move than Honda or Toyota but stalls more often. Its high-volume Stanzas and Sentras are not as popular as comparably priced Hondas or Toyotas. Nissan has gone furthest in centralizing its U.S. operations by giving more power to its American president, Thomas Mignanelli. It is assembling a 500-person R&D staff in Ann Arbor, Michigan, to supplement its ten-year-old California design center in La Jolla. The center's job will be to ready the 1992 Stanza for production at Nissan's plant in Smyrna, Tennessee, where annual capacity will be doubled to 440,000. If the Stanza succeeds, Nissan will be well on its way to selling as many as one million cars and trucks in the U.S. by 1995, up from 725,000 this year. As Toyota, Nissan, and Honda get stronger, life gets tougher for the other Japanese manufacturers who sell in the U.S. Mazda, which has been successful with such niche vehicles as the $18,000 Miata two-seater and the $22,000 MPV minivan, keeps searching for a broadly popular family car. It makes 120,000 cars a year in its joint-venture plant with Ford and aspires to generate sufficient volume to fill its own plant in the mid-1990s. Mitsubishi, which has built cars for Chrysler since 1971, got a late start as an independent seller. It is trying to leverage the success of its Eclipse sports coupe with the compact Mirage, which it is building alongside the Eclipse at a plant in Illinois. To sell their increased production, Japanese automakers are rapidly expanding their distribution network. Unlike Detroit, which long ago saturated the nation with dealers, the Japanese have plenty of room to grow. According to Paul Fraker, an auto analyst at Baring Securities in Los Angeles, Toyota, Honda, and Nissan sell only 15% of their cars and trucks in the Midwestern and Plains states, where U.S. manufacturers sell 25% of their production. J.D. Power & Associates, the automotive market research and consulting firm, predicts that Japanese carmakers will open as many as 1,300 new dealerships over the next three years. That would raise the total to around 8,000 dealers, each of whom would sell on average between 500 and 600 new cars and trucks a year. JAPAN'S new auto strategy has elicited a ho-hum response from Detroit's Big Three. U.S. auto executives remain fixated on their fundamental goals of bringing quality up to Japanese standards and getting production costs down. ''Frankly, we're pleased with the path we are on,'' GM's Robert Stempel told reporters his first day on the job as CEO. ''I think we are focused to handle a competitive strike from wherever it comes.'' Many U.S. executives share the view of Allan Gilmour, the urbane, philosophical head of Ford's worldwide automotive operations, who says that Japan's strengths are often overstated. He claims that Detroit can match Japan in basic research, engineering, and styling, and that people exaggerate Japan's reputation for getting products to market faster. Gilmour compares the position of the Japanese today with that of Volkswagen more than 20 years ago. Says he: ''In the mid-1960s, one would have concluded that Volkswagen would by now be the leading car company in America. Nothing grows to the sky.'' A study based on research by 55 members of MIT's International Motor Vehicle Program should make Detroit worry. To be published in October as a book titled The Machine That Changed the World, it concludes that the top Japanese producers outclass every major automaker in North America and Europe. Their superiority extends beyond the factory gate to the entire range of industry disciplines, from research and development to sales and marketing. While books on Japanese management have become crushingly familiar, the MIT report is especially authoritative. It uses a unique quantitative analysis to compare the world's major automakers in Europe, Asia, and North America. The researchers found that the Japanese system, which relies on teamwork and worker involvement, produces the best results at every measuring point. The MIT study is ominous because it indicates that the premier Japanese automakers have yet to reach their full potential. As James P. Womack, one of the report's principal authors, points out, the Japanese system works best when ''the entire complement of car-production activities are performed as close as possible to the point of final production.'' The report quotes a senior Honda executive who says that the automaker would prefer to do everything -- from research to engineering and manufacturing -- in one place, so that everyone involved in the production of the car can communicate easily with everyone else. By the mid-1990s Japan's top automakers will have most of the ingredients in place in the U.S. Not long after, they will start to reproduce their new U.S. strategy in Western Europe. Says Karl Ludvigsen, who heads his own automotive consulting firm in London: ''If you reduce this strategy to its fundamental purpose, which is to put the designers as close to the market as possible and link them with an efficient production system, it can't fail.'' THREE CONTINENTS, three autonomous operations. Nissan's articulate executive vice president, Atsushi Muramatsu, calls it the ''tri-polar strategy.'' The Japanese get more than just access to new markets. They get to spread research and development costs over worldwide production. If business on one continent turns sour, they can divert production to another. Honda already builds some 17,000 Accord coupes annually in Ohio for sale in Japan. Most significant, the tri-polar strategy enables Japan to challenge competitors in new markets. Once the Japanese become major players in Europe, for example, the going will get tougher for GM and Ford. That means Detroit will no longer be able to use Europe to generate huge cash surpluses to fund U.S. operations the way it did during the Eighties. But the Japanese will still have their own monopoly -- Asia. U.S. and European automakers have barely made a dent there. Speaking to the Society of Automotive Engineers, Ford President Philip Benton Jr. admitted that Detroit made ''a huge mistake'' in failing to cultivate the Asian market. Says he: ''If a company plans to be a worldwide participant, that company must be in Asia.'' GM vice chairman Jack Smith agrees: ''If you look at things we need to accomplish, one of them is to sell more cars in Japan.'' Long term, Detroit needs to challenge the Japanese worldwide. More immediately, U.S. automakers must protect their home turf by boosting productivity and improving market responsiveness. MIT's analysts say the Big Three should be able to adapt the Japanese operating system for themselves. Ford has made the most progress in that direction. But if Detroit cannot pull itself up to international standards, it may find itself later in the decade outclassed by the Japanese in its own backyard.

CHART: NOT AVAILABLE CREDIT: SOURCE: WARDS AUTOMOTIVE REPORTS, BARING SECURITIES (estimates) CHART BY PATRICIA BYRNE CAPTION: JAPANESE CAR AND TRUCK PRODUCTION IN THE U.S.

CHART: NOT AVAILABLE CREDIT: SOURCE: WARDS AUTOMOTIVE REPORTS CAPTION: THE TEN BEST-SELLING CARS IN THE U.S. THIS YEAR Four of the top-selling cars in the U.S. are Japanese; all four are made in America.