Unfortunately, the domestic companies had not possessed the capital or the engineering flexibility to change rapidly to what was the new buying public had wanted.
Those citizens had immediately increased purchases of Japanese automobiles, especially in the crucial, trend setting West Coast markets, which had had the effect of funding research and development for the Japanese firms, which in turn had hired American styling engineers to make their products more attractive to their growing market and utilized its own engineers to improve things such as safety and performance. Thus, by the second great oil shock of 1979, Toyota, Honda and Datsun (later Nissan) and Subaru were in the right place at the right time with the right product. Those were indeed the salad days fro the Japanese auto industry. The low yen and the high dollar had meant that even relatively low prices guaranteed a huge profit margin that their local dealers could add a surcharge of a thousand dollars or more for allowing people to purchase these automobiles, and that had given them a large eager sales force of American citizens.
This obviously caught U.S. automakers off guard. They had forgotten that there was no Divine Right of Businessmen. Japan had learned how to exploit a weakness in the American auto industry, and like sharks, they smelled blood and went for the kill. In due course, America had learned from its own mistakes. American companies had a new strategy; they almost immediately downsized everything from their automobile designs to their payroll because they had relearned the economic facts of life. .
To normalize the things further, the exchange rate changed, the relative value of the yen had gone up, and conversely the dollar went down, despite the best efforts of Japanese central bankers to keep their own currency weak. With that, change went much of the profit margin of the Japanese firms.
In May 1981, with the American auto industry mired in recession, Japanese carmakers agreed to limit exports of passenger cars to the United States.