As far pre-negotiations go, I don't know if it's something you pre-negotiate or if it's just something you say. You say to another country, “I may be interested in a free trade agreement with you, but not in the area of auto”. That's not necessarily something you have to negotiate. That's simply stating what you think your area of interest is.
In terms of the first part of your question on the auto industry, is it a question that the industry “can't compete”, that means that no auto industry in the world can compete with Japan, because Japan doesn't buy significant volumes of automotive products from anywhere in the world. I think viewing a trade imbalance solely as a result of a failure to compete is not very informative.
What you have in Japan is a whole structure and a history of policies aimed deliberately at promoting exports and limiting imports. That's why we have a trade imbalance with them, and that is not going to be solved by a free trade agreement.