U.S. Automotive Industry: Recent History and Issues
Congressional research reportApr 25, 2005
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U.S. Automotive Industry:
Recent History and Issues
April 25, 2005
Stephen Cooney
Industry Specialist
Resources, Science, and Industry Division
Brent D. Yacobucci
Specialist in Energy Policy
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress
U.S. Automotive Industry: Recent History and Issues
Summary
More than one million Americans are employed in manufacturing motor
vehicles, equipment and parts. But the industry has changed dramatically since the
U.S. “Big Three” motor vehicle corporations (General Motors, Ford and Chrysler)
produced the overwhelming majority of cars and light trucks sold in the United
States, and directly employed more than that many people themselves. By 2003,
most passenger cars sold in the U.S. market were either imported or manufactured
by foreign-based producers at new North American plants (so-called “transplant”
facilities). The Big Three now dominate only in light trucks, and are being
challenged there by the foreign brands. The Big Three have shed about 600,000 U.S.
jobs since 1980, while about one-quarter of Americans employed in automotive
manufacturing (nearly 300,000) work for foreign-owned companies — and that
excludes Chrysler, which was acquired by Daimler Benz of Germany in 1998.
These changes have had major effects on the structure and location of the U.S.
motor vehicle industry. Michigan has been the state most directly and adversely
affected, losing about 100,000 auto industry jobs since the late 1970s. Most other
Midwest auto belt states have either held steady or posted gains in total industry
employment, even if they have lost Big Three jobs. Some southern states, notably
Kentucky and Tennessee, have been the largest net gainers of jobs in the industry.
The transplant vehicle manufacturers virtually all began and have remained nonunion; the United Auto Workers (UAW) union has lost more than half its members
since 1979 — from 1.5 million to less than 700,000. Big Three representatives state
that they are now burdened with health care and pension costs of as much as $1,500
per vehicle in competing with foreign-based companies and have sought tax relief
from Congress to alleviate this disadvantage.
The global industry also has changed. In North America, there has been
regional consolidation, enabled by trade policy changes leading to the North
American Free Trade Agreement of 1994. Congress approved a federal bailout of
Chrysler in 1979 and forced the Reagan Administration to negotiate quotas on
imports from Japan in the 1980s. Nevertheless, the overall U.S. deficit in automotive
trade widened from $9 billion in 1979 to more than $100 billion annually since 2000.
Acting under World Trade Organization rules, the United States has pressed Japan,
Korea and China, among others, to reduce their automotive trade and investment
barriers.
Fuel economy and environmental issues in the automotive industry have also
been subjects of major concern in Congress, and these issues have had important
effects on the motor vehicle market. Currently, the manufacturers are suing
California to prevent its regulation of emissions of carbon dioxide and other
greenhouse gases, which they claim is preempted by federal statute. This report will
be updated as warranted by developments.
Contents
Introduction and Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Developments in the U.S. Domestic Automotive Industry . . . . . . . . . . . . . . 2
The Automotive Industry in the International Context . . . . . . . . . . . . . . . . . 4
Impact of Fuel Economy and Emissions Standards . . . . . . . . . . . . . . . . . . . . 6
Automotive Industry Outlook and Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Recent Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Policy Issues for the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Pension and Health Care Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Currency Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Labor Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Fuel Economy and Emission Standards . . . . . . . . . . . . . . . . . . . . . . . . 10
Pickup Trucks in U.S.-Thailand Free Trade Agreement (FTA) . . . . . 11
Broader Issues of Automotive Trade Policy . . . . . . . . . . . . . . . . . . . . 11
North American Industry Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Size and Growth of the U.S. Automotive Industry . . . . . . . . . . . . . . . . . . . 11
Consolidation of the North American Industry . . . . . . . . . . . . . . . . . . . . . . 18
Rise of International Investment in North America . . . . . . . . . . . . . . . . . . . 23
Big Three Lead in Light Trucks — Transplants Grow Rapidly . . . . . . . . . 27
Shifts in Employment Among Companies . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Changes Among States in Automotive Employment . . . . . . . . . . . . . . . . . 32
Divergence in Labor Relations Organization . . . . . . . . . . . . . . . . . . . . . . . . 37
Pension and Health Care Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
U.S. Automotive Trade: Data and Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . 46
Growth of Foreign-Based Competition in the U.S. Market . . . . . . . . . . . . . 46
The Changing U.S. Automotive Trade Balance . . . . . . . . . . . . . . . . . . . . . . 51
NAFTA Automotive Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Trade with Other Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Development of Trade Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
The Chrysler “Bailout” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
The 1980 Safeguard Case on Foreign Imports . . . . . . . . . . . . . . . . . . . 55
Voluntary Export Restraints on Japan . . . . . . . . . . . . . . . . . . . . . . . . . 56
U.S.-Japan Autos and Auto Parts Issue in the 1990s . . . . . . . . . . . . . . 57
American Automobile Labeling Act (AALA) . . . . . . . . . . . . . . . . . . . 58
U.S. Initiatives Against Automotive Trade Barriers . . . . . . . . . . . . . . 59
Thailand Free Trade Agreement and U.S. Pickup Truck Tariff . . . . . 61
Exchange Rates and Automotive Trade Issues . . . . . . . . . . . . . . . . . . 62
Globalization of the Automotive Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Globalization and the U.S. Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Global Performance of Automotive Manufacturing Companies . . . . . . . . . 67
Performance by Producing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
The Global Automotive Supplier Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Fuel Economy and Emissions Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Fuel Economy Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Structure of CAFE System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Alternative Fuel Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Safety Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Effects of CAFE on the Auto Industry . . . . . . . . . . . . . . . . . . . . . . . . . 90
Current Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Emissions Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Effects of Emissions Standards on the Auto Industry . . . . . . . . . . . . . 95
Fuel Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Current Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
List of Figures
Figure 1. U.S. Automotive Industry Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 2. Real Output of Automotive and Total Manufacturing . . . . . . . . . . . . 14
Figure 3. U.S. Employment in Automotive Manufacturing . . . . . . . . . . . . . . . . 15
Figure 4. U.S. Total and Automotive Manufacturing Employment . . . . . . . . . . 16
Figure 5. Location of North American Motor Vehicle Production . . . . . . . . . . . 22
Figure 6. Production in North America by Type of Company . . . . . . . . . . . . . . . 24
Figure 7. U.S. Car and Light Truck Production by Manufacturer . . . . . . . . . . . . 28
Figure 8. Total Car and Truck Production by Company Type . . . . . . . . . . . . . . . 29
Figure 9. U.S. Motor Vehicle Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Figure 10. U.S. Trade Balance in Automotive Products . . . . . . . . . . . . . . . . . . . 52
Figure 11. Sales of Foreign Affiliates of U.S. Automotive Manufacturers . . . . . 65
Figure 12. Sales of U.S. Affiliates of Foreign Automotive Manufacturers . . . . . 67
Figure 13. Major Motor Vehicle Production Countries and Regions . . . . . . . . . 75
Figure 14. U.S. Consumption of Total Energy by End-Use Sector . . . . . . . . . . . 84
Figure 15. Annual Passenger Vehicle Fuel Use, 1970-2000 . . . . . . . . . . . . . . . . 85
Figure 16. Estimated Consumption of Vehicle Fuels, 2003 . . . . . . . . . . . . . . . . 89
Figure 17. U.S. Transportation Emissions, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 94
Figure 18. Pollutant Emissions from Highway Vehicles, 1970-2002 . . . . . . . . . 94
List of Tables
Table 1. Employment by Automotive Manufacturing Categories . . . . . . . . . . . . 17
Table 2. Leading States in Automotive Employment . . . . . . . . . . . . . . . . . . . . . 33
Table 3. U.S. Motor Vehicle Sales by Manufacturer . . . . . . . . . . . . . . . . . . . . . 49
Table 4. Selected Leading Global Motor Vehicle Producers . . . . . . . . . . . . . . . 70
Table 5. Automotive Industry Supplier Location . . . . . . . . . . . . . . . . . . . . . . . . . 79
Table 6. Leading Automotive Parts Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Appendix Table 1. North American Vehicle Production, by Country . . . . . . . . 97
Appendix Table 2. North American Motor Vehicle Production by Company . . 98
Appendix Table 3. U.S. Motor Vehicle Production by Company Type . . . . . . 100
Appendix Table 4. U.S. Motor Vehicle Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Appendix Table 5. Details of U.S. Automotive Trade . . . . . . . . . . . . . . . . . . . 102
Assistance in providing data, graphs and tables by John Williamson, Information Resources
Specialist.
U.S. Automotive Industry: Recent History
and Issues
Introduction and Key Findings
In the immediate post-World War II era, the auto industry was seen as both a
pillar and a beneficiary of American growth and economic achievement. General
Motors Chairman Charles Wilson proclaimed in the 1950s, “What’s good for the
country is good for General Motors, and vice-versa.” More than half the automobiles
sold in the United States were then produced by General Motors (GM). Its
organizational genius, Alfred Sloan, had succeeded in creating a company that built
cars “for every purse and purpose,” as opposed to the original concepts of Ford, the
first icon of automotive mass production, whose sole major product for 20 years, the
Model T, was “any color you wanted, as long as it was black.”1 The other “Big
Three” producers of the postwar era, Ford and Chrysler, together with the stillsurviving lesser domestic manufacturers (American Motors, Studebaker-Packard and
Kaiser), built a range of vehicles that met every consumer need. Among foreign
producers, only Volkswagen and a few luxury and sports cars had even small niches
in the U.S. marketplace.
From this once-dominant position in the domestic market, the Big Three today
produce less than 60% of all automobiles and light trucks sold in the United States.
Their market share has been steadily declining. The Big Three developed a
consumer-oriented light truck product, the “sports utility vehicle” (SUV), which
market they still dominate, but Japanese and German-based manufacturers have been
making major inroads in this class as well. Moreover, to some critics the Big Three
have been on the wrong side of every environmental, safety and social issue, from
opposition to the Clean Air Act, corporate average fuel economy (“CAFE”)
standards, and mandatory seat belt requirements in the 1960s and 1970s, to slowness
in developing alternative fuel vehicles today.2
The Big Three are still the largest domestic producers, but one of them,
Chrysler, is a subsidiary of DaimlerChrysler, a German-controlled and managed
company. The smaller U.S. producers have all disappeared, and imports, especially
from Asia, have surged. The smaller manufacturers have been replaced in the
1
Although, “in its first five years of production the Model T could be had in red, green, gray
or dark blue as well as basic black.” Ford pared its vehicle color choices down to black to
reduce costs and production time. Douglas Brinkley, Wheels for the World (New York:
Penguin Books, 2003), pp. 129, 181-82.
2
Graeme P. Maxton and John Wormald, Time for a Model Change (Cambridge, U.K.: CUP,
2004), pp. 60-61.
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domestic market by “transplanted” units of Japanese, German and Korean
companies, which now build in North America significant and increasing shares of
their vehicles that are sold in the United States. Most of the major companies now
compete globally, through cross-ownership and investment in manufacturing plants
more than through trade in finished vehicles. They also compete through what a
2004 Commerce Department report described as “global supply chains:”
Whereas U.S. automobile manufacturers once provided a ready market for many
domestic suppliers of parts and components, the manufacturers now operate on
a global basis. Thus, automotive parts suppliers must now find niches in the
global supply chains of U.S. auto companies or their foreign competitors to
succeed in today’s market ... The possibility of relying on increased auto sales
that automatically translate into increased orders and components for U.S.
suppliers simply no longer exists.3
Developments in the U.S. Domestic Automotive Industry
The U.S. automotive manufacturing sector is large and dynamic,
but its structure is changing. Whatever changes are occurring globally or
within the domestic market, production and sales in the United States remain at
historically high levels. The overall picture of North American production is,
however, accompanied by tension within the industry created by the entrance of new
international competitors as domestic manufacturers. Growth has been due in part
to internationally based companies (“transplants,” especially from Japan) investing
in the North American market initially as a substitute for importing, while the Big
Three struggled with downsizing issues. With growing automotive manufacturing
capacity elsewhere, especially in Asia, there are concerns that the motor industry may
be creating a problem of global overcapacity. The result could be accelerating
rationalization and industry closures, which could have especially negative
consequences for the Big Three and their U.S. employees.
Such changes do not necessarily portend a declining automotive industry in the
United States. Gross output in the U.S. automotive manufacturing sector in 2004,
including motor vehicle parts, trailers, bodies and heavy trucks, was $424 billion
(current dollars). That was the largest output of any durable goods manufactured
product grouping measured by the Commerce Department Bureau of Economic
Analysis (BEA).4 Although annual U.S. motor vehicle output has moved up and
down since 2000, the automotive industry still grew faster than domestic
manufacturing overall in 1990-2003. Real output has increased 55% since 1990,
compared to 35% for manufacturing as a whole. But the balance of production
between traditional, Big Three manufacturers and foreign-owned transplants has been
shifting in favor of the latter, and that shift has recently been accelerating.
3
4
U.S. Department of Commerce. Manufacturing in America (January 2004), pp. 29-30.
For a discussion of why gross output, rather than value added, is used to measure the total
size of the automotive manufacturing sector, see below in this report, p. 12.
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The automotive sector employs more people than in 1990, while
employment in overall domestic manufacturing significantly declined.
The Big Three-dominated automotive manufacturing sector struggled in the 1980s,
and shed hundreds of thousands of jobs. But between 1990 and the end of that
decade, while employment growth in the rest of manufacturing was just about flat,
automotive manufacturing employment increased almost 25%, or about 250,000 jobs.
Despite an employment decline in the industry in 2001-2004, there were still 55,000
more people employed in automotive manufacturing than in 1990, while
manufacturing in general lost more than three million jobs over the whole period.
This report examines how the strategies of both the Big Three and the transplants
have contributed to maintaining or increasing employment.
There appears increasingly to be two U.S. automotive industries
based on organization of the labor force: the traditionally unionized Big
Three and the foreign-owned “transplants,” which are mostly nonunion. The Big Three assembly plants are all organized by the United Auto
Workers (UAW) union.5 The Big Three have reduced direct employment by about
600,000 jobs since 1979. Many of these jobs have been shifted to specialized parts
suppliers, who employ far more people than the vehicle manufacturers. The two
largest are the parts manufacturing spinoffs from formerly integrated Big Three
companies (Delphi from GM, Visteon from Ford). Both companies are still
organized by the UAW. The UAW has also obtained “benevolent neutrality”
agreements, whereby the Big Three promise not to encourage suppliers to oppose
unionization, and agreements under which the Big Three promise to give fair
consideration to sourcing manufacturing activities in-house rather than from outside
suppliers. As the Big Three have lost market share in recent years, the UAW has
experienced a serious membership decline — from 1.5 million in the late 1970s, to
less than 700,000 today.
There are few union shops among the transplant assembly operations. The
transplants have encouraged direct investment from their traditional home country
suppliers into the United States, as well as development of local supplier networks.
Based on U.S. official foreign investment data, we estimate that foreign-owned
automotive companies by 2002 employed about one quarter of the 1.1 million
workers in automotive manufacturing in the United States, not counting the
employees of the Chrysler Group of DaimlerChrysler.
The bifurcation of the industry has led to serious competitive cost
issues for the Big Three manufacturers. The Big Three maintain that paying
pension and health care costs for retirees, as negotiated under union contracts over
past decades, may cost $1,500 or more per vehicle produced today. The Big Three
have supported both health care and tax policy changes in Congress that would have
alleviated this burden, but such changes have not been passed into law.
Moreover, the Big Three have contracts with the UAW that require them to pay
employees and provide benefits, even when production lines are not operating. In the
5
The full name is the United Automobile, Aerospace and Agricultural Implement Workers
of America, but its shorter abbreviation and title are commonly used.
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period after the September 11, 2001, terrorist attacks in New York and Washington,
they kept their factories producing vehicles and used big consumer incentives to keep
selling those vehicles. But GM and Ford have begun to lose market share in the
United States nevertheless. This strategy was initially profitable and helped the
country pull out of the recession of 2001, but now Ford and GM have begun to lose
money in their North American automotive operations. The three largest Japaneseowned companies in the United States, Toyota, Honda and Nissan, are all currently
profitable and have held or increased market share in recent years.
“Card checks” are a key strategy for the UAW in trying to regain
members. The UAW is seeking to maintain its active membership level by
insuring that the Big Three do not outsource parts supply jobs to non-union
operations. They are aggressively using a “card check” approach to try to expedite
organizing activities at independent parts-making companies. Under a card check
system, employers may recognize a union as representing employees at a facility for
collective bargaining purposes, once a majority of the employees have signed a card
authorizing the union to represent them, as opposed to formal elections supervised
by the National Labor Relations Board (NLRB).
The UAW so far has failed to organize any transplant assembly operations that
are independent of links to the Big Three. The use of card checks is also under legal
challenge before the NLRB. The UAW and the AFL-CIO have supported legislation
in Congress that would clarify the legality of the use of card checks in establishing
union representation.
The changes in the structure of the U.S. automotive industry and
the decline in the market share of the Big Three has most adversely
affected Michigan and the Northeast. The core of the U.S. industry, including
its major supplier base, is shifting from the traditional Midwest “auto belt” to the
Sunbelt, and to other locations in the South and West. Michigan has lost a minimum
of 100,000 jobs since the peak of automotive manufacturing employment in the late
1970s. Losses in other midwestern states appears to have been offset by the shift of
production jobs from the Big Three to outside suppliers and by increased inward
foreign direct investment. Ohio, Illinois and Missouri may have marginally gained
or lost automotive jobs, and Indiana appears to be a significant net gainer. Major
northeastern industrial states, particularly Pennsylvania, New York and New Jersey,
have lost automotive jobs as the Big Three have rationalized suppliers and assembly
plants. Kentucky and Tennessee have been the biggest job gainers, while South
Carolina, Alabama, North Carolina and Texas have all gained automotive
employment. Shift of jobs away from the Midwest may have been reduced by the
widespread adoption of “just-in-time” manufacturing, modern trucking supply
strategies and the development of interstate highways, which typically enable parts
manufacturers to supply assembly plants up to 400 miles away.
The Automotive Industry in the International Context
The domestic automotive industry is completely integrated within
North America. Trade barriers affecting vehicles and parts production within
North America have been eliminated by successive trade agreements, culminating in
the North American Free Trade Agreement (NAFTA). After producing about 12
CRS-5
million vehicles annually in the late 1970s, the U.S. domestic industry went through
cyclical periods of decline and recovery, and next reached that level again in 2000.
It has subsequently declined somewhat from that total. Canada during this period has
increased production from less than two million units per year to an average of nearly
three million; Mexico has increased from less than half a million to about two million
annually. Each of the Big Three, and now most of the transplants, have vehicle
assembly plants in each of the three countries.
The U.S. automotive trade deficit in 2004 was nearly $150 billion.
The deficit has grown from less than $10 billion in 1979 to $150 billion, despite high
levels of inward investment by foreign-brand manufacturers, and a decline in imports
relative to vehicles built at transplant assembly facilities. U.S. policies in the 1980s,
aimed at requiring foreign-owned companies to produce here more of the vehicles
that they sell in the United States, and other policies aimed at heightening consumer
awareness about imported vehicles and parts, such as the American Automobile
Labeling Act, appear to have had little effect on the growth of this sectoral trade
deficit.
About $40 billion of the automotive trade deficit is with the NAFTA partners;
the United States has a large deficit in vehicles with these two countries, though as
of 2004 it had a small surplus in automotive parts. The United States had a deficit
of more than $30 billion with the European Union, where exports of U.S.-made
vehicles and parts of more than $10 billion were more than offset by imports in both
categories. The largest component of the deficit was bilateral trade with Japan, from
which U.S. imports were more than $48 billion, and U.S. exports were about $2
billion. The United States also imported nearly $12 billion in vehicles and parts from
Korea, with less than $1 billion in exports. China’s role in the automotive trade
deficit in 2004 was relatively insignificant, though imports of parts from that country
are rising.
Automotive trade issues have had a high priority in U.S. trade
policy since the early 1980s. In the wake of the Chrysler bailout and the
unsuccessful effort of Ford and the UAW to request that the U.S. International Trade
Commission (ITC) establish import safeguards protection, the focus of this policy
was on rising levels of imports. Responding to congressional pressures and the
request of the Reagan Administration, the Japanese government formally agreed to
voluntary export restraints (VER) and Japanese companies began to undertake
investments here. The policy shifted in the 1990s to focus more on opening the
Japanese market to imports of motor vehicles and parts from the United States and
other countries. This effort culminated in a U.S.-Japanese bilateral agreement in
1996.
With the establishment of the World Trade Organization (WTO) in 1995, U.S.
policy shifted again to focus more on multilateral pressure against trade-related
investment measures and other barriers aimed at creating protected automotive
markets for domestically established manufacturers in many of the industrializing
countries. The United States has brought or participated in trade cases against such
countries as Brazil, India, Indonesia, Korea and the Philippines. Criticism from the
United States and other WTO members of China’s official policy on the automotive
industry led to establishment of a new automotive development policy in 2004 in that
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country, though it is not clear if implementation of that policy will be free from all
violations of WTO rules. The United States has also proposed that elimination of
nontariff barriers to trade in motor vehicles and parts be added to the agenda of the
WTO Doha Round of negotiations on revised trade rules.
Meanwhile, inauguration of free trade talks between the United States and
Thailand has led to concerns in Congress that one result could be duty-free entry into
the U.S. market of pickup trucks made in that country, the world’s second-largest
producer. Since 1963, the United States has maintained a high tariff on imported
pickups. Many in Congress are concerned that Japanese and Korean manufacturers
could evade this duty by importing trucks made at their Thai facilities.
Globalization means major changes for the U.S. automotive
industry and its suppliers. The largest motor vehicle markets for the foreseeable
future are the advanced industrial countries, where vehicle sales have been slow (or
even negative) during the past fifteen years. The fastest growth has been in certain
large developing countries, or countries in transition from planned to capitalist
market economies (namely, China, India and Russia). Some analysts believe that
there is already excess capacity in the global market, and that capacity will increase
out of proportion to new demand from developing markets. The major motor vehicle
manufacturers, especially including Ford and GM, increasingly source their vehicles
from manufacturing facilities in the regions where they are sold, in part due to
differing customer demands and tastes. As the vehicle manufacturers globalize and
rationalize their supply base, the impact on the U.S. auto parts manufacturing base,
which employs several times as many people as the vehicle manufacturers
themselves, could be the closure of many companies and facilities. With the Ford
and GM market share in North America having declined, a large number of major
U.S. automotive suppliers are in financial difficulties. Moreover, many of the
historically independent suppliers who sold directly to the Big Three, or indirectly
through “Tier 1” suppliers, may lack the scale to be competitive in the global market.
Impact of Fuel Economy and Emissions Standards
Environmental issues, including vehicle emissions, fossil fuel consumption, and
resource use, have played an increasing role in shaping the U.S. auto industry.
Environmental decisions play a key part in automotive design, research and
development of new vehicles, and marketing to consumers.
Fuel economy standards have been effective in reducing energy
consumption, but have had a significant effect on U.S. auto
manufacturing. Corporate average fuel economy (CAFE) standards are estimated
to have reduced fuel consumption by as much as one-third from what it otherwise
would have been. Undoubtedly, the standards have significantly affected vehicle
design, as well as manufacturing and marketing decisions. However, because of
separate standards for passenger cars and light trucks, as well as distinction between
imported and domestic vehicles, the current standards likely have had differential
effects on various manufacturers. Further, any future changes to the CAFE system
would likely leave some manufacturers better positioned than others.
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While individual manufacturers may have been advantaged or disadvantaged by
the current CAFE system, the total effects of CAFE on U.S. auto industry
employment and output seem to be limited, according to an analysis by the National
Research Council. However, CAFE standards have affected the ownership of U.S.
manufacturing plants, if not the total level of employment.
Emissions standards have directly affected the automotive industry
over the past four decades and this effect may increase. Highway vehicle
emissions have dropped dramatically over the past few decades. For example,
allowable nitrogen oxide emissions from passenger cars have been cut by roughly
70% from 1980 levels. They will be cut further with the introduction of the Tier 2
light-duty vehicle standards set by EPA.
Like CAFE standards, the emissions standards may give a competitive
advantage to some manufacturers over others. On average, smaller vehicles with
smaller engines tend to emit less than larger vehicles with larger engines. Therefore,
those manufacturers that produce larger vehicles may have more difficulty and may
likely need to invest more to comply with the standards. Furthermore, as the Tier 2
standards eliminate separate treatment for passenger cars and light trucks, the effects
on large vehicle producers may increase. Therefore, auto makers that focus on small
cars may have a competitive advantage over manufacturers that produce a larger
proportion of light trucks.
California’s Greenhouse Gas Rule may be the most significant
current issue regarding automotive fuel economy and emissions
standards. California adopted regulations in 2004 to require a reduction of
greenhouse gas emissions of 30% by 2016 in passenger vehicles. There are no
current federal standards for greenhouse gas emissions, and critics of the regulation
maintain that greenhouse gases (including carbon dioxide) are not pollutants under
the federal Clean Air Act. Thus, they argue that the greenhouse gas standard is a de
facto fuel economy standard, and they maintain that reducing emissions of carbon
dioxide — the key greenhouse gas — requires reductions in fuel consumption.
Opponents of the rule argue that authority to set fuel economy standards rests solely
with the federal government.
The California rule has been challenged in court. The Big Three and many
international auto manufacturers oppose the California rule. California officials
maintain that they have the authority under the Clean Air Act to regulate vehicle
greenhouse gas emissions. The outcome of this case could have major effects on the
U.S. auto industry as California is a major vehicle market, and some other states are
likely to adopt the California standards if upheld.
Automotive Industry Outlook and Policy Issues
The prospects for the automotive industry in the United States are mixed. Sales
have been maintained at a high level since 2000, although only by liberal use of
manufacturers’ incentives — and neither sales nor total production has grown since
then. Heavy use of incentives, especially by GM and Ford, have promoted sales
CRS-8
since 2001, but at the price of reducing current profits and future demand. If
companies continue promoting sales through financial incentives, then higher interest
rates, which are widely expected in financial markets, will raise the cost of incentives
and further reduce earnings. Big Three earnings have also been adversely affected
by “legacy costs,” such as rising contributions to pension funds and retiree health
care. Thus, the prospects for this industry as 2005 began were not as robust as in
many other sectors.6
However, GM and Ford were profitable overall in 2004, despite declines in
domestic market share, losses on U.S. automotive operations, legacy costs, and
problems in Europe.7 Chrysler has overcome annual losses of as much as $3 billion
in recent years, has introduced successful new products in North America, and
increased both sales and market share in 2004.
All three leading Japanese transplant producers (Honda, Toyota and Nissan) are
operating profitably in the U.S. market, and Toyota and Nissan scored double-digit
percentage sales increases in 2004. Hyundai, the remaining independent Korean
manufacturer, is opening a major new manufacturing plant in Alabama in 2005,
while the Ford-Mazda plant in Michigan will produce the new Mustang, whose sales
forecasts are strong. At the end of 2004, even the Japanese companies were using
incentives on popular models, as consumers had come to expect them. However,
their incentives were much lower per vehicle, than those offered by GM and Ford.8
Among foreign-brand motor vehicle manufacturers, only Volkswagen, which does
not assemble cars in the United States, and Mitsubishi have experienced major
declines in sales in 2004. These two companies’ problems are linked to global
competition and management issues, not confined to the U.S. market.
Recent Legislation
In terms of legislative action, the final version of the major corporate tax bill
(P.L. 108-357, the American Jobs Creation Act of 2004), which passed at the end of
the 108th Congress, saw deletion of some provisions that were favorable to the
automotive industry, or at least to parts of it. The legislation as passed:
!
Deleted tax credits that had been proposed of up to $4,000 for
purchase of gasoline-electric hybrid vehicles, and up to $8,000 for
purchase of fuel cell-powered vehicles;
6
Business Week, “Borrowing from the Future,” analysis of automotive sector in special
“Outlook” section (Jan. 10, 2005), p. 100.
7
GM stock values and creditworthiness were reduced in March 2005, however, when CEO
G. Richard Wagoner announced the company would lose money in the first quarter,
followed by reduced earnings the rest of the year; Greg Schneider, “General Motors CEO
Takes over American Unit,” Washington Post (Apr. 5, 2005), p. E2.
8
According to Autodata information reproduced in ibid., GM incentives per automobile in
March 2005 averaged more than $4,000 per vehicle, Ford and Chrysler averaged more than
$3,000, while Nissan averaged $2,000, and Toyota and Honda about $1,000. See also
Detroit Free Press, “Auto Industry Report: Japanese Use Incentives” (Jan. 7, 2005).
CRS-9
!
!
Eliminated a proposed two-year deferral of taxes, supported by the
National Automobile Dealers Association, on payments by GM to
Oldsmobile dealers, who lost their franchises when the company
discontinued that brand — the deferral would have allowed dealers
to reinvest the payments and would reportedly have been worth an
average of $67,000 per dealer;
Reduced the amount that business persons can deduct from their
taxable income in one year for purchases of large SUVs — the
amount was lowered to $25,000, although the full, original
deduction of up to $100,000 remains in effect for large pickups and
vans used in businesses.9
Policy Issues for the 109th Congress
While the automotive industry in the United States may not be in a crisis, the
109th Congress may address a number of policy issues that deal with the subject of
equitable competition, both internationally and in the domestic market.
Pension and Health Care Issues. A report issued on behalf of the Big
Three stated that their ageing work forces, increasing numbers of retirees and
generous health care benefits impose an average cost of at least $1,200 per vehicle
in 2004, compared to little or no “legacy” costs of this type for transplant producers.
The Big Three, along with the UAW, supported amending tax legislation in the 108th
Congress to give manufacturers tax credits for health care payments for older workers
and retirees, but no such amendment or separate legislation was introduced. This
subject could again become a legislative issue in the 109th Congress.
Currency Exchange Rates. The Automotive Trade Policy Council,
representing the Big Three, has complained that exchange market intervention by
Japanese monetary authorities has frequently prevented market forces from
appreciating the yen and thus make it easier for the Big Three to compete against
imports from Japan. At the end of 2001, the value of the dollar was about 132 yen.
It fell to nearly 100 by the end of the first quarter in 2004, the last period of publicly
acknowledged intervention by Japan. The dollar by April 2005 was a little above that
level.
More broadly, many U.S. manufacturers, including automotive suppliers, have
pressed for a revaluation of China’s currency, the yuan, which has been fixed at 8.28
per dollar for a decade. As China’s bilateral trade surplus has risen with the United
States rapidly during this period, they have pressed to secure a currency realignment
that would be more reflective of China’s competitiveness. At least ten legislative
measures were introduced in the 108th Congress that addressed this issue. One
industry coalition filed a petition urging the Bush Administration to take action under
Section 301 of U.S. trade law, and another threatened to do so. The Bush
Administration did not accept such petitions in 2004, as its representatives stated that
it was not appropriate to address exchange rate issues with trade policy instruments.
9
Automotive News: Harry Stoffer, “Tax Bill Losses Outnumber Wins” (Oct. 11, 2004); and,
(editorial) “Congress Closed 3 Auto Loopholes — Good Riddance” (Oct. 18, 2004).
CRS-10
Instead the Administration pressed China in consultations to adopt a more flexible
exchange policy.10
In the 109th Congress, a provision to address the China currency revaluation
issue was introduced as Section 321 of S. 14, a broad bill introduced by Senator
Debbie Stabenow and 13 co-sponsors, addressing job creation, fair trade,
competitiveness and other issues. It would mandate that a 27.5% tariff be applied to
imports from China, unless the President could certify within six months that China,
following negotiations required in the legislation, had either made efforts to revalue
its currency upward or was no longer accumulating foreign reserves to prevent
appreciation of its currency against the dollar. S. 295, introduced by Senator Charles
Schumer and 13 co-sponsors, imposed the same level of duty on imports from China,
unless the President certified that China is no longer manipulating its exchange rate
and had adopted market-based trading policies. A version of this legislation was
added as an amendment to S. 600, the Foreign Affairs Authorization Act, on April
6, 2005, when the motion to table failed on a vote of 33-67. Subsequently, it was
reported that the amendment would be stripped from that legislation, with a promise
by the Senate leadership to Senator Schumer that he would receive a floor vote on S.
295 by July 27, 2005.11 On the House side, Representatives Tim Ryan and Duncan
Hunter with 35 cosponsors introduced on April 6, 2005, H.R. 1498, which would
approach this issue in a different way. H.R. 1498 would clarify existing U.S. trade
law to allow remedies to be sought against imports from China that are shown to
benefit from Chinese government exchange rate manipulation.
Labor Representation. Decisions on whether to allow union representation
to be determined by the card check process, as described in the previous section, at
plants owned by automotive parts suppliers are pending before the NLRB.
Legislation introduced in the 108th Congress would have validated the card check
process by law. It may be anticipated that similar legislation would be introduced
again, especially if the NLRB took a negative position regarding card checks.
Fuel Economy and Emission Standards. Requiring higher fuel economy
standards, and establishing a different process for setting such standards for SUVs
and other light trucks, were issues debated in the context of energy legislation in the
108th Congress. With the world price of oil in early 2005 at times exceeding $55 per
barrel, and with no comprehensive energy bill having been passed, these issues may
10
The Sec. 301 petition of the China Currency Coalition was covered especially in
American Metal Market, “Tired of ‘Tacit’ Nod, US Group Confronts China on Currency”
(Sept. 10, 2004), p. 1, and “China Currency Plea Falls on Deaf Ears” (Sept. 13, 2004 print
ed.), p. 2. On Administration policy, see DER, “Treasury’s Speltz Says China Should Make
Exchange Rate Flexible” (Sept. 14, 2004), p. A-9. For the CRS analysis, see CRS Report
RL32165: China’s Exchange Rate Peg: Economic Issues and Options for U.S. Trade Policy.
The China currency issue in the 108th Congress, including legislative proposals, were
summarized in Gary C. Hufbauer and Yee Wong, “China Bashing 2004,” International
Economic Policy Brief PB04-5, Institute for International Economics (Sept. 2004), pp. 4-9
and App. 1-2.
11
Congressional Record, April 6, 2005, pp. S3248-53; Greg Hitt, “Senate Slams China
Currency Policy,” Wall St. Journal (Apr. 7, 2005), p. A2; R.K. Morris, “Editor’s Letter:
China Alarm,” Global Positions Notebook (Apr. 11, 2005).
CRS-11
be addressed again in the 109th Congress. In addition, California has proposed
emission standards for carbon dioxide and other greenhouse gases. The vehicle
manufacturers have brought suit in federal court, claiming that the U.S. Clean Air
Act allows California only to regulate specifically identified pollutants, not other
emissions, and that the proposed standard is a de facto fuel economy standard, on
which state action is specifically preempted by federal law.
Pickup Trucks in U.S.-Thailand Free Trade Agreement (FTA). In the
FTA it is negotiating with the United States, Thailand is seeking to remove the
general U.S. 25% import duty on pickup trucks that it would export here. Most Thaimade pickups are built by local affiliates of Japanese and Korean companies. U.S.
Big Three manufacturers oppose duty-free entry of pickup trucks from Thailand,
outside the context of a broader trade agreement that addresses what they believe are
continuing trade restrictions on automotive imports in Japan and Korea. Resolutions
were introduced in the 108th Congress that any FTA with Thailand should not include
duty-free access for Thai-made pickup trucks to the U.S. market. A letter co-signed
by 40 senators in March 2005 in support of this position indicates that this will
continue as an issue in the 109th Congress.
Broader Issues of Automotive Trade Policy. The U.S. government has
been active in WTO cases aimed at removing foreign government trade restrictions
and policies that have distorted trade in motor vehicles and parts. These included
cases in which countries such as Brazil, India, Indonesia and the Philippines had
discriminatory policies to require domestic content in locally made vehicles,
subsidize exports, or restrict imports as part of national automotive development
strategies. The Administration is continuing to review implementation of a new and
less prescriptive automobile policy in China. It is working with Korea in an effort
to change features of that country’s tax policies that discriminate against imported
vehicles. It is continuing to monitor policies in Japan that affect the establishment
and activities of foreign-owned vehicle and parts manufacturers. Tying all these
approaches together, the Administration in early 2005 proposed including a wideranging approach to elimination of automotive trade restrictions as part of the
ongoing Doha Round negotiations on revising WTO rules.
North American Industry Profile
Size and Growth of the U.S. Automotive Industry
Figure 1 illustrates the growth of the U.S. motor vehicle manufacturing industry
since the late 1970s, in terms of gross output as reported by the Bureau of Economic
Analysis (BEA) of the Department of Commerce. In current dollars, the industry has
expanded from just over $100 billion per year in the late 1970s to nearly $500 billion
in 1999, which is still the all-time peak. Gross output declined in 2000-01, rose to
$436 billion in 2002, but then fell again slightly to $424 billion in 2004. The motor
vehicle industry is defined in this figure to include automotive parts manufacturing.
It also includes heavy trucks, truck trailers, mobile homes, travel trailers and
campers, not just automobiles, light trucks and parts, which are the focus of this
CRS-12
report. But 92% of 2003 total industry output as shown in Figure 1 was accounted
for by the principal subjects of the present report.
Figure 1. U.S. Automotive Industry Output
500
Gross Output in Billions of Current Dollars
400
300
200
100
0
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Source: Department of Commerce. Bureau of Economic Analysis. “1947-1997 Historic SIC Data” and “1998-2003 NAICS
Data Gross Output by Industry.”
Note: SIC 371 (Motor Vehicles and Equipment), 1977-88; NAICS 3361 (Motor Vehicles); NAICS 3362 (Motor Vehicle
Bodies and Trailers); and NAICS 3363 (Motor Vehicle Parts), 1987-2003.
Gross output is used in this report as the most accurate measure of the scale of
the industry. Gross output includes the value of intermediate inputs as well as that
of the final assembly process, whereas gross domestic product originating in the
motor vehicle industry, a common measure, reflects only the value added by final
assembly. Intermediate input production, whether done by nameplate assemblers or
by suppliers, is an integral part of this industry, as these inputs are specifically
designed for automotive applications. Gross output excludes imported or exported
intermediate inputs.12 The gross output of automotive manufacturing represented
10.8% of the total gross output of U.S. manufacturing in 2003.
Through 1997, the industry is defined for statistical purposes as Standard
Industrial Classification (SIC) category 371, “motor vehicles and equipment.”
Beginning in 1998, the Commerce Department switched to the North American
Industry Classification System (NAICS), and it has subsequently recalculated
industry output on the NAICS basis back to 1987. In this report, the domestic
automotive industry since 1987 is defined as including the categories of motor
vehicles (NAICS 3361), separately produced motor vehicle bodies (NAICS 3362),
and motor vehicle parts (NAICS 3363); these are commonly combined in BEA data
12
Definition of terms as applied by the U.S. Department of Commerce, Bureau of Economic
Analysis (BEA); information from discussions with Robert McCahill, BEA Office of
Industry Analysis, July 23, 2004.
CRS-13
as “motor vehicles, bodies and trailers, and parts.” Under the NAICS system, using
these definitions, industry output is somewhat higher than on the basis of SIC 371,
because NAICS 3363 incorporates products that were previous included under nonautomotive categories (for example, automotive air conditioning equipment).
However, the SIC and NAICS automotive data track closely enough that they are
presented here as a single output series. The one-time switch from SIC to NAICSbased industry definition partially explains most of the jump in output in 1987 to
$241 billion from $198 billion the previous year.
Figure 2 illustrates the growth of U.S. automotive industry output on a real
basis since 1977, and compares it to overall U.S. real growth in manufacturing
output.13 The figure illustrates that U.S. automotive manufacturing did not grow as
strongly as U.S. manufacturing overall between 1979 and 1990, but did outperform
manufacturing in general from 1990 to 2000. The principal reason for this higher
relative rate of automotive growth, detailed examination later in the report will show,
is increased output from new plants owned by foreign-based manufacturers, the socalled “transplants.”
Inflation-adjusted output in the automotive sector increased about 75% between
the late 1970s and 1999, some of which may be accounted for by the definitional
change from SIC to NAICS. The figure shows the sensitivity of the industry to the
business cycle, with declines in the real value of output during recessionary periods
in the early 1980s, the early 1990s, and 2000-01 (starting even before the recession
in the latter year). Growth resumed in 2002, but real output again fell slightly in
2003, leaving the industry 13% behind where it was in 1999. Overall, from 1977 to
2003, the inflation-corrected real dollar value of the sector increased by less than 2%
per year. But as the number of major motor vehicle assemblers operating in the
United States increased significantly, this implies possibly smaller profit margins and
downsized workforces for some manufacturers.
Before 1990, the growth in real domestic automotive output was weaker than
the rate of overall real manufacturing output growth; the industry barely recovered
from the recession of the early 1980s, before the next recession was upon it. Since
1990, automotive industry output has outperformed the rest of the manufacturing
sector of the economy. The inflation-adjusted index for all manufacturing increased
by 31.5% between 1977 and 1990. For the automotive sector, the net change was
essentially zero from 1977 to1990. It is true that automotive output peaked one year
earlier than total manufacturing, but even at the 1989 peak, the level was less than
10% higher than in 1977. Both automotive and general manufacturing sectors did
much better in the 1990s, but the auto sector significantly outperformed general
manufacturing. In 1999 it peaked at 75% above the 1990 level, compared to a level
for all industry of about 40% above the 1990 base. After four years of slower
growth, the automotive output index for 2003 (the latest available data year) was still
much higher than that for all manufacturing (55% above the 1990 base, compared to
35%).
13
In Figure 2, the definitions of both automotive and general manufacturing real output
switch from SIC to NAICS in 1987. For purposes of comparison, both series are indexed
to 1990, when the NAICS definition applies.
CRS-14
Figure 2. Real Output of Automotive and Total Manufacturing
200
Index: 1990=100.0
150
100
50
All Manufacturing
Motor Vehicles, Bodies, and Parts
0
1977 1979 1981 1983 1985 1987 1989 1991 1993
1995 1997 1999 2001 2003
Sources: All manufacturing output data, U.S. Department of Labor. Bureau of Labor Statistics.
“Major Sector Productivity and Costs Index” (http://www.bls.gov, SIC basis as viewed Sept. 17,
2003; NAICS basis, as viewed March 1, 2005.). Automotive data as for Figure 1.
Employment in the automotive sector may not have grown on a net basis over
the past 25 years, but neither has it fallen substantially, unlike some other industrial
sectors. A direct comparison is difficult, because there are two different data series
for automotive employment, and they only overlap for the period 1990-2002. Figure
3 shows that on the basis of SIC 371 (for which 2002 was the last year for annual
data), total employment in the automotive sector peaked at more than 1 million in
1978, and then reached that level again 20 years later, before falling lower during the
recent “down” cycle. The employment levels reported by BLS on the current NAICS
basis are significantly higher than the equivalent SIC 371 data, because of the
inclusion of specialized parts manufacturing. The NAICS-based employment figure,
which has been calculated by BLS back to 1990, is shown as a separate line in
Figure 3. On this basis, total employment in all automotive-related industries was
more than 1.3 million in 1999-2000, and is still more than one million, despite falling
since then.
CRS-15
Figure 3. U.S. Employment in Automotive Manufacturing
Millions
1.4
1.2
1
1.0
0.8
0.6
0.4
All Employees, based on SIC 371
All Employees, based on NAICS 3361, 3362, 3363
0.2
0
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Sources: Department of Labor. Bureau of Labor Statistics. “National Employment, Hours and
Earnings.” http://data.bls.gov (as viewed on March 3, 2005)
As in the case of real output, automotive manufacturing has maintained its
employment level better than manufacturing overall since 1990. Figure 4 compares
the patterns of automotive employment with that for manufacturing generally. The
chart uses index values to normalize the percentage change in the respective
categories. The SIC 371 data are shown for the period 1977-2002, when that series
was terminated, and the NAICS-basis automotive data available from 1990.
However, as the figure shows, the rates of change, whether measured on an SIC or
NAICS basis for automotive manufacturing employment, are virtually identical, so
the growth rate of employment in the 1990s is not a statistical artifact.
The index of total manufacturing employment and automotive manufacturing
employment both peaked around 1978-79. Since then, manufacturing employment
has trended slowly and steadily down, with some cyclical variations. The all-time
record level of manufacturing employment was 19.4 million jobs in 1979, and the
U.S. economy has never come close to creating so many manufacturing jobs since
then. After the most recent economic recession, overall manufacturing employment
fell almost 20% below the latest peaks in1990 and 1998.14
After worse performance than general manufacturing before 1990, automotive
manufacturing in the United States has demonstrated superior performance since then
14
A detailed discussion of the long-term downward trend in manufacturing employment is
presented in CRS Report RL32179, Manufacturing Output, Productivity and Employment:
Implications for U.S. Policy, pp. 4-10. The contrasting experience of the automotive industry
is discussed in that report on pp. 28-29.
CRS-16
in creating manufacturing jobs during the strong-growth 1990s, and in maintaining
jobs since 2000. For automotive manufacturing employment, the cyclical swings of
the late 1970s and early 1980s were stronger than for general manufacturing
employment, and the relative decline in jobs between 1979 and 1990 was twice as
large: 18% against 9%. But between 1990 and the end of that decade, while
manufacturing employment was just about flat, automotive manufacturing
employment increased almost 25%, or about 250,000 jobs (NAICS basis). Even by
2004, after four years of slow growth, there were still 55,000 more people employed
in automotive manufacturing than in 1990, while manufacturing in general lost more
than three million jobs over the period. This report will later examine in detail how
the strategies of both the Big Three and the transplants have contributed to
maintaining or increasing employment in the sector.
Figure 4. U.S. Total and Automotive Manufacturing Employment
140
Index: 1990=100.0
120
100
80
60
40
20
All Manufacturing Employment
Employment SIC 371
Employment NAICS 3361, 3362, 3363
0
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Source: Department of Labor. Bureau of Labor Statistics. “National Employment, Hours and
Earnings” (http://data.bls.gov as viewed on March 3, 2005).
As a consequence of these trends, employment in automotive manufacturing has
increased as a share of all manufacturing jobs. As of 1990, when NAICS-based data
become available, automotive manufacturing employment of more than 1 million
represented 6% of all U.S. manufacturing employment. At its peak in 2000,
employment in automotive manufacturing represented 7.6% of all manufacturing
employment. Levels of both total and automotive manufacturing employment have
subsequently fallen, but because auto-related employment fell more slowly in
absolute terms, in 2004 it actually represented a slightly higher rate of all
manufacturing employment than in 2000 — 7.7%. The key employment question in
the industry is whether it is due for more rationalizing and downsizing, as has been
the pattern in other manufacturing sectors.
Table 1 shows how employment has shifted among the three NAICS
automotive sector categories. Motor vehicle manufacturing accounted for only
20,000 new positions between 1990 and 2000, and by 2004 had fewer employees
CRS-17
than in 1990. This change reflects a downsizing of the Big Three, especially through
spinoffs, which were not fully offset by expansion of assembly operations by the
transplant competition. Motor vehicle parts added almost 200,000 jobs between
1990 and 2000 (from 653,000 to 839,000 employees), and as of 2004 still employed
35,000 more people than at the beginning of the period. The smallest category,
motor vehicle bodies and trailers, had the largest percentage rate of growth between
1990 and 2000, increased employment by more than 40%. By 2004, the number had
retreated to 164,000, still 35,000 (27%) higher than in 1990.
Table 1. Employment by Automotive Manufacturing Categories
(Thousands)
1990
2000
2004
NAICS 3361 (Motor Vehicles)
271.4
291.4
256.1
NAICS 3362 (Bodies, Trailers, etc.)
129.8
182.7
164.5
NAICS 3363 (Motor Vehicle Parts)
653
839.5
688.5
1054.2
1313.6
1109.1
Total
Source: U.S. Department of Labor. Bureau of Labor Statistics. “National Employment, Hours and
Earnings” [http://data.bls.gov], as viewed Mar. 4, 2005.
Formerly, the Big Three domestic manufacturers were highly integrated, with
the assemblers of cars and trucks manufacturing many of their own parts, as well as
the vehicles and engines.15 In recent years, assemblers have increasingly outsourced
more of their parts, subassemblies and systems; “modularization” of outsourced
systems and components has become a new key concept in the motor vehicle
manufacturing business. For example, both GM and Ford have spun off their parts
manufacturing operations. GM spun off its main parts operation as Delphi in 1999,
while Ford did the same, creating Visteon in 2000. Notwithstanding its long tradition
of vertically integrated manufacturing, the U.S. automotive industry also has an
equally long tradition of specialist suppliers. As the major Japanese and European
assemblers have established manufacturing operations in North America since the
1980s, the domestic industry has seen both the establishment of foreign-owned parts
and systems suppliers that have accompanied them, and domestic U.S. firms’ efforts
to compete for the supply business.16
15
Most famously, Henry Ford not only poured his own steel at the Ford steel mill in the
River Rouge manufacturing complex, but the mill used iron ore from Ford-owned mines,
transported to the “Rouge” on Ford-owned ships. James P. Womack, Daniel T. Jones and
Daniel Roos, The Machine That Changed the World (New York: Rawson Associates, 1990),
p. 39. Rouge Steel still operates on the same site today, where it continues to supply Ford,
although, after more than a decade as a spun-off company, it was acquired in 2003 by the
Russian company, Severstal.
16
An analysis of its impact on South Carolina, commissioned by BMW, included a review
of the suppliers that moved or expanded operations in the state: The Economic Impact of
BMW on South Carolina (University of South Carolina, Moore School of Business, 2002),
pp. 11-19, esp. Figure 8. The 1998 Report on the Significance of Toyota Motor
CRS-18
Consolidation of the North American Industry
This report has initially focused on the size and growth of the motor vehicle
production sector in the United States. The context has been the consolidation of
motor vehicle manufacturing in North America into a single, albeit somewhat
bifurcated, industry. This development has proceeded in three important phases:
!
The U.S.-Canadian Automotive Products Trade Agreement of 1965
effectively created a single industry in the two countries, owned by
the U.S. Big Three (plus American Motors). By the agreement and
an associated “letter of understanding” between the Canadian
government and representatives of the U.S. automotive
manufacturing companies (to which the U.S. government
“acquiesced,” but was not a party), the manufacturers agreed to
increase Canadian-origin content in vehicles and parts, as a
percentage of the gross value of their Canadian sales each year. In
exchange, the manufacturers did not pay U.S. or Canadian tariffs on
automotive products in bilateral trade. Both Canadian and U.S.
analysts believe that the agreement was not sectoral free trade, as it
is often described, but rather a form of managed trade, in which
duties were eliminated on a two-way basis, as long as certain
Canadian sourcing conditions, closely monitored by the Canadian
government, were met.17
!
In 1988, the auto agreement was subsumed into the broader U.S.Canadian Free Trade Agreement (FTA). The principal U.S.
automotive negotiating goal within the FTA appears to have been to
“freeze” the Canadian duty remission program to the existing (Big
Three) registrants, rather than having Canada extend it to Japanese
and Korean investing companies. However, the FTA contained
general provisions that effectively phased out the remaining
Canadian incentives, restrictions, and performance requirements on
automotive operations.18
!
On January 1, 1994, the North American Free Trade Agreement
(NAFTA) entered into effect. Under NAFTA, Mexico agreed to
gradually liberalize and then eliminate the restrictive provisions of
Manufacturing, Kentucky, Inc. by Prof. Charles F. Haywood found that 120 of 175
automotive suppliers had moved to Kentucky since the location of Toyota’s plant there.
17
This conclusion is drawn from separate analyses of the agreement by the U.S.
International Trade Commission and a Canadian source, quoted in CRS Report 88-122E,
Automotive Products Trade with Canada and the U.S.-Canada Free Trade Area Agreement
(available from the author of the present report), pp. 6-7.
18
Ibid., pp. 14-19. Although, according to Gary Hufbauer and Jeffrey J. Schott, certain
Canadian auto industry safeguard provisions from the 1965 deal were even later “untouched
by NAFTA ... a tribute to the negotiating skills, if not the economic wisdom, of the
Canadian team.” See their NAFTA: An Assessment, rev. ed. (Washington: Institute for
International Economics, 1993), p. 38n.
CRS-19
the Mexican Auto Decree, a policy that had been developed in
accordance with the theory of import substitution. This policy had
restricted the distribution of automobiles and trucks in Mexico to
locally established manufacturers (the Big Three, VW and Nissan),
and subjected them to extensive performance requirements. The
most notable of these rules was a “trade balancing” requirement that
a manufacturer had to export twice the value of vehicles that it
imported. Trade balancing and local sourcing rules were gradually
eliminated over a ten-year period, though restrictions remain on
imports of used cars and trucks. NAFTA requires automotive goods
to meet special rules of origin. For passenger cars, light trucks, and
their engines and transmissions, the rule is 62.5% North American
content, compared to 50% under the original U.S.-Canada
automotive agreement.19
These agreements, over a period of thirty years, have curtailed Canadian and
Mexican attempts to promote and protect automotive assembly and supplier
industries through restrictive and interventionist government policies. Of course,
both the central governments of Mexico and Canada, as well as provincial, state and
local governments, continue to seek to attract or keep auto plants through incentive
programs, as do U.S. states and localities.20
In Canada, automotive exports now account for 23% of total national exports.
But concern has been expressed in Canada that the automotive trade surplus has been
declining since 1999. A Canadian Automotive Partnership Council (CAPC) has been
formed, with representatives of all groups with an interest in the industry (including
the Big Three, Honda, Toyota, parts manufacturers, dealers, the Canadian Auto
Workers union, the academic community, and federal and provincial governments).
CAPC has produced a study and policy recommendations, with the explicit target of
reversing declines in the trade balance in both vehicles and parts.21
In Mexico, automotive products have been among the major products of the
maquiladora program. Prior to NAFTA, manufacturers could minimize both
exposure to Mexican trade and tariff laws, while minimizing exposure to U.S. tariffs
at maquiladora plants that exported at least 50% of their production. According to
19
Governments of Canada, the United Mexican States and The United States of America.
Description of the Proposed North American Free Trade Agreement (Aug. 12, 1992), pp.710; Hufbauer and Schott, pp. 37-40.
20
See, for example, “Canada Pledges Millions for Ford Plant,” Automotive News (June 21,
2004), p. 6, on Canadian federal and provincial support worth $Canadian 200 million to
meet Ford “demands” for help in a major revamp of its Oakville, Ont. assembly operations.
GM has received $350 million from the same sources in support of $2 billion worth of new
investment in three Ontario projects; “GM Steers $2 Billion into Ontario,” Detroit Free
Press (Mar. 3, 2005).
21
CAPC. A Call for Action: A Canadian Auto Strategy (Oct. 2004). Full report available at
[http://capcinfo.ca]. The report is discussed in: Bureau of National Affairs. Daily Report for
Executives (DER), “Group Urges Canadian Government to End Barriers to Auto Trade with
U.S.” (Oct. 29, 2004), p. A-15.
CRS-20
the U.S. General Accounting Office (GAO), 112,000 Mexicans worked in such
establishments that produced items of “transportation equipment” in 1991. That was
about a quarter of the total of all maquiladora workers, and equal with electronic and
electrical products as the two largest employing sectors.22 With the establishment of
NAFTA, the export minimum for maquiladora facilities has been eliminated, and any
product now manufactured in Mexico (under NAFTA origin rules) enters the United
States duty-free.
There is still a low-cost production, comparative advantage logic to locating the
manufacture of certain products or components for the U.S. market in Mexico, and
as some analysts note, some maquiladora operations have moved into more
sophisticated manufacturing and R&D activities.23 The significance of Mexican
manufacturing establishments for automotive parts in North America automotive
assembly industry is indicated by the fact that the value of parts imported into the
United States from Mexico rose from less than 12% of all parts imports to almost
30% between 1993 and 2002. Mexico displaced Canada as the leading source during
this period. Imports of complete vehicles from Mexico also increased more than
fivefold, to more than $20 billion in value by 2002. This was greater than the value
of imports from Germany, though still much less than Canada or Japan.24
The maquiladora industries in total lost 278,000 jobs between late 2000 and
early 2002, but they remain an important aspect of North American motor vehicle
production. Some analysts have asserted that Mexico as a low-cost location for subassemblies, parts and components for manufactures has been overtaken by
competition from China. But a sectoral breakdown of apparent trade share gains and
losses for maquiladoras indicates that, trade gains in automotive parts and systems
by Chinese producers appear to complement, rather than subtract from, market shares
held by Mexican maquiladora exporters.25 A late 2004 article also noted that, as
Mexico moves away from the import-substitution model, the low-cost high-volume
models sold in Mexico are actually imported from lower-cost production areas, and
that Mexican auto factories are actually beginning to specialize in higher-cost
vehicles for the global market (such as the VW “new” Beetle, and the Chrysler PT
Cruiser).26
22
Program described in CRS Report 93-1050E, Mexico’s Maquiladora Industry, by M.
Angeles Villarreal; GAO data reported on p. 6.
23
Federal Reserve Bank of Dallas, El Paso Branch. “Maquila Industry: Past, Present and
Future,” Business Frontier (Issue 2, Aug. 26, 2004).
24
See CRS Report RL32179, pp. 51-52 and Table 5. U.S. automotive trade data will be
covered in detail later in this report.
25
Federal Reserve Bank of Dallas, El Paso Branch. “Maquila Downturn: Structural Change
or Cyclical Factors?” Business Frontier (Issue 2, Aug. 26, 2004), Table 2, reporting results
of research by Ernesto Acevedo Fernández of the Mexican Ministry of Finance and Public
Credit.
26
Joel Millman, “Mexico Blazes Trade Success; Auto Industry Matures to Supply Global
Markets,” Wall St. Journal (Nov. 29, 2004), p. A12.
CRS-21
Press reports also note a 2004 comeback in hiring at Mexican maquiladora
operations, which may indicate that the economic problems of maquiladoras have
been the result of the U.S. recession and some confusion over Mexican tax law
changes, more than competition from China.27 With respect to the North American
motor industry and its growing reliance on “just-in-time” inventory systems, it could
be difficult to replace Mexican sources for original equipment (OEM) suppliers with
product shipped long distances from China. Moreover, in an effort to reassure
maquiladora operators and to retain or expand their investment within global supply
chain systems, Mexico has launched a Sectoral Promotion Program (“PROSEC”),
which gives producers in 20 maquiladora sectors an opportunity to import nonNAFTA components at reduced Mexican tariff rates (0% to 5%).28 Recent data
indicate that both output and employment at maquiladora plants expanded strongly
in 2004.29 A Mexican official has also stated that the Mexico-Japan Free Trade
Agreement, signed in September 2004, and which entered into effect on April 1,
2005, could substantially increase Mexico’s role as a supplier to the U.S. market for
Japanese automobile and auto parts manufacturers.30
Figure 5 shows the impact of these changes on the U.S. and North American
motor vehicle assembly industry.31 As of the late 1970s, the U.S. automotive
industry, then almost exclusively the Big Three, built an average of about 12 million
vehicles (cars and light trucks) per year. This was more than 85% of total vehicle
production in North America. Canada at that time built less than two million
vehicles per year, and Mexico fewer than 500,000. During the recessionary period
1980-82, the U.S. auto industry averaged fewer than 8.0 million units per year. From
that low point, U.S. production output expanded, with one other big recessionary dip
in the early 1990s, to 13.0 million vehicles by 1999. Once again there was a decline
in demand as a recession overtook the U.S. economy, but this time, the decline in
units built in the United States was relatively modest: in 2002-03, U.S. output was
more than 12 million vehicles, or about the same as the totals of the late 1970s. As
of 2003, 74% of the vehicles produced in North America were still assembled in the
United States.32
27
“Made in the Maquilas — Again,” Business Week (Aug. 16, 2004), p.45.
28
“Maquila Industry: Past, Present and Future.”
29
“It’s Hot South of the Border,” Business Week (Mar. 7, 2005), p.32.
30
Bureau of National Affairs. Daily Executive Report (DER), “Mexico says FTA with Japan
Will Boost Japanese Exports in U.S. after April 1” (Mar. 15, 2005), p. A-10.
31
32
See Appendix Table 1 for the detailed numbers.
The automotive industry tends to measure output in terms of “units,” rather than value,
even though vehicle unit values, and the profits per unit sold, vary significantly between
lower-cost and higher-cost cars and light trucks.
CRS-22
Figure 5. Location of North American Motor Vehicle Production
14
Millions of units
12
United States
10
8
6
4
Canada
2
Mexico
0
1977
1979
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Source: Ward’s Automotive Yearbook, 2004.
Both Canada and Mexico have seen fairly steady increases in their total output
and shares of North American production. Canada produced about 12% of the
industry’s North American total in the late 1970s, after the U.S.-Canada automotive
trade agreement was in place. Output there declined with the recession of the early
1980s. By 1988-89, as the FTA entered into effect, Canada’s output hit 2.0 million,
and close to a 15% market share. By 1999, when NAFTA had been in effect for six
years, Canada’s total output exceeded 3.0 million units and a 17.6% share of a record
North American production of 17.7 million units. In the post-2000 industry
downturn, Canada has continued to produce about 2.5 million units annually.
From the late 1970s through the end of the century, Mexico’s automotive unit
production advanced even more steadily, to one million units by 1991, and just under
two million in 2000-01 — despite a major decline in the mid-1990s because of a
serious domestic financial crisis. Mexico’s percentage share of total North American
production, which was around 2% in the late 1970s, reached double-digit levels in
2000-02, before declining to just less than 10% in 2003. Mexico’s own internal
demand in 2004 reached a record high of 1.1 million vehicles, as the economy again
grew strongly.33
Total North American vehicle production has thus steadily risen for the past 20
years, while sectoral and regional trade deals have created the basis for a fully
regionalized industry. In the early 1980s, output took a devastating fall, from 14.5
million units per year in 1977-79, to an average of just 9.5 million units during the
next three years, a fall of 35%. Since then, production has never been less than 11
33
“Hot South of the Border,” Business Week.
CRS-23
million units, and has been in the 15-18 million unit range annually since 1994. The
share of vehicles assembled in the United States has fallen, though not dramatically,
while the absolute number of vehicles assembled in the United States has remained
about the same, allowing for changes in economic trends and overall demand.
Rise of International Investment in North America
The overall picture of growth in North American production masks the tension
within the industry created by the entrance of new international competitors as
domestic manufacturers. Growth has been due in part to internationally based
companies (especially from Japan) investing in the North American market initially
as a substitute for importing, while the Big Three struggled with downsizing issues,
as will be reviewed in a later section. Together with growing automotive
manufacturing capacity elsewhere, especially in Asia, there are concerns that the
motor industry may be creating a problem of overcapacity. The result could be more
serious rationalization and industry closures, especially in North America, as well as
in Japan and Europe, the other two traditional major producing regions.34
Figure 7 illustrates the increasing role of international (foreign-based) producers
in the U.S. motor vehicle market (cars and light trucks, the latter including pickup
trucks, minivans and SUVs). The figure uses 1979, 1990 and 2000 as growth years,
at or near peaks of domestic U.S. economic growth and automotive production. The
year 2003 is also shown, to provide the latest complete annual data. Detailed data for
manufacturers within North America are provided in Appendix Table 2.
The total number of vehicles produced in North America by the traditional Big
Three manufacturers has not changed very much overall since the late 1970s, as can
be seen in Figure 7, when one looks at the growth peaks. The Big Three produced
more than 12 million vehicles in North America in 1979. Production dropped
dramatically in the recessionary period 1980-82. Despite a recovery in the later
1980s, by 1990 total production was still two million vehicles less than in 1979. By
2000, production in North America by the Big Three companies35 was more than 13
million vehicles, less than one million more than in 1979. With the onset of
recession and slower economic growth after 2000, total Big Three production
declined by 1.8 million units, to about 11.5 million, in 2003.36
34
See special section, “Perpetual Motion: A Survey of the Car Industry,” The Economist
(Sept. 4, 2004).
35
While Chrysler had effectively been acquired by Daimler Benz in 1998, these data count
the subsequent Chrysler Group operations separately from Mercedes Benz production in the
United States, which had already begun in 1995. Other Big Three links with foreign-based
investors to establish North American production facilities are also counted as “transplants,”
as noted in Appendix Table 2. This is how such operations are treated in industry sources.
36
Sales were disappointing overall through the first eight months of 2004, especially for GM
and Ford, which reported plans to cut production for the balance of the year. Chrysler sales
increased, especially for some new products, and results were mixed, though generally
somewhat higher for imports and foreign-brand vehicles; Associated Press, “Ford, GM Sales
Drop; Both Cut Production” (Sept. 1, 2004); Reuters, “Ford Cuts Production after Sales
Fall” (Sept. 1, 2004); John K. Teahen, Jr. “Dog Days of August Are a Dog for Ford, Too,”
CRS-24
Figure 6. Production in North America by Type of Company
A closer look at Appendix Table 2 reveals significant variations within North
America and among the Big Three. GM produced more than seven million vehicles
in 1979; by the 1990s, its annual production level was around 5-6 million units per
year. In 2000, GM produced 5.6 million vehicles, and by 2003, despite a slow
economy, that level had fallen only minimally, to 5.3 million. However, this level,
it can be argued, was artificially maintained by high levels of discounted fleet sales
and expensive customer incentives of up to $6,000 per vehicle.37 Ford production at
the end of the 1970s was just over half the GM level; in 1990 it had reached nearly
70% of GM’s total, and in 2000, Ford produced more than 80% of the number of
vehicles produced in North America by GM. But with the economic recession and
an aging Ford lineup of models, the ratio declined somewhat to 71% in 2003.
Similarly, Chrysler also gained on GM in North American production totals. It
produced less than a quarter of the number of vehicles manufactured by GM in 1979,
but by 2000-03, its North American output was about half the GM level. As will be
shown later, some of this change is because of greater relative success of Ford and
Chrysler in producing light trucks, including minivans and SUVs.
Automotive News (Sept. 13, 2004).
37
When GM reported disappointing earnings for the third quarter of 2004, it was noted in
one source that, “In North America, GM reported a $22 million loss,” despite a September
sales surge, in part because “it led the industry with an average incentive of $4,340 a
vehicle;”Associated Press, “Pricing, Europe Weigh on GM Results” (Oct. 14, 2004). On GM
incentives, see “General Motors Incentives to ‘Stay High,’ Executive Says,” Bloomberg.com
(Aug. 14, 2004); David Welch, “GM: Enough with the Come-Ons,” Business Week (July 26,
2004), p. 44.
CRS-25
Another shift in vehicle output within the Big Three is the increasing role of
Canada and Mexico in final vehicle assembly. Appendix Table 2 illustrates that the
U.S. production level of 9.8 million vehicles in 2000 was about one million below
the level of 1979, and was another one million less in 2003. Meanwhile, Canada had
substantially higher production levels in 2000-03 than in 1979 or 1990, and Mexico’s
Big Three production in 2000-03 was double the level of 1990 (before NAFTA).
This relative decline of the U.S. role in Big Three North America production appears
solely due to a decline at GM, particularly at its U.S. plants. In 1990, 2000 and 2003,
GM produced at least two million fewer vehicles in the United States than in 1979.
Both Ford and Chrysler produced more vehicles annually in the United States in
2000-03 than in 1979 or 1990, although Ford vehicle output by its U.S. factories in
2003 was barely higher than in 1979.
Foreign transplants have increased their share of North American motor vehicle
production from virtually nothing to more than a quarter of the total in 25 years, as
shown in Figure 7 and, in more detail, in Appendix Table 2. Volkswagen was the
only foreign-based producer in 1979, when it produced 175,000 units at its plant in
New Stanton, Pennsylvania. That plant proved to be unsuccessful, and has since
been closed, with subsequent VW production in North America located in Mexico.
By 1990, most Japanese manufacturers had vehicle production facilities in North
America. Some transplants were built in direct collaboration with the Big Three, but
most of the production came from plants independently designed, built and operated
by the Japanese-based producers. The initial decisions of Japanese manufacturers to
locate in North America was in part a function of U.S.-Japan trade relations, as will
be described in a subsequent section of this report. But whatever the cause, by 1990,
more than two million vehicles were assembled each year by the transplants in North
America, and more than two-thirds were built in the United States.
This total doubled to more than four million annually by the end of the decade.
Moreover, while Big Three output dropped by 1.6 million units between 2000 and
2003, transplant output continued to increase, despite the economic slowdown: from
4.1 million to 4.7 million units assembled in North America, with all the net gain
coming at U.S. plants. The Japanese producers were joined by BMW and Mercedes
Benz, which opened their first North American production facilities in South
Carolina and Alabama respectively in 1994 and 1997.
The German
manufacturers’confidence in the ability to assemble world-class vehicles in the
United States may be indicated by exclusive production of certain models in these
plants for distribution to both U.S. and worldwide markets.
A close examination of the transplants’ data in Appendix Table 2 also shows
that the more profitable or higher-volume transplants have been those that were
started up by the foreign-based companies themselves, rather than those that were
developed in conjunction with the Big Three. Honda’s plants in Ohio, Ontario, and,
most recently, Alabama, were all initiated by the company on its own.38 Nissan’s
38
See the special section in Automotive News (Sept. 6, 2004) commemorating the 20th
anniversary of Honda’s manufacturing beginnings in Ohio, which started with a motorcycle
plant. The first article, “Changing the Rules,” by Lindsay Chappell, emphasizes the different
approaches from traditional U.S. automotive manufactures employed by Honda.
CRS-26
plants were also built and operated on their own, as was the large Toyota plant at
Georgetown, Kentucky, the largest of the transplant operations in North America, in
terms of annual vehicle output. The one major exception is “NUMMI” (for New
United Motor Manufacturing Inc.). This was a closed GM plant in Fremont,
California, which Toyota reopened and has successfully managed as a joint venture
with GM (and with UAW-represented workers).39 By contrast, the plant built by
Mitsubishi in the “Diamond-Star” alliance with Chrysler in Normal, Illinois; the
Ford-Mazda “AutoAlliance” plant in Flat Rock, Michigan; and the GM-Suzuki
CAMI operation in Cambridge, Ontario, have all been more limited or less successful
in terms of output growth. The Subaru-Isuzu plant in Lafayette, Indiana, was a joint
venture between Subaru (owned by Fuji Heavy Industries of Japan) and Isuzu (partly
owned by GM); but the Isuzu truck operation at that facility has now been shut
down.40 About three-quarters of the net increase in transplant production of 2.4
million vehicles in North America since 1990 has come from the independently built
and operated facilities of Honda, Nissan and Toyota (excluding NUMMI) alone, to
which should be added the 250,000 vehicles produced by BMW and Mercedes Benz
at new plants (Mercedes Benz started production before the acquisition of Chrysler
by Daimler Benz, the common parent).
Transplant activity thus represents a permanent new competitive force in North
American vehicle manufacturing, one which, in general, has no ties to the Big Three.
By contrast, Big Three-linked “transplants” primarily represent an effort by the Big
Three to defend market share in some segments through vehicles produced by
controlled or allied foreign producers. But this effort has had limited success and
impact on the North American vehicle market to date. GM has also tried to create
a homegrown “transplant” operation, the Saturn company, based on new models of
relationships with customers, dealers and labor, which would allow it to compete
more effectively with economy models from foreign-based producers. While the
initial approach and the resulting product were well received, “the unit has posted
only one profitable year since 1990 ...” and “Saturn [sales have] never moved past
the 300,000 mark. Its best year was a decade ago.” GM is reinvesting in the
operation, and reorganizing it as a corporate division.41
Not only have the transplants increased their total output since 2000, but new
operations are ramping up or are in development. Nissan has started producing a
range of new products in Mississippi. Hyundai, having earlier closed a plant in
Quebec, is building a new facility in Alabama, and Toyota is building a new large
pickup truck plant in Texas. International investors have thus become a large,
established, independent, and growing part of the U.S. and North American
automotive manufacturing picture.
39
Womack et al., The Machine That Changed The World, pp. 82-84.
40
For an excellent overview of transplant activities and recent developments in North
America, see the special section on “New American Manufacturers” in Automotive News,
(June 14, 2004), pp. 23-30DD, esp. the summaries by Lindsay Chappell in “The
Transplants’ Changing Faces,” p. 26.
41
Dave Guilford, “Once Different Saturn Looks More like GM,” Automotive News (June
14, 2004), p. 30V; Jerry Flint, “Saturn: The Forgotten Promise,” Forbes.com (Aug. 17,
2004); “GM to Invest in Plant to Help Saturn Brand,” Detroit Free Press (Aug. 27, 2004).
CRS-27
Big Three Lead in Light Trucks — Transplants Grow Rapidly
As noted in a previous CRS report,42 the major difference between the
development of the Big Three’s domestic product output and that of the transplants
in terms of their production output is the increasing shift of the former from cars to
light trucks. This shift is summarized in Figure 7, with more statistical detail
provided in Appendix Table 3, the latter adapted and updated from the earlier CRS
report.
As of 1990, despite its substantial downsizing in the 1980s, GM still produced
more than 2.6 million cars in the United States, compared to 1.47 million trucks —
cars represented 64% of its U.S. motor vehicle output. Somewhat surprisingly,
perhaps, given its acquisition of Jeep and its minivans, Chrysler in that year produced
about 40% more cars in the United States than trucks (730,000 against 530,000).
Only Ford, whose pickup trucks had been outselling Chevrolet since 1968, and which
in 1990 began producing the highly successful Explorer SUV on a truck chassis,
produced more light trucks than cars at its U.S. assembly plants in that year.43 And
overall, despite the popularity of some models produced at U.S. transplant facilities
by the 1990s (Honda Accord in Ohio, Toyota Camry in Kentucky), more than 78%
of all cars produced in the United States were still made by the Big Three, as well as
more than 95% of all light trucks.
By 2003, the Big Three product mix had changed dramatically in favor of a
greater focus on truck output from U.S. plants. Most notable was a reversal of the
ratio at GM, whose U.S. output was 64% trucks in 2003, exactly the opposite of the
1990 ratio. The ratio of trucks to cars from Ford and Chrysler was even higher.
Ford’s Explorer continued to register strong sales despite a safety controversy over
rollovers and Firestone tires; trucks represented 74% of Ford’s U.S. output in 2003.
Chrysler dedicated almost 80% of its U.S. production in 2003 to the light truck
segment. In particular, as both Big Three and Japanese-based companies struggled
to launch models competitive in the minivan segment that Chrysler invented,
“Chrysler dominated the market for minivans from 1984 until the late 1990s,
capturing half the total sales.”44 Overall, according to a study prepared for the
Alliance of Automobile Manufacturers, light trucks, including SUVs, now account
for around 60% of total U.S. motor vehicle production of cars and light trucks
(including the output of both the Big Three and foreign-based manufacturers).45
42
CRS Report RL32179. See the section on “Automobiles and Light Trucks,” by M.
Angeles Villarreal, pp. 24-30 and Fig. 6.
43
Brinkley, Wheels for the World, p. 593.
44
Charles K. Hyde, Riding the Roller Coaster: A History of the Chrysler Corporation
(Detroit: Wayne State University Press, 2003), pp. 265-269.
45
Alliance of Automobile Manufacturers, Economic Contribution of the Automotive
Industry to the U.S. Economy — An Update (Fall 2003), p. 3, cited in CRS Report RL32179,
p. 25.
CRS-28
Figure 7. U.S. Car and Light Truck Production by Manufacturer
By contrast to the Big Three, foreign-based producers have developed a strong
position in the U.S. car market, and now account for 43% of all passenger car
production at their U.S. transplant facilities; see Figure 8, which compares Big Three
and transplant total car and light truck sales. (As will be shown below, foreign-based
companies actually sell a majority of the cars sold in the U.S. market, when imports
are also counted.) Combined transplant car production in 2003, as indicated in
Figure 7, was greater than that of GM, Ford or Chrysler individually, whereas in
1990 it was only ahead of Chrysler, the smallest of the Big Three in car output.
Michelene Maynard, in her book, The End of Detroit, documents how Ford
successfully developed the Taurus in the mid-1980s, and how it became the leading
seller among all car models in 1992-95. But then as the Toyota Camry and Honda
Accord were redesigned in the late 1990s, the Ford product declined in sales, and is
set to be discontinued.46 On the other hand, it should be added that the Big Three
have not given up on the passenger car segment. For example, GM has launched new
luxury Cadillac models from a modernized plant in Lansing, Michigan; Ford is
launching several new models for the 2005 model year, including a completely
redesigned Mustang; and, Chrysler has had recent initial successes in launching two
new rear-wheel-drive vehicles, the redesigned Chrysler 300 and the Dodge Magnum
“sports wagon.”
46
Micheline Maynard, The End of Detroit: How the Big Three Lost Their Grip on the
American Car Market (New York: Doubleday, 2003), pp. 43-54. Significantly, Brinkley in
Wheels for the World devotes a full chapter to the successful development and launch of the
Taurus, but fails to note the model’s subsequent unsuccessful redesign and decline in sales;
see pp. 696-714, 727.
CRS-29
Figure 8. Total Car and Truck Production by Company Type
However, foreign-based motor vehicle manufacturers have not been content
only to gain increasing shares of the car segment. They have also rolled out new
products from their domestic U.S. production facilities to challenge the Big Three in
the light truck segment. By 2003, transplant production of light trucks had reached
14% of total U.S. light truck output (see Figure 8), and every indication is that they
intend to compete vigorously in that segment. Mercedes Benz specifically designed
its Alabama plant to inaugurate production of its first SUV, the new “M-class.”
BMW introduced its “sports activity” vehicles into production at its South Carolina
plant. Honda now builds its Odyssey minivan at a new Alabama plant, and is adding
production of its Pilot SUV there. Toyota builds a wide range of light truck vehicles
in its U.S. plants, and is planning to build its first full-size pickup truck at a new plant
in San Antonio, Texas. Nissan has introduced its own full-size pickup, the Titan,
along with other light truck products at a new plant in Mississippi.47
Shifts in Employment Among Companies
A generation ago, the U.S. automotive manufacturing industry was dominated
by the domestic Big Three, integrated, unionized nameplate assembly companies,
located, with their suppliers, predominantly in a Midwest “Auto Belt,” with branch
assembly plants around the country. Today, that structure has been significantly
modified.
The number of U.S. automotive manufacturing employment workers directly
employed by the Big Three has declined substantially since the early 1980s,
47
Some of these plans are reviewed by Chappell, “Transplants’ Changing Faces.”
CRS-30
especially at GM and Ford. As of 1979, the Big Three together employed almost one
million persons in the United States: 618,000 at GM; 240,000 at Ford; and 109,000
at Chrysler. GM also employed 39,000 persons in Canada and Ford employed
18,000 there; they may be considered as integrated with domestic U.S. production.
In addition, 28,000 persons were employed by American Motors in the United States
and Canada, so the total employed by U.S.-based nameplate manufacturers was more
than one million in the two countries.48
The 1980s witnessed a dramatic downsizing of Big Three employment,
especially domestically. The rise of imports and the recession of the early 1980s
resulted in much lower Big Three production and large-scale layoffs. Employment
levels did not recover to pre-recession levels after prosperity returned to the domestic
industry. By 1990, GM had shed more than half its total number of U.S. employees,
with a total of 279,000 listed in its annual report of that year. Ford and Chrysler
each reduced domestic employment by about a quarter; to 181,000 for Ford, and
79,000 for Chrysler.
As shown above, the production focus of the Big Three shifted to the light truck
market in the 1990s, and particularly to the SUV and minivan segments. But this did
not prevent a further substantial decline in direct employment levels, despite a decade
of strong market growth. As also noted earlier, GM and Ford both downsized
especially by spinning off major parts operations in the late 1990s. The location
breakouts reported in corporate annual reports are not consistent over time, but for
2000, GM reported total North American automotive employment of 212,000,
compared to 365,000 on a similar basis ten years earlier. For 2003 the total
employment level reported for North America for GM automotive operations was
down to 190,000. Ford’s total reported decline in 1990-2000 in U.S. employment
was smaller, to 163,000, but this still included some employees being shifted to the
newly spun off Visteon Corporation in the latter year. By 2003, Ford reported total
North American automotive employment as only 122,000.49
Chrysler’s story is more complicated, both because of its acquisition of
American Motors (AMC) in the 1980s, and its merger with Daimler Benz in 1998 to
form DaimlerChrysler (DCX). But it seems probable that it has also downsized,
though by a lesser number. Annual reports indicate that the combined Chrysler and
AMC totals in 1979 were 162,000 employees worldwide (mainly U.S. and
Canadian). The Chrysler worldwide total was 110,000 in 1990 (the latter would
mainly represent both Chrysler’s automotive operations and those it acquired with
AMC in the United States and Canada). The Chrysler Group of DaimlerChrysler
(DCX) reported a total of 93,000 employees for 2003, primarily in the United States,
and total DCX employment for the United States was 102,000.50
48
These figures are taken from 1979 annual reports of the Big Three, plus American Motors.
Chrysler indicated that it employed an additional 25,000 persons outside the United States,
but did not specifically break out data for Canada.
49
Ford annual reports, 1990, 2000 and 2003; GM annual report, 1990 and U.S. Securities
and Exchange Commission annual 10-K report, 2000 and 2003.
50
Chrysler Corp. annual report, 1990; DCX annual reports, 2000 and 2003; American
Motors annual report/10-K filing, 1986.
CRS-31
From about one million Big Three employees in the United States and Canada
in 1979, the level has thus declined to about 400,000 by 2003, or a net fall of almost
600,000 jobs. Not all of the jobs were simply eliminated. Some of them were
transferred to spun off or independent supplier companies.
How many of these jobs have been replaced by new transplant investments?
The Japanese Automobile Manufacturers Association (JAMA) reported that their
members employed more than 56,000 U.S. workers at 20 “manufacturing plants” in
2003. JAMA further states that, “Japanese automakers now supply 64% of their total
U.S. sales from their North American plants, compared with less than 12% in
1986.”51
A more comprehensive figure for the United States is provided by BEA.
According to its foreign investment data, the total number of persons employed by
foreign-affiliated manufacturers of motor vehicles, bodies and parts (NAICS 336162-63) was 328,000 in 2002, as reported in that year’s benchmark survey of inward
foreign investment. This compares with 188,000 in the 1997 benchmark, and 58,000
(on the basis of SIC 371) in 1992. However, most of the net gain in 1997-2002 is
presumably due to the DCX merger, and the Chrysler Group is not counted in the
industry as a transplant. Chrysler Group’s employment total was 95,000 in 2002,
including some employees in Canada and Mexico, meaning that only about 50,000
of the net 1997-2002 increase of 140,000 employees of foreign-affiliated automotive
companies was due to employment expansion by other manufacturers. Another
feature of this data is the “primary line of business rule,” which means that foreignowned companies with multiple U.S. operations need report all their corporate data
under only one line of business. Thus, foreign automotive companies with both
importing and manufacturing operations in the United States may report their
investment data, not as manufacturing, but as “wholesale trade — motor vehicles and
motor vehicle parts and supplies.” In 1992, this item added 71,000 employees to the
total for U.S. affiliates of foreign companies in the motor vehicle industry, or more
than the 58,000 reported as working in motor vehicle manufacturing. In 1997, the
motor vehicle wholesale activities business number went up to 88,000, but in 2002
it declined to 54,000 (implying that the primary line of business for some foreign
companies may have shifted from importing to manufacturing). This number could
be added to the total for motor vehicles and parts manufacturing.
The net result would be that perhaps about 287,000 persons worked for foreignaffiliated automotive companies (excluding Chrysler) operating in the United States
in 2002.52 This number may be compared to the approximately 1.1 million persons
51
52
JAMA. Growing Investment and Employment in America (2004), pp. 2 and 7.
U.S. Department of Commerce. Bureau of Economic Analysis (BEA). “Operations of
Foreign Affiliates in 2002: Preliminary Results from the Benchmark Survey,” Survey of
Current Business (Aug. 2004), Tab. 19.2; “Foreign Direct Investment in the U.S.: Financial
and Operating Data for U.S. Affiliates of Foreign Multinational Companies — Final 1997
Estimates and Revised 1992 Estimates,” at [http://www.bea.gov]. Data on employment by
Japanese-based auto companies, Chrysler and DCX are from proprietary private sources,
and may not be compatible with BEA survey-reported data. The Association of
International Automobile Manufacturers in March 2005 released The Contribution of the
CRS-32
working in the United States in the automotive manufacturing industry in 2003
(NAICS 3361-62-63), as reported in Table 1 of the present report. This would mean
that roughly a quarter of those who work in some aspect of automotive
manufacturing now work for foreign-affiliated companies (again excluding Chrysler).
Changes Among States in Automotive Employment
Table 2 illustrates how the changes in automotive manufacturing employment,
including the arrival of transplants, have affected the distribution of auto industry
jobs among the leading states in automotive employment. It compares the changes
in levels of employment ascribed to automotive manufacturing industry categories,
as measured in the BLS county-level Quarterly Census of Employment and Wages,
a report based on company filings of unemployment compensation premiums.
The table compares state automotive industry employment levels in 1979, near
the peak U.S. automotive manufacturing employment peak year, with the levels of
2003, after two years of economic recovery from the 2001 recession. SIC 371 and
NAICS 3361-3362-3363 data are used for 1979 and 2003 respectively. As noted
earlier, with respect to Figure 3, this may result in an undercounting of employees
working in automotive manufacturing in the earlier year, especially in auto parts
businesses. The undercount could be as high as 25%, and may mean that state losses
in this industry are actually understated, while state gains are not as high as indicated.
Also, data may not be published when there are only one or two operations, with
the risk of disclosing proprietary corporate data. This constraint affected mostly
NAICS 3361 data, motor vehicle assembly, in 2003. In Table 2, the non-disclosure
issue affected data from three states, Tennessee, South Carolina and Wisconsin.
Other states affected by the data disclosure restriction do not appear to have enough
automotive employment to move into the upper tier of auto industry employment
shown in the table, regardless of the missing numbers.
International Auto Sector to the U.S. Economy: An Update, prepared by the Center for
Automotive Research. The estimates for direct employment by the “international” sector
(imports and transplants) based on annual BEA foreign investment data for 1999-2001 are
similar to those reported here, allowing for some differences in definitions (pp. 14-16).
CRS-33
Table 2. Leading States in Automotive Employment
State
2003
Rank
Total employees, 2003
Naics 3361-62-63
1979
Rank
Total employees,
1979
Sic 371
Michigan
1
269,902
1
394,048
Ohio
2
136,399
2
119,947
Indiana
3
125,367
3
67,225
Kentucky
4
53,096
14
14,262
Illinois
5
41,120
9
28,551
California
6
40,546
4
49,532
Tennessee
7*
38,040
13
14,747
Missouri
8
36,896
6
38,760
Texas
9
28,901
11
16,298
New York
10
28,623
5
41,814
North Carolina
11
26,907
15
10,879
Georgia
12
21,781
10
18,778
Alabama
13
21,136
19
8,061
South Carolina
14*
20,717
34
1,471
Pennsylvania
15
20,702
8
32,489
Wisconsin
16*
19,319
7
33,425
Source: U.S. Department of Labor. Bureau of Labor Statistics. “Quarterly Census of Employment
and Wages,” viewed on [http://www.bls.gov] (Oct. 21-22, 2004).
* 2003 total excludes non-disclosable data.
The most striking change is the apparent loss of auto industry-related jobs in
Michigan. It is still by far the leading state in terms of auto industry employment, but
experienced a decline of at least 125,000 employees between 1979 and 2003 in
automotive-related industries. Michigan not only ranked first among all states in
automotive employment in 1979, but accounted for 43% of all employment counted
under SIC 371. Though still the leader under the corresponding NAICS categories
in 2003, Michigan’s share was down to 23%. Also, late 2004 estimates provided by
Ward’s, an auto industry data source, indicate that in 2004 Michigan will be passed
for the first time by Ontario as the largest auto-producing regional jurisdiction in
North America. Ontario was estimated to produce 2.7 million vehicles in 2004,
compared to 2.6 million from Michigan. Ontario would show a gain of about
CRS-34
600,000 from 1994, compared to a decline of 800,000 in Michigan over the same
period.53
Other midwestern “auto belt” states were not as severely affected. The number
two state from 1979, Ohio, gained about 17,000 jobs, from 119,000 to 136,000,
though the gain could be a statistical artifact, caused by the switch from SIC to
NAICS-based data. On the other hand, Marysville, Ohio, is the site of the Honda
assembly plant, which in 1979 was the first transplant manufacturing operation
established in North America by a Japanese automotive company. By 2003, Honda
employed more than 14,000 workers there and at other assembly, engine and
transmission plants in Ohio. Indiana, which ranked third in auto-related employment
in both 1979 and 2003, apparently gained the most auto-related jobs between the two
years. It nearly doubled its total, from 67,000 to 125,000. Indiana also has seen the
establishment in recent years of two major assembly plants by Japanese-owned
companies, a Toyota truck plant in Princeton and the Subaru plant in Lafayette.54
Thomas Klier of the Federal Reserve Bank of Chicago has analyzed job loss in
the automotive industry on a shorter term basis, since the year 2000, in these three
states. His data, based on the same source used in Table 2, plus industry data, also
show that the most severely affected state is Michigan. He found that Michigan in
2000-03 lost 15% of its automotive assembly jobs, and more than 20% of its
automotive parts employment (60,000 jobs in three years). Combined employment
declines since 2000 in Ohio and Indiana in automotive assembly operations were
somewhat less than in Michigan: 11.4% in assembly operations and 15% in parts, or
a combined total of 35,000 jobs. These three states accounted for most of the net
decline in employment nationally in assembly operations, as the net loss in the other
47 states was only 3.3% during the period. In parts, the net decline in employment
in the rest of the country was more proportionate, 10.7%. However, when Klier
reviewed this same data from a different source, plant-level data, the conclusion was
that the major employment losses in the automotive supply industry were largely
among “captive” suppliers owned and operated by the Big Three. Klier linked the
loss of automotive industry employment in these three states primarily to the loss of
market share by the Big Three.55
Among other midwestern “auto belt states,” Illinois also showed a net increase
in Table 2, from 29,000 to 41,000. However, this net increase in both states again
could be explained by the shift from an SIC basis to NAICS. The only midwestern
state besides Michigan to post a major decline in auto industry jobs was Wisconsin,
which fell from seventh in 1979, with more than 33,000 jobs, to sixteenth in 2003.
Its total of less than 20,000 employees in the industry by the latter date does exclude
NAICS 3361 assembly operations, but the major presence in this category, the AMC
plant in Kenosha, was closed by Chrysler soon after its acquisition of the smaller
53
Brian Dunn, “Ontario to Top Michigan in ‘04 Auto Production,” American Metal Market
(Dec. 3, 2004), p. 5.
54
Honda’s Ohio plant was originally a motorcycle manufacturing operation. JAMA, p. 3
chart summarizes 2003 data for statements about transplant activities in this section.
55
Thomas Klier, “Caution Ahead — Challenges to the Midwest’s Role in the Auto
Industry,” Chicago Fed Letter, no. 211 (Feb. 2005).
CRS-35
competitor. Missouri also registered a small decline in Table 2, and fell two places,
from sixth to eighth, in state rankings.
The biggest relative gainers in automotive industry employment were several
southern states, beneficiaries of increasing production in the South, particularly by
transplants, but also to some degree, by the Big Three. Kentucky, already the home
of a Ford truck plant in Louisville and the Chevrolet Corvette manufacturing plant
in Bowling Green, moved dramatically up the table of automotive manufacturing
states with the establishment of the Toyota plant in Georgetown, which produces
vehicles on the Camry, Avalon and Solara platform, as well as engines. With a head
count of more than 7,000 employees, it is the largest single transplant operation in
the United States. By 2003, Kentucky had moved up from thirteenth to fourth in
automotive employment, counting more than 50,000 employees. Tennessee would
probably rank next, if the employees at assembly plants established by Nissan in
Smyrna and GM Saturn in Spring Hill in the 1980s, which together employ more
than 7,000 persons, were added to the total of 38,000 shown in Table 2.
There are a group of southern states on the fringe of the top ten, which showed
employment gains. Texas is ninth, and will get a boost from the new Toyota truck
plant in San Antonio. Georgia fell slightly in rank, from tenth to twelfth, although
it showed a net small job gain to more than 21,000 employees. It has longestablished Ford and GM plants in the Atlanta area. DCX had planned a new
commercial van plant near Savannah, but cancelled the development in 2003.56
North Carolina is not known for major assembly plants of cars and light trucks, but
has a sufficient diversity of automotive industries to advance to eleventh from
fifteenth, having added 16,000 new automotive jobs.57 Alabama moved from
nineteenth to thirteenth, and is poised to advance further. Besides the Mercedes
Benz M-Class plant in Vance, Honda has opened a minivan and engine plant in
Lincoln, where it is planning to more than double employment in the near future.58
Meanwhile, Hyundai is returning to North American manufacturing as it builds a new
multi-product plant near Montgomery.59 South Carolina has also become a
significant player, moving from thirty-fourth to fourteenth in state rankings, even
without counting more than 2,000 employees at the BMW assembly plant in Greer,
who are not included in the BLS data.
Before writing the analysis noted above, Thomas Klier had also found that, even
in a system of “just-in-time” manufacturing, “having suppliers located in the
immediate vicinity of an assembly plant is not necessary to maintain a system of tight
linkages and low inventories.” Rather, he found that a larger radius — about 400
miles, or the equivalent to one day’s delivery time by truck, was sufficient for the
purpose of supplying assembly plants. Early transplant location decisions, not only
56
“DaimlerChrysler Drops Truck Plant,”Wall St. Journal (Sept. 24, 2003), p. A11.
57
Freightliner trucks and Thomas Built buses are also manufactured in North Carolina;
“UAW Scores a Touchdown at Thomas Built,” Solidarity (May-Jun. 2004).
58
See also, Lindsay Chappell, “Honda Adds N.A. Capacity,” Automotive News (May 3,
2004), p. 6.
59
See entry in Automotive News summary, “Transplants’ Changing Faces” (June 14, 2004).
CRS-36
Honda in Ohio, but also Toyota in Kentucky and Nissan in Tennessee, were
essentially within this delivery distance for most midwestern suppliers, even though
they may have stretched the definition of the auto belt to the south. Thus, Klier in
1999 defined the principal location of U.S. automaking, including the transplants, as
“reconcentrating” from dispersed locations around the country to the I-65/I-75
interstate corridors.60
A reconcentration of the industry along the I-65/I-75 corridor has particularly
led to a loss of auto industry jobs in the industrial Northeast, as seen in Table 2.
New York fell from fifth to tenth in industry rankings, with a loss of 13,000
employment positions; Pennsylvania declined from eighth to fifteenth, with a loss of
12,000 jobs; New Jersey, not shown in the table, declined from nearly 15,000
employees in 1979 to a little more than 2,000 in 2003, plus at least one remaining
uncounted assembly plant. California also suffered from this trend, as it lost 9,000
auto industry jobs, as shown in Table 2, and declined in the ranking from fourth to
sixth (probably seventh, in view of Tennessee’s unreported numbers in vehicle
assembly employment).
In a later presentation to a Chicago Federal Reserve Bank conference on
manufacturing in the Midwest, Klier noted that more recent location decisions
stretched his auto belt geography farther to the south and west.61 Nissan has located
a large new plant in Canton, Mississippi, near I-55, off the edge of the one-day
trucking corridor described by Klier. Moreover, the new Toyota full-size truck plant
— located in the Texas customer base for such vehicles (San Antonio) — discards
the corridor location model altogether. Nissan has addressed this issue by
developing an industrial park at the site of its Mississippi facility, and requiring
designated “Tier 1” (direct) suppliers to locate there; Toyota is considering the same
option in Texas.62
On the other hand, there are also some counter-trends. Most transplant-owned
supplier locations continue to be in or near the I-65/I-75 corridor (exemplified by the
Toyota-owned engine block plant in St. Louis, its engine and transmission plants in
West Virginia and Huntsville, Alabama, only a few hours’ drive from Georgetown,
Kentucky, and Nissan’s recent decision to expand its engine plant in Decherd,
Tennessee). Also, companies have found that they can manage the logistics of justin-time manufacturing from more distant and disparate suppliers through a trucking
60
Thomas H. Klier, “Agglomeration in the U.S. Auto Supplier Industry,”Chicago Federal
Reserve Bank Economic Perspectives, XXIII:4 (1st qtr., 1999), pp. 18-34. Location decisions
by Toyota and Honda in Ontario also fit this pattern. Klier did note that foreign-owned auto
parts suppliers tended to locate closer to transplants than domestic suppliers. Also, industries
might move to the South for other reasons, including lower operating and energy costs,
cheaper land for greenfield investments, and location incentives.
61
Thomas H. Klier, “Midwest Auto Industry — Performance and Outlook,” presentation at
Is Midwest Manufacturing at a Crossroads? Federal Reserve Bank of Chicago (Sept. 30,
2003).
62
U.S. International Trade Commission (ITC). Industry Trade and Summary: Motor
Vehicles (USITC Pub. 3545, Sept. 2002), p. 10. Comments from Nissan and Toyota officials
during plant visits in Smyrna, TN, and Georgetown, KY., Feb. 17-18, 2004.
CRS-37
relay system, known as “cross-docking.”63 Nevertheless, the conclusion of Klier
remains that the “risk for the upper Midwest” is that, “future Big Three capacity
reductions will disproportionately impact the northern end of the auto corridor.” In
view of recent Big Three contract decisions, he believes that such continued capacity
reductions are likely.64
Divergence in Labor Relations Organization
Whatever the impact of recent developments in the location of auto
manufacturing on state and regional employment levels, there can be no question but
that employment trends in recent decades have been adverse for union membership,
and specifically for the UAW. According to a 2004 press report, “The UAW’s active
membership dropped to 624,000 at the end of 2003 — the lowest level in more than
six decades and down from a peak of 1.5 million in 1979.”65 The same source
contains a chart showing that this decline has not abated in recent years, as the latest
annual total compared to more than 762,000 members in 1999 and 702,000 at the end
of 2002.
This decline is not isolated from developments in other industries, where union
membership — both absolutely and as a share of employees in industry sectors —
has tended to fall since the early 1980s.66 The overall decline in total membership
may be seen as an aspect of productivity gains and the steady decline recorded in the
U.S. automotive industry of the hours required to build a motor vehicle — and, thus,
a relative decline in production workers on the factory floor. But productivity alone
cannot explain the relative fall in the share of employees who are unionized in an
industry.
While the unionized Big Three have downsized, the unions have been generally
unable to organize transplant operations. The ITC’s 2002 report on the motor vehicle
industry cites three organizing failures at Nissan’s plant in Smyrna, Tennessee, and
other failures in recent years at Honda in Marysville, Ohio; Toyota in Georgetown,
Kentucky; and, Mercedes Benz in Tuscaloosa (Vance), Alabama. The ITC report
also cites the organizing successes of the UAW — all, as noted earlier in this report,
at assembly plants linked to the Big Three.67 Overall, BEA foreign investment data
indicate that 33.7% of employees of majority-owned U.S. automotive products
affiliates of foreign companies were represented by unions in 2002, for a total of
more than 110,000 organized workers.68 However, as of 2002, Chrysler Group alone
63
ITC. Motor Vehicles, pp. 9-10. Robert Mottley, “‘Henry Ford Would Be Horrified,’”
American Shipper (June 2004), p.8.
64
Klier, “Midwest Auto Industry.”
65
E. Mayne, “UAW Slashes Staff, Travel to Cut Costs,” Detroit News (Jun. 22, 2004), p.
1.
66
See CRS Report RL32179, pp. 9-10.
67
ITC. Motor Vehicles, pp. 7-8.
68
BEA. Survey of Current Business (Aug. 2004), p. 205, Table 10.
CRS-38
possibly accounted for the majority of these union members, as it reported that its
UAW union contract covered 58,000 employees.69
Womack et al. present the view in The Machine That Changed the World that
union organization of the work force, in both the United States and abroad, is an
artifact of old style mass production in the motor vehicle industry. The nature of the
organization and quality of work under “Fordism” led to a stratification of factory
operations, with little opportunity for advancement by production workers in terms
of skill development or possibility of achievement of management positions.
Consequently, the critical determinant of worker advancement and security became
purely a matter of seniority, with the union as the buffer between workers and
management on issues such as contract terms and disputes within a highly formalized
system of work rules.
Such a system was considered unacceptable in the context of “lean production”
as it evolved in Japan, and then was transferred by Japanese companies to the United
States and Canada in transplant operations. Key features of the system became
known throughout the automotive manufacturing world by their Japanese names,
such as kaizen (continuous improvement), andon (ability of a single worker to stop
an entire production line when a quality problem is observed), and kanban (“just-intime” inventory management). The MIT team who wrote The Machine That
Changed the World reported that Toyota, author of lean production in its most
refined form, the “Toyota Production System” (TPS), studied Big Three methods in
the 1940s and 1950s, and concluded that smaller market volumes and higher material
costs in Japan would not support the inventory methods and rates of product
reworking that were observed in Big Three management of production and inventory
control. Toyota, Honda and other leading Japanese manufacturers concluded that
they needed tighter control of quality throughout the manufacturing process and even
beyond — from customer order to supplier relations to order fulfilment. They also
needed a system of “flexible manufacturing,” which enabled them to alter production
output among different models and to introduce new models off existing platforms
in a fashion that was faster, more efficient and less costly than Big Three retooling
and design procedures. In all facets of lean production as operated by the Japanese
companies and their competitors, a key element is a closer and more continuous
relationship between engineers and production staff — at both assembly operations
and parts suppliers — than was considered possible in a bifurcated unionmanagement dichotomy in the mass production system.70
Many representatives of the Big Three and the UAW today challenge such an
analysis. The Big Three have become highly sensitive about plant visits, being
concerned that they actually originated many TPS and lean production techniques,
which were then copied by the Japanese companies. The Japanese companies
learned from the Big Three, some representatives say, when the Big Three opened
69
70
DaimlerChrysler 2002 annual report, p. 50.
This analysis is based on Womack et al., The Machine That Changed the World. See esp.
the comments on pp. 40-43 and 252-253 on the evolution of the union role in automotive
mass production, and the UAW response to the transplants and the lean production model.
On mass production and worker organization in Europe, see pp. 227-235.
CRS-39
their factories and were candid in discussing technology application issues.71 But a
study by the Harbor automotive consulting organization, which surveys plant
efficiencies every year, reportedly found in June 2004 that manufacturing
inefficiencies contributed to an average loss by Ford of $48 on every vehicle that it
produced in North America, while Nissan, the industry leader, had a profit of $2,402
per vehicle, and Toyota followed with a profit of $1,742.72
The UAW has been skeptical about the goals of “flexible” manufacturing, the
outsourcing of parts and components by nameplate manufacturers, and other Big
Three work reorganization tactics, which reduce reliance on the centrally organized
workforce and workplace practices that have been developed over time through
collective bargaining agreements. A recent report by the International Metalworkers’
Federation argued that “flexibility” is a codeword for the global industry’s
“deregulation agenda,” aimed at reducing regulations designed to protect the public
interest, as well as workers’ interests, in health and safety, wages, and working
conditions.73 This concern has been amplified as the UAW reacted to the downsizing
in employment at the core automaking activities of the Big Three, the outsourcing of
parts and components to spun-off or third-party manufacturers and the continued
market pressure from non-union foreign-based companies.
UAW-Big Three contracts are multiyear agreements based on pattern
negotiations, typically after the union has selected a specific target employer for each
new industry contract. The most recent contracts were signed in 1999 and 2003. The
UAW has focused in recent contract negotiating rounds on job security, as well as
security of defined benefits as included in union contracts, while conceding the
necessity for the Big Three to close plants and downsize the workforce in view of
technological change, as well as changes in product market share.74 Recent contract
agreements with the Big Three addressed the UAW concerns that in-house sourcing
of new work is being given inadequate consideration by management. “The union
may at any time appeal any sourcing grievance to an umpire ... [who] is empowered
71
See quote from former CEO Philip Caldwell of Ford in Brinkley, Wheels for the World,
p. 588. This view led to a general closure of Big Three plants to outside visitors. It was only
recently reversed by Ford CEO William C. Ford, Jr. He has wanted to make Ford’s new
truck plant on the River Rouge site a model of environmentally and ergonomically
progressive industrial engineering: “I would like the Rouge again to be the most copied and
studied industrial complex in the world.” (Ibid., p. 746). In the “Motor City” region of
Detroit and southeast Michigan, it is the only automobile factory that tourists can visit today,
unlike some transplant operations, which welcome tourists (the BMW plant in Greer, South
Carolina, has included a company museum, theater and gift shop on the site for several
years).
72
Bill Koenig, “Ford to put $300 Million in Michigan Truck Plant,” Detroit Free Press
(Dec. 16, 2004).
73
International Metalworkers’ Federation. Auto Report 2004 (presented to UAW, June
2004), pp. 19-22.
74
A summary of key issues with each of the Big Three in the 2003 agreements is reported
in CRS Report RL32179, pp. 28-29. Comprehensive analyses of employment benefits and
economic security gains are presented in UAW Ford Report, UAW GM and Delphi Report,
and Newsgram: UAW DaimlerChrysler Hourly workers, all dated Sept. 2003.
CRS-40
to make the union whole if he or she finds the company violates the contract, even
if there are no layoffs as a result of the sourcing violation.”75
The UAW has also sought to minimize enrollment losses as the Big Three have
downsized their core automaking operations. One approach has been to use “card
checks,” by which companies agree to recognize and bargain with a union whenever
a majority of workers has signed union recognition cards. Card checks are generally
considered easier and cheaper for unions to organize than a formal election under
National Labor Relations Board (NLRB) auspices, as well as being more reliable in
terms of the anticipated result. GM, along with Delphi, in the 1999 and 2003
contract negotiations, agreed to allow a “card-check recognition process” in
determining representation at manufacturing facilities. They further agreed to inform
suppliers of their “positive and constructive relationship” with the UAW, in order to
signal that Big Three companies are not seeking to move sourcing to non-union
shops, or to discourage union organization of suppliers.76
The use of card checks has been challenged before the NLRB, as the UAW has
sought to regain membership by organizing supplier plants. The UAW had gained
recognition through use of card checks at plants operated by two auto supplier
companies, Dana Corp. and Metaldyne Corp. But some workers at the plants
petitioned to decertify the UAW, on the grounds that card checks do not constitute
a secret ballot on union representation, as guaranteed under the National Labor
Relations Act. By a 3-2 vote, reportedly on political party lines, the NLRB on June
7, 2004, decided to take a “critical look” at whether the process of card checks with
management neutrality agreements constitute a fair system in determining whether
employees desire a union. UAW president Ron Gettelfinger has said that he does not
believe that the NLRB will overturn the widespread practice of card checks.77
However, the UAW has suspended organization of a local at a foreign-owned North
Carolina bus manufacturing plant, where it had succeeded in gaining recognition
through a card check, in order to avoid being accused of acting prejudicially while
the NLRB is investigating the issue.78 On the other hand, on April 8, 2005, an NLRB
administrative law judge dismissed complaints by several workers and the national
Right to Work Legal Foundation that an agreement between the UAW and Dana at
a Michigan plant constituted an illegal “pre-recognition” agreement between
management and the UAW prior to any decision by employees to choose the union
as their collective bargaining agent. This decision is subject to appeal.79
75
UAW Ford Report (Sept. 2003), p. 13.
76
UAW GM and Delphi Report (Sept. 2003), p. 3.
77
Automotive News, “NLRB May Stifle UAW’s Efforts to Grow,” (June 14, 2004) and
“Gettelfinger Not Worried About Card-Check Decision,” (June 28, 2004).
78
79
Detroit Free Press, “UAW Yields to Organizing Protest, Awaits Vote” (Feb. 26, 2005).
NLRB Decision JD-24-05 (Apr. 8, 2005); Mary-Beth McLaughlin, “Key Union Tactic at
Dana Plant Is Upheld,” Toledo Blade (Apr. 16, 2005); “Labor Relations Board Upholds
UAW Neutrality Agreement with Dana,” UAW press release (Apr. 15, 2005); “Statement
of National Right to Work Foundation on Preliminary Upholding of UAW Union ‘Neutrality
Agreement’ with Dana Corp.,” press release (Apr. 15, 2005).
CRS-41
Legislation was introduced in the 108th Congress that would specifically have
allowed representation to be determined by card checks and would increase penalties
for employers that interfere in attempts to unionize. The bill, entitled, the “Employee
Free Choice Act,” was introduced on November 21, 2003, in the House by
Representative George Miller, and gained 207 cosponsors. A companion bill was
introduced in the Senate on the same day by Senator Edward Kennedy, with 36
cosponsors. Congress took no action on either measure. In an August 2004
interview, AFL-CIO president John J. Sweeney indicated that the legislation was a
priority for the labor movement, and was supported by the Democratic presidential
and vice-presidential candidates.80 This legislation has not been reintroduced in the
109th Congress.
Another issue that has been contested in automotive industry labor-management
relations is modularization, which has been utilized by motor vehicle manufacturers
in an effort to improve efficiency, while reducing their upfront costs. But it has been
considered as a form of outsourcing and, therefore, controversial to the UAW.
Modularization was pioneered by Volkswagen in South America, particularly
at a new bus and truck factory that the company built in Brazil. VW did not build or
operate the factory alone: key suppliers not only manufactured complete component
systems on site, but also invested directly in the parts of the complex that they
operated.81 The ITC report notes that modularization was derived from studying how
Dell revolutionized computer manufacturing and contrasts it with “traditional”
assembly line manufacturing as follows:
Although the traditional model for auto manufacturing is to have the vehicle
move down an assembly line as components are installed piece by piece, modular
assembly shifts a large portion of the supply chain management and component
integration responsibility to Tier 1 suppliers, which deliver a complete module
— e.g., a cabin cockpit fitted with instrument clusters, airbags, audio equipment,
and wiring — to the automaker. Studies have reportedly shown that outsourcing
of basic parts assembly to module producers could save automakers as much as
20% on production costs.82
Modularization may remove the nameplate assembler from directly
manufacturing much of the product; it becomes rather the marketer, coordinator and
distributor of the final vehicle. Notwithstanding that the VW experiment in Brazil
was not highly successful in terms of productivity or product quality, it spawned
imitations locally, perhaps due to local labor conditions, and then in North America.83
The ITC notes that GM attempted to bring the concept to its new Lansing Grand
80
Washington Post, “AFL-CIO Sets Its Sights on a Kerry Victory” (Aug. 25, 2004), p. E1.
81
Alice Abreu, Huw Beynon and José Ricardo Ramalho, “‘The Dream Factory:’ VW’s
Modular Production System in Resende, Brazil,”Work, Employment & Society , XIV:2
(2000), pp. 265-82. Interestingly, the article notes that the VW plant at Resende has not been
especially successful in terms of productivity, when compared with other automotive
operations.
82
ITC, Motor Vehicles, pp. 13-14.
83
Abreu et al., “Dream Factory,” p. 272, 277-80.
CRS-42
River Cadillac factory, but UAW opposition may have discouraged implementation
of the “supplier-next-door” concept, although not the installation of complete
modules received from suppliers.84
Chrysler is making the boldest step so far to establish modularization at a unionrepresented North American site. It is building a new Jeep plant on the site of one
of its oldest factories, in Toledo, Ohio. Chrysler is investing about $900 million in
the venture, with about $300 million invested by suppliers that will build the body
and chassis, and paint the vehicles, on site. Out of a planned 4,000 production
workers, drawn mostly from currently laid off auto workers, about 40% will be
directly managed and employed by the suppliers. The UAW local has agreed to this
arrangement, and is negotiating separate contracts, with different rates of pay and
benefits, with the suppliers.85
Modularization does not yet appear to be accepted as the inevitable next
evolutionary step in North American automotive manufacturing. At a 2004
conference, for example, a Toyota executive answered a question about “modular
assembly” by stating that it is not used by Toyota. Since his company, the executive
stated, viewed its comparative advantage as being in manufacturing, Toyota prefers
to build all major assemblies itself, though sometimes it might assemble them off-site
from the final vehicle assembly point.86
This report has discussed the decline or slow growth of Big Three production
in North America, the link between the Big Three and the UAW, and the relatively
rapid growth of non-unionized transplant production. But this is not to imply that
international companies investing in the United States have not also experienced
mistakes and difficulties in implementing their manufacturing investment decisions.
Nissan’s new factory in Mississippi, for example, experienced a number of
problems across its product lines, which caused its product quality ratings by a
84
ITC, Motor Vehicles, p. 14.
85
Jeremy Grant, “Chrysler Rolls Out Assembly Work,” Financial Times (Aug. 3, 2004), p.
18; Mark Phelan, “DCX, UAW, Suppliers OK Historic Teamwork, Detroit Free Press (Aug.
4, 2004); “DaimlerChrysler, Suppliers Team Up,” Detroit News (Aug. 4, 2004); Sholnn
Freeman, “Chrysler to Expand Ohio Plant, In Novel Venture with Suppliers,” Wall St.
Journal (Aug. 4, 2004), p. 8; James Flanigan, “In U.S., a New Model for Auto Industry,”
Los Angeles Times (Aug. 8, 2004), p. C1; John Seewer, “Suppliers to Partner with Jeep in
Toledo,” Cincinnati Post (Aug. 4, 2004), p. B6; Mary Connelly, “Test in Toledo: Can Four
Work as One?” and, Ralph Kisiel, “The Past Haunts the ‘Plant of the Future,’” Automotive
News (Aug. 9, 2004), pp. 1 and 4. Some articles note that, although Chrysler has experience
with supplier integration in assembly plant operations in Brazil, the specific DCX precedent
for the approach in Toledo is the Mercedes Benz small car manufacturing plant,
“Smartville,” in Hambach, France. Mary Connelly, “Zetsche: Haden Looks Like Partner in
Toledo,” Automotive News (Oct. 11, 2004), p. 26, covers the story that one of the three
initial suppliers pulled out of its investment, to be prospectively replaced by another
company.
86
Robert J. Ried, plant manager of a new Toyota assembly plant in Baja California, Mexico,
speaking at the Global Insight “Global Automotive Conference,” Dearborn, MI (Sept. 30,
2004).
CRS-43
respected private authority to decline substantially compared to its competitors.
Analysts speculated that the problem lay in overreaching by the company, which
sought to introduce new products, in a new-concept plant in a new location, while
training thousands of new employees.87 Far worse than the problem faced by Nissan
is the series of mistakes and problems faced by Mitsubishi. The already-struggling
company announced that it had hidden quality and design defects on cars sold in
Japan, leading to a public apology, resignation of the CEO, and serious declines in
sales and market shares both in the home market and North America. Its affiliate
DCX announced that it would invest no more in the ailing Japanese automaker and
has begun to reduce its 37% shareholding in the company, despite contracts for
development and production of joint platforms and vehicles. The Japanese
government and creditors, including the Japanese corporate parent, have stepped in
to prevent a complete collapse of the Mitsubishi automotive entity.88 Overall, veteran
automotive reporter Lindsay Chappell in a recent survey demonstrated that
transplants — the “New American Manufacturers” — have had a number of quality
problems, ageing product lines with declining profits, and some less than successful
North American manufacturing investments. “The days of easy growth are over,” he
wrote.89
Pension and Health Care Issues
Big Three representatives say that they are unfairly burdened in competing with
both imports and domestic production from foreign-based automakers by their own
rising pension and health care costs. Though most are non-union operations, the
transplants also provide an equivalent level of benefits. But being newer investors
in the United States, they do not yet face a burden of health care and other benefit
costs, which have accumulated over the decades for the Big Three, as the number of
retirees increases. Moreover, the average age of current employees is higher for the
Big Three, and health care costs are correspondingly higher. Like some other longunionized American industries, such as integrated steel mills, the Big Three face
aggressive non-union competition less burdened by these costs.
87
Business Week “Nissan: The Squeaks Get Louder”(May 17, 2004), p. 44;and, “The Way
of Carlos Ghosn” (Oct. 4, 2004), esp. p. 54; “Nissan Hustles Engineers to the U.S. —
Carmaker Scrambles to Improve Scores for New-Vehicle Quality,” Automotive News (June
28, 2004).
88
Sarah A. Webster, “DCX Decides It Won’t Bail Out Struggling Mitsubishi,” Detroit Free
Press (Apr. 23, 2004); “MMC Reels as Daimler Walks Away,” and “Mitsubishi Pledges
Support for Car Unit,” Financial Times (Apr. 24, 2004), pp. 1 and 8; FT.com, “Mitsubishi
Motors CEO Steps Down,” and “Crisis at Mitsubishi Motors Deepens,” (Apr. 26, 2004);
and, “Mitsubishi Motors’ Rescue Tops $10 Billion” (Jan. 28, 2005).
89
Lindsay Chappell, “Trouble on the Horizon,” Automotive News (June 14, 2004), pp. 2324. See also, “How Honda Is Stalling in the U.S.,” Business Week (May 24, 2004), pp. 6263, and Hyundai’s concerns about maintaining its recently regained quality rating,
“Hyundai: Kissing Clunkers Goodbye,” Business Week (May 17, 2004), p. 45; and, L.
Chappell, “Hyundai Double-Checks Supply Chain as Production Nears at Alabama Plant,”
Automotive News (Oct. 25, 2004).
CRS-44
GM CEO G. Richard Wagoner, Jr. estimated in 2004 that every GM vehicle
built in North America included $1,400 in health care costs — typically more than
the value of the steel in the same vehicle.90 In February 2005, he raised this estimate
to $1,525.91 According to the Detroit Free Press, “GM ... has estimated its future
retiree health care obligation is $67.54 billion, but has set aside less than $10 billion
for that obligation. GM provides health care to about 1.1 million people, more than
any other corporation in the country.”92 With ageing labor forces and retirees now
outnumbering active employees, Ford and Chrysler face similar pressures.93 The
Automotive Trade Policy Council (ATPC), the joint representative organization in
Washington of the Big Three, estimated in 2004 that the overall Big Three average
health care costs per vehicle are $1,220, compared to an average of $450 estimated
for Japanese and other foreign-owned manufacturers. The total Big Three health care
bill in 2003 was $10 billion, compared to an estimated $1.6 billion for their
competitors, ATPC said. In terms of retirees and surviving spouses supported by
pension benefits, ATPC estimated that the Big Three support more than 800,000
persons, compared to less than 1,000 now supported by foreign-owned competitors
operating in the United States — though that latter number is bound to grow over
time, while the Big Three number should peak in the next few years, and then
decline.94
More recent data in an Automotive News article gave even higher estimates and
greater discrepancies, based on 2004 data. It stated that GM paid for the health care
of 339,000 retirees, accounting for more than two-thirds of GM’s $5.2 billion
spending on health care (and not counting a $9 billion contribution to a trust fund for
health care costs). Ford spent $2 billion on retiree health care in 2004, and the
Chrysler Group spent $1.3 billion. By comparison, Toyota’s employees in Japan are
switched from the company health care plan to a national health care system within
two years of retirement; the company is thus responsible currently for retiree health
care coverage of only 3,000 persons in Japan.95
Furthermore, the Big Three have been locked into multiyear labor contracts that
require them to support laid off workers at 95% of salary, plus benefits, for the length
of the contract. Under these circumstances, the companies, led by GM, decided not
to cut back production and close plants after an economic recession and the
September 11, 2001, terrorist attacks threatened growth prospects. They decided to
90
“Health Care Costs Burden GM by $4 Billion, CEO Says,” Detroit Free Press (Feb. 11,
2005); a Toyota executive was quoted as saying that health care costs at one of his
company’s plants cost his company $12,000 annually per employee.
91
; “U.S. Firms Losing Health Care Battle, GM Chairman Says,” Washington Post (Feb. 11,
2005), p. E1.
92
Jeffrey McCracken, “Retiree Costs Weigh on Firms: Health, Pension Debts Multiply,”
Detroit Free Press (May 28, 2004).
93
See also David Welch, “Has GM Outrun Its Pension Problems?” Business Week (Jan. 19,
2004), p. 70.
94
95
ATPC, Contribution of U.S. Auto Industry, charts 10-14.
James B. Treece, “Japan’s Health Care Gives Toyota Edge,” Automotive News (Mar. 28,
2005), p. 26.
CRS-45
maintain production levels, then heavily discounted their products. At GM this
meant incentives of up to $6,000 per vehicle or interest-free financing for up to 72
months. Ford has also followed a similar strategy in recent years. Chrysler, which
has successfully introduced two major new products in 2004, has at least been able
to cut back on its incentives. However, even the leading Japanese producers —
Toyota, Honda and Nissan — have offered incentives, especially to move some of
their older product lines. The consequence has perhaps been positive for the overall
U.S. economy, by stimulating vehicle production and purchases, thus offsetting
recessionary forces in late 2001 and afterward. But the cost may be overbuilt
inventory and production capacity, especially for the Big Three. By the end of 2004,
Ford and GM were cutting production and working time. Both were losing money
on North American automaking operations, as well as losing market share in both
cars and trucks. The issue was seen as especially critical at GM, which has
maintained eight separate brand identities (after terminating Oldsmobile in 2000),
and whose investment-grade credit rating has become endangered in early 2005.96
In the first quarter of 2005, GM issued a profit warning, subsequently
announced a $1.1 billion loss for the quarter, then suspended all further earnings
“guidance” for the year.97 GM focused attention on the rising cost of health care as
a “crisis” and requested that the UAW consider changes in health care coverage to
assist the company in resolving its financial problems. The UAW refused to consider
a reopening of its contract, though it did state that there might be means of alleviating
the problem, without a full-blown renegotiation. For example, its contract with
Chrysler had been amended after earlier losses for that company, so that union
members picked up some portions of the their health care costs.98
The Big Three also have sought assistance from Congress in offsetting their
health care costs in their effort to remain competitive. Representatives of the
companies met with members of Congress, with the support of the UAW and the
United Steelworkers, in an effort to gain tax credits for health care payments for 55to 64-year-old workers and retirees. They pointed out that corporate tax cuts
ultimately approved by Congress in the American Jobs Creation Act, containing tax
96
Business Week, “GM: A Dangerous Skid” (Nov. 1, 2004), pp. 40-41; and “Running Out
of Gas” (Mar. 28, 2005), pp. 29-31; Automotive News, “Downsizing Detroit” (Mar. 14,
2005), pp. 1 and 55; Wall St. Journal “Ford and GM Lose Ground to Imports: Heavy
Incentives Don’t Stem Flight” (Nov. 4, 2004); Detroit Free Press, “First Quarter reactions:
GM Tries to Make 8 Brands Salable” (Apr. 20, 2005). On GM incentive programs, see K.C.
Crain, “GM’s Bold Promos Hit and Miss in 2004,” Automotive News (Dec. 6, 2004), p. 43.
There is some question as to whether transaction prices have really fallen, or whether GM
and Ford have both increased incentives while raising base prices; “Car and Truck Pricing:
Despite Deals, Buyers End Up Paying More,” Detroit Free Press (Jan. 27, 2005); and,
“GM’s Sticker Shock,” Business Week (Mar. 7, 2005), p. 50.
97
Greg Schneider, “Industry Giant Falling Behind: GM Reports $1.1 Billion Loss” (Apr. 20,
2005), p. A1; Bloomberg.com, “GM Has $1.1 Bln 1st-Qtr Loss, Withdraws 2005 Forecast”
(Apr. 19, 2005).
98
Detroit Free Press, “UAW Won’t Reopen GM Contract” (Apr. 15, 2005), and “Widening
Burden: GM Confirms That Cost of Health Care Is a Crisis” (Apr. 20, 2005); Automotive
News, “UAW to GM: Go Slow on Health Care” (Apr. 18, 2005), p. 3.
CRS-46
law changes in response to a WTO decision (P.L. 108-357), would do little to assist
their firms in competition with foreign-based manufacturers, because of low rates of
profit in recent years from domestic manufacturing. Despite an effort by Senators
Arlen Specter and John Rockefeller to add such a provision to the legislation, it was
not included.99 Failing to gain relief in the 108th Congress on this issue, the domestic
automotive manufacturers also reportedly held discussions on the issue with
representatives of Senator John Kerry’s unsuccessful presidential campaign, and have
expressed interest in both Senator Kerry’s health reform plan and a different
approach proposed by Senator William Frist, the Republican Majority Leader.100
U.S. Automotive Trade: Data and Policy Issues
Growth of Foreign-Based Competition in the U.S. Market
As shown in Figure 9, the U.S. consumer automotive market, including cars and
light trucks (pickups, minivans and SUVs), has grown moderately over the past 25
years, when considered in terms of total unit sales. From more than 14 million units
in 1979, at a then-peak in general manufacturing output and employment, total motor
industry sales since 2000 have averaged more than 17 million units per year. The
market is cyclical, and it dipped substantially during general recessions in the early
1980s, just before and during the recession of 1990-91 and again, more moderately,
during the most recent recession after 2000. Moreover, as also shown in the figure,
most of the overall growth in sales has come from vehicles produced by foreignowned companies, primarily from production at foreign direct investment
“transplant” manufacturing operations in North America, rather than from Big Three
North American plants.
In 1979, nearly 80% of all consumer vehicles — cars and light trucks — sold
in the United States were built by the domestic Big Three manufacturers. Already
by that date, imported cars, largely from VW of Germany or the Japanese
manufacturers, were making an impact in the market, as they accounted for 26% of
sales of cars alone. Imported trucks had a smaller share of the domestic market, but
99
Harry Stoffer, “Big Three Ask for Help on Health Care,” Automotive News (May 31,
2004), p. 3. Legislation was offered as an amendment to the Senate version of the tax bill,
by Sen. Specter (printed in Congressional Record, May 10, 2004, p. S5166). An exchange
of correspondence and analyses on the issue between Sen. Rockefeller and the leadership
of the Senate Finance Committee is contained in Sen. Rockefeller’s “Dear Colleague” letter
of Aug. 9, 2004, and attachments, and “Dear Colleague” letter from Sens. Grassley and
Baucus of Sept. 24, 2004, with attachment. No votes were held on the legislation.
100
Financial Times, “Motor Industry Signals Interest in Kerry’s Healthcare Proposals” (Oct.
13, 2004); Jason Stein, “GM CEO Likes Health Care Idea,” Automotive News (Nov. 1,
2004), p. 3. For a pessimistic assessment of the likelihood of government assistance in early
2005, see Harry Stoffer, “Health Care: Odds Are that GM Won’t Get Much Government
Help,” Automotive News (Apr. 11, 2005), p. 51. Other views on the background and
development of the issue are in Allan Sloan, “General Motors Getting Eaten Alive by a Free
Lunch,” Washington Post (Apr. 19, 2005), p. E3; and, J. McCracken and K. Merz, “Auto
Industry’s Role in Health Care,” Detroit Free Press (Apr. 14, 2005).
CRS-47
at that time light trucks were less than a quarter of the total vehicle market. As the
economy recovered and the dollar strengthened in the mid-1980s, imported vehicles
increased to more than three million units in 1984-85, and to more than four million
units in 1986-87. In those years, for example, imported cars accounted for almost
40% of sales, the highest level ever. During this period, the United States and Japan
negotiated a “voluntary export restraint,” discussed below, which effectively capped
the level of imports from that country. In the 1990s, the total level of vehicle imports
remained below three million units annually, though it has again been higher than
that level since 2001.
As shown in Figure 9, with further details provided in Appendix Table 4,
transplant output by foreign-owned manufacturers (which excludes facilities of the
Daimler-owned Chrysler Group), in recent years has equaled or even surpassed
imported units in terms of vehicle sales. In 1995, the two million transplantproduced units sold in the United States surpassed the number of imported vehicles
sold here for the first time. This balance was maintained until 2002, when imports
again were slightly higher than transplants, as both surpassed the three-million mark
in unit sales.101
Foreign-brand vehicles now are the dominant market force in passenger car
sales. If one adds imports and transplants together, they account for 55% of the 7.6
million passenger cars sold in the United States in 2003. Moreover, the share of sales
taken by imported passenger cars in 2003 is now actually higher than in 1979: 28%
of sales, compared to 21% then.
Part of the reason for this is that the Big Three have focused more on the light
truck market. Annual U.S. car sales have been surpassed by light trucks (9.4 million
in 2003), and the position of the Big Three is relatively stronger in this category.
Nevertheless, foreign nameplates are growing here as well. Imported light trucks
have exceeded one million vehicles per year since 2001, although in view of the fast
growth of the domestic market, in 2003 they accounted for only about the same share
as in 1979 — 13% as against 14%. However, transplants, which were virtually nonexistent in 1979, accounted for another one million in light truck sales annually since
2001. Together, imports and transplants accounted for almost 25% of all U.S. light
truck sales in 2003, compared to only 11% as recently as 1995.102 Through the first
101
A small share of transplant production is affiliated with the Big Three, but it is still
counted as transplant activity. Besides the NUMMI joint venture between Toyota and GM
in Fremont, California, other transplants that were or are affiliated with the Big Three
include the Ford-Mazda “AutoAlliance” plant in Michigan, and the Mitsubishi plant in
Illinois, originally formed in the “DiamondStar” alliance with Chrysler. NUMMI continues
as a highly successful operation, producing mainly Toyotas, but also some GM-branded
vehicles. In general, however, the Big Three-affiliate transplants have been smaller in
volume and less successful than independently established transplant operations. See
Automotive News summary of transplant operations, “Transplants’ Changing Faces” (June
14, 2004).
102
Veteran auto industry journalist Jerry Flint stated that in October 2004, foreign
nameplates had risen to 30.4% of the light truck market, and their inevitable increase was
forcing the Big Three to re-emphasize their car lines with new models; “The Year of the
Car,” Forbes.com (Nov. 23, 2004).
CRS-48
ten months of 2004, foreign brands (including imports and transplants) together
reportedly accounted for about 40% of all U.S. new car and light truck sales.103
Figure 9. U.S. Motor Vehicle Sales
20
Units in millions
Big Three Sales
Transplant Sales
Import Sales
15
10
5
0
1979
1982
1985
1988
1991
1994
1997
2000
2003
Sources: Ward’s Motor Vehicle Facts & Figures (from 2000), various years; and, American Automobile
Manufacturers’ Association. Motor Vehicle Facts & Figures (through 1999), various years.
Note: “Imports” are vehicles assembled outside North America.
The results of these sales, production and import trends, in terms of sales by
motor vehicle companies in the U.S. market, are shown in Table 3. The Big Three
strength in light trucks has not been enough to offset their overall decline in vehicle
market share. GM is particularly affected by this decline, dropping more than a third
of its market share between 1979 and 2003, from 44% to 28%. Ford’s sales have
fallen by one-half in cars — but doubled in trucks; still, they have lost about three
points in market share. Chrysler’s strength in SUVs and minivans have helped the
company, moribund in 1979, actually gain market share over the past quarter-century,
though only from 11% to 12.8%. Still, Chrysler’s gain did little to offset the overall
Big Three decline in sales shares, from nearly 80% to less than 62% — and
preliminary data for 2004 indicate even more dramatic losses in market share for the
two largest Big Three producers.
103
Jerry Flint, “Stranded in Washington,” Forbes.com (Dec. 7, 2004).
CRS-49
Table 3. U.S. Motor Vehicle Sales by Manufacturer
(sales numbers in thousands)
Sales 1979
Sales 2003
Cars
Light
Trucks
Total
%
Cars
Light
Trucks
Total
%
GM
4,918
1,428
6,346
44.8
1,959
2,757
4,716
28.3
Ford
2,140
1,198
3,338
23.6
1,169
2,268
3,437
20.7
Chrys.
1,167
391
1,558
11.0
457
1,671
2,128
12.8
Big
Three
8,225
3,017
11,242
79.4
3,585
6,696
10,281
61.8
Toyota
508
130
638
4.5
996
870
1,866
11.2
Honda
353
NA
353
2.5
820
530
1,350
8.1
Nissan
472
102
574
4.1
505
289
794
4.8
Hyundai/Kia N.A.
N.A.
N.A.
N.A.
439
198
637
3.8
157
8
165
1.2
164
95
259
1.6
Mitsubishi* N.A.
N.A.
N.A.
N.A.
162
95
257
1.5
Subaru
128
—
128
0.9
116
70
186
1.1
Suzuki
N.A.
N.A.
N.A.
N.A.
23
36
59
0.4
Asianowned
mfrs.
1,618
240
1,858
13.1
3,225
2,183
5,408
32.5
VW
334
2
336
2.4
262
27
289
1.7
BMW
35
—
35
0.2
236
41
277
1.7
MercedesBenz
53
4
57
0.4
187
32
219
1.3
Mazda
Ger.owned
mfrs.
369
6
428
3.0
685
100
785
4.7
Other
461
217
625
4.4
115
50
165
1.0
Total
10,673
3,480
14,153
100.0
7,610
9,029
16,639
100.0
Sources: Ward’s Automotive Yearbook 1980, 2004; total vehicle sales numbers for 1979 from Motor
Vehicle Manufacturers Association, MVMA Motor Vehicle Facts and Figures ‘80.
* Some Mitsubishi vehicles sold by Chrysler Corp. under Chrysler brand names in 1979.
CRS-50
Among foreign brands, the big winners over the past 25 years are obviously
Asian-based producers, who increased their share of total consumer vehicle sales by
a factor of about 2.5, from 13% to 32.5%. Three companies account for most of the
change: Toyota, which increased its share of sales from 4.5% to 11.2%; Honda,
which more than tripled sales share from 2.5% to 8.1%; and, Hyundai, which was not
even selling cars in the United States in 1979, but took nearly 4% of the market in
2003. Even Nissan, which registered a much more modest sales gain over the entire
period, has done well to increase its share, after virtual bankruptcy as a company, and
serious losses of market share to other import brands in the late 1990s. The only
other foreign-based producers with significant U.S. market share are three companies
from Germany. Among them, gains by the BMW and Mercedes brands have more
than offset VW’s decline, but total market share is still less than 5%.104
The initial year-end sales data for 2004 confirmed, or even accelerated, these
trends. Industry light vehicle sales overall were 16.9 million units, fractionally ahead
of 2003. But domestic Big Three brands’ share fell by a further 1%. Chrysler
Group’s 3.7% sales gain in the year could not offset declines by GM (down 1.3% to
about 25%) and Ford (down 4.5%, to less than 20%), which occurred despite those
two companies heavy incentive programs. Toyota (sales up 10.4% for the year) and
Nissan (up 24%), introduced new brands and products, and saw exceptional sales
gains for the year; Toyota became the first foreign brand to sell more than two
million vehicles in the U.S. market. Honda (up 3.3%), Hyundai (plus 4.6%), and
Subaru also registered gains, though at more modest levels. Among Asian brands
only Mitsubishi saw a decline in U.S. sales in 2004. Its sales in 2004 were down
37%, and the CEO of its U.S. operating company resigned at the end of the year.
Overall, Asian manufacturers gained another two points in U.S. light vehicles market
share. Some of this gain came at the expense of European manufacturers,
particularly VW, whose sales fell 13.6%. Mercedes Benz sales were flat, but BMW
increased U.S. sales by 7% in 2004.105
The performance of the two remaining U.S.-owned manufacturers worsened
further in early 2005. GM’s loss of $1.1 billion in the first quarter was largely due
to weak performance in the U.S. domestic market, and as seen above, was partly
attributed by the company to a continuing rise in health care costs. Shortly after the
GM announcement, Ford announced substantially reduced earnings in the first
quarter of 2005 and that the company would not achieve CEO Ford’s earlier
announced goal of $7 billion in profits by 2006.106
104
On VW’s U.S. decline, see Jer
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