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    THE INTERNATIONALIZATION OF THE AUTOMOBILE INDUSTRY AND ITS EFFECTS ON THE U.S. AUTOMOBILE INDUSTRY

    Report on lnvestrgatlon No. 332-188 Under Section 332 of the Tariff Act of 1930

    USITC PUBLICATION 1712

    JUNE 1985

    United States International Trade Commission I Washington, D.C. 20436

  • UNITED STATES INTERNATIONAL TRADE COMMISSION

    COMMISSIONERS

    Paula Stern, Chairwoman

    Susan W. Llebeler, Vice Chairman

    Alfred E. Eckes Seeley G. Lodwick

    David 8. Rohr

    This report was prepared principally by

    Jim McElroy and John Creamer

    Machinery and Transportation Equipment Branch Machinery and Equipment Division

    Clark Markman Office of Economics

    Office of Industries Vern Simpson, Acting Director

    Address all communications to

    Kenneth R. MasoIJ,, Secretary to the Commission

    United States International Trade Commission

    Washington, DC 20436

  • Preface

    On August 6, 1984, the International Trade Commission, on its own motion in accordance with section 332(b) of the Tariff Act of 1930 (19 U.S.C. 1332(b)), instituted investigation No. 332--188, "The Internationalization of the Automobile Industry and Its Effects on the U.S. Automobile Industry." !I This study examines the concepts of internationalization and the principal factors that led up to the internationalization of the world automobile industry, with particular emphasis on the U.S. automobile industry. It assesses both government policies and other factors, such as transportation costs, labor rates, and resource availability which influenced automobile manufacturers' decisions to procure outside the country of final assembly and to form joint ventures with foreign firms. Notice of the investigation and public hearing in connection therewith was given by posting copies of the notice of investigation at the Office of the Secretary, U.S. International Trade Commission, Washington, DC, and by publishing the notice in the Federal Register of August 15, 1984 (49 F.R. 32694) (app. A).

    An interim report was prepared in response to a request by the Subcommittee on Trade of the Committee on Ways and Means of the U.S. House of Representatives for information to assist in decisions regarding any extension of the automobile voluntary restraint agreement (VRA) with Japan. In its request, dated December 11, 1984 (see app. B for a copy of the requesting letter), the Subcommittee specifically asked that the Conunission expedite investigation No. 332-188. However, because of the comprehensive coverage of the investigation, the Commission could not expedite completion of the formal section 332 report. Since the Subcommittee's primary interest was the impact of the VRA on the U.S. industry, the Commission agreed, instead, to provide a preliminary analysis of the VRA's impact, ~/ which has been incorporated in this report.

    In the course of this investigation, the Commission collected data from questionnaires sent to the six principal U.S. based automobile producers and the top nine U.S. importers of automobiles. Responses were received from all producers and importers to whom questionnaires were sent. A public hearing was held in Detroit, Mich. on December 4, 1984, and testimony was received from two U.S. parts associations, one Canadian parts association, the principal automotive workers union, an import automobile dealers association, and other interested parties Capp. C). Additionally, information was obtained from published sources, from interviews with corporate executives representing complete vehicle and parts producers, importers, and independent financial analysts, from the Commission's files, and from other sources.

    The information and analysis in this report are for the purpose of this report only. Nothing in this report should be construed to indicate how the Commission would find in an investigation conducted under other statutory authority covering the same or similar matter.

    11 Conunissioner Rohr did not participate in this investigation. £1 A Review of Recent Developments in the U.S. Automobile Industry Including

    an Assessment of the Japanese Voluntary Restraint Agreements (preliminary report to the Subcommittee on Trade, Committee on Ways and Means of the U.S. House of Representatives in connection with investigation No. 332-188), USITC Publication 1648, February 1985.

  • iii

    C 0 N T E N T S

    Preface-------------------------------------------------~------------------ i Executive Summary-------_: ________ :_ __ .:_ _______ ~---------:---.---:._----,--:---_:____ vii Internationalization of the World Automobile Industry:

    The concept of internationalization----..:.-'--------_: ______ _:______________ 1 The world car---------------------~------------------------------------ 3 Joint ventures--------------------:_ ____ -..::._ ____________ .___________________ 3 Offshore sourcing-----------------~~-..:. __ _:. _______________ ~---:---------- 4

    Factors Leading to the Internationalization of the World Automobile Industry: Government policies worldwide--------:----------------------.,------:------ 4

    U.S.-'Canadian Automotive Agreement-------,------.:___________________ 6 Automobile restraint agreements------·~------------:---------------- 7 Mexican auto decrees--------------------------..:_-:-_.:_ _____ _,.,----------- 10 Domestic content----------------------:---------:--------:------------ 13 H.R. 1050---------------------------------------:---------,---------- 14 Other government policies that have contributed to internationali-

    zation--------------------------------~---------------------:____ 15 Nongovernment policies------------------------------------------------ 18

    Maj or world producers: · . World production and trade overview-----------------:--.---------------- 18

    Profile of the U. s. industry and U.S. market---.:.---------.----------------- 24 Production and shipments----------------------------------------------- 25 U.S. trade-----------------------~---------~-------------------------- 28

    U.S. imports--~--------------------------------------------------- 29 U.S. exports and trade balance----...:--:----.---.:.---------------------- 32

    Employment and wages-------·-------------------------,-:-----;-------------- 33 Hours worked per vehicle and Japanese'cost advantage--:-·-------------- 37 Financial data: ·

    Prof it and loss----------------------------------~-~-_:____________ 39 .. ' Break-even analysis----..:.------------~----------------------------- 41 Capital expenditures and research and development-~---'...----:-------- 42

    Capacity changes--- - -----------------------------------·---:------------- 44 U.S. retail sales---------------------------------------~------------- 45 Inventories-----------------------------------------------~----------- 49 Retail prices-------------------------------------~-----------.--------- 49 Pricing strategies-------------------------------.:_ _______ .______________ 52 Product mix changes-----------------------------~-------~-------------- 54

    ·Product mix of U.S. producers----~-----.---------:------~----------- 54 Product mix of Japanese producers--------------------------------- 56

    Factors Influencing the Internationalization of the U.S. Automobile. Industry:

    Government po 1 ic ies- ------------------------------------.--:-:------------- 61 United States-Canadian Automotive Agreement~-----------.:..__________ 61 Voluntary restraint agreement~ ___ _:. _____ .:_ ________ :__:_-'-------------- 63

    Sales of Japanese imports----------------::----:--:--------------- 63 Priees of Japanese autos---------------------_:_: __ -:------------- 65 Sales of U.S. autos-----------..:--------::----------------------- 6 7 Domestic new-car prices and used-car prices-----------.-------- 6 7 Consumer costs--------~-------------------------~------------- 68 Aggregate welfare effects---------------------------~--------- 70 Employment effects-----------------·----------------------------- 70

  • iv

    CONTENTS

    Factors influencing the internationalization of the U.S. automobile industry--Continued

    Government policies~-Continued Voluntary restraint agreements--Continued

    Forecasts of future auto demand and imports------------------- 71 Effects of the VRA on the U.S. trade balance with Japan------- 74

    Proposed domestic content legislation------------------------------- 75 Effect of proposed auto quota bill---------------------------------- 75 Effects of the Mexican auto decrees--------------------------------- 77

    Internationalization efforts and accomplishments by the U.S. industry----- 80 U.S.-based joint ve~tures--------------------------------------------- 81 U.S. subsidiaries abroad---------------------------------------------- 83 Joint ventures abroad------------------------------------------------- 84 Imports of automobiles-----------------------------------~------------- 85 Small car development programs---------------------------------------- 86

    Changes in the U.S. Market and Industry Resulting from Internationali- zation Efforts---------------------------------------------------------- 88

    Foreign Industry Profiles, Government Policies, and Internationalization: Canada:

    Industry profile--------·------------------------------------------ 90 Government policies----------------------------------------------- 91 Trade and internationalization-------------------·------------------ 92

    Japan: Industry profile----------