Fighting for American Industrial Renewal; Industry and Manufacturing Advocacy Group for public Education

Frequently Asked Questions (and oft repeated myths)

Why have the US-based companies focused almost exclusively on gas-guzzling SUVs?


That may be the appearance, given the popularity of SUVs, but it's far from true.  The fact is, it’s nearly impossible to make a profit on a small car built in the United States. Look no further than any of the "foreign transplants" who operate just one US-factory dedicated to the production of compact cars1.  The remaining foreign-owned factories specialize in larger sedans, pickups and SUVs. At the same time, all three domestic companies build compact cars in the US.  There are no sub-compact cars (i.e. Honda Fit, Nissan Versa, Toyota Yaris) manufactured in the United States, all are imported.

 

Because of the typically low price of fuel in North America, new small cars compete with larger, better-equipped used cars.  Only during relatively rare gasoline price spikes will most American consumers accept the idea of “new” small car.  When you must commit engineering resources to design, manufacture and sell small cars (with thin profit margins) in just one market, it’s a tough business case to make. 

 

Contrast this with Europe and Asia where governments impose high taxes on both fuels and engine size.  Thus a reliable market is created for small cars.  It makes sense to import from those markets into the US when our fuel prices spike upwards.  When fuel prices return to historic “norms”, foreign companies can slow shipments into the US without having committed factories, tooling, labor and development costs to just one market.  This inability to export is why protected foreign markets are very harmful to US automakers, their employees, and ultimately American consumers. 

 

This market volatility can be seen in the prices of nearly-new used cars.

Further the notion of the gas-guzzling SUV is relative; given that US-designed trucks and SUVs are typically more fuel efficient than similar-sized offerings from Toyota, Nissan, BMW and Mercedes.

 

 

 

 

 

 

 

Both GM and Ford offer some great small cars in Europe, why haven’t they come to the United States or Canada?

 

Differences in US safety and emissions standards (which are typically more rigorous) mean that it’s not as simple as loading a cargo ship and delivering to the dealer. Tougher US emissions standards play a large role in keeping diesel versions of vehicles outside of the US market. The higher price of European labor also becomes a factor in a US market that demands small cars at entry-level pricing.

 

Remember the words of Jack Hollis, Toyota/Scion Vice President commenting to Automotive News on why Toyota isn't offering some of its JDM (Japan Domestic Market) vehicles in the US...

"They are still working on some of the engineering. The safety standards here [USA] are a lot more stringent than they are in Europe and Japan"

 

 

 

Why did only US companies seek government loans in December of 2008?

They were not alone, although it may have appeared that way to the average consumer.

Whether you agree with the idea of government loans to private industry or not, the fact remains that companies all over the world have sought (and received) loans from their respective governments with relative ease. The heads of both Renault/Nissan and Toyota United Kingdom have been making the case for loans that dwarf anything proposed in the US. The major difference has been the lack of public hearings, and media coverage from other parts of the world. 2

Again no matter your feelings on government involvement with private industry, granting loans to manufacturers on just one side of the world during this financial crisis would again disfavor US companies and US workers.

 

Isn't the United Auto Workers union a major obstacle to making US companies more competitive?

Fair Image has no affiliation to the UAW and takes no sides in the union/non-union argument simply because third-party research doesn't show this as a major factor in competitiveness. While it's true that domestic companies have higher pension and benefit expenses, these costs are also the result of post-WWII wage and price controls that caused the artificial lowering of wages in exchange for benefit packages.3 The US is unique in the industrialized world because employers bear this burden directly, rather than taxpayers.

Most of the difference in domestic vs. transplant wage costs that has been reported in the media is the result of retired workers pension and healthcare costs. While many politicians have been quick to toss-around these numbers, none have offered a solution that actually solves the problem. Bankruptcy would only dump these retired worker costs directly into Pension Benefit Guaranty Corporation (PBGC), already underfunded by about 11-billion dollars (2005),4 and directly onto the taxpayer by way of increased state and Federal public heathcare costs.

We can tell you that the US ranks well below most other democracies in terms of manufacturing labor costs. US-based companies operate 9 of the 10 most efficient auto plants in North America. They are unionized plants run by domestic automakers. The 10th is a unionized auto plant run jointly by GM and Toyota.5

It is worth noting that the German Auto union IG Metall dwarfs the UAW in terms of size and political influence.  Germany was the world's top exporter by value on 2008.  Automobile production is their largest single industry. 

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1 Only the Honda Civic is assembled in the US at a dedicated plant. GM builds the Chevy Cobalt/Pontiac G4 in Ohio, Ford builds the Focus in Michigan, and Chrysler builds the Dodge Caliber/Jeep Compass in Illinois.

 

2 Toyota Exec Seeks 40 billion Euro Loan from EU, Leftlanenews.com, 11/26/08. EU Automakers Seek €40 Billion in Government Aid, International Herald Tribune, 10/5/2008. Chinese Carmakers Also Seek Government Aid, LA Times, 11/20/08.

 

3 Compensation from Word War II through the Great Society, Compensation and Working Conditions, Bureau of Labor Statistics, Fall 2001.

 

4 Underfunding may trigger pension bailout, USA Today, 1/1/2005. 

5 Harbour Report 2008, What's on the line for the UAW, CNNmoney.com, 12/19/2008