Commentary

Car Wars

This article originally appeared in Creators.com on June 9, 2005.
General Motors’ plan to eliminate 25,000 U.S. jobs by 2008 follows a move last fall to eliminate 10,000 jobs in Germany, out of 324,000 employees worldwide.

Japanese brands captured 32 percent of the U.S. vehicle market in the first quarter, up from 25.3 percent in 2000, while the market share of Big Three brands has declined to 57.8 percent from 65.2 percent.

What matters to the overall economy, however, is the production and sales of U.S. manufactured vehicles and parts, regardless of the apparent nationality of the brand name on the trunk.

According to the Monthly Labor Review of February 2004, U.S. motor vehicle output rose by 3.6 percent a year from 1992 to 2002; production of parts rose by 5 percent a year. Those figures include the 2001 recession, after which real GDP of the motor vehicles and parts industry rebounded by 15 percent in 2002 and 8.9 percent in 2003, according to the latest Survey of Current Business. In the first quarter of 2005, real GDP of the motor vehicle industry was up 5.8 percent from a year earlier.

The problems of General Motors are not the problems of the U.S. vehicle industry. The United States remains a uniquely outstanding place to build cars and trucks, which is why Toyota, Nissan, Honda, Hyundai, BMW and Mercedes-Benz have invested heavily in U.S. factories.

The Center for Automotive Research notes that sales of foreign-brand vehicles produced in the United States rose 8.8 percent last year, although GM’s sales were down 1.8 percent and Ford’s down 4.9 percent. Chrysler was up 3.7 percent, however, and its 13 percent market share was higher than it was in 1986.

Because so many Japanese cars, trucks and engines are now produced in the United States, increased U.S. sales of Japanese brands has not meant increased U.S. imports of Japanese vehicles and parts. U.S. imports of vehicles, parts and engines from Japan amounted to $48.6 billion in 2004 — down from $49.3 billion in 2002.

The surge in gasoline prices recently depressed vehicle sales in general. U.S. brands fared no worse than some from Europe and Asia. So far this year, sales of cars and light trucks are down 5 percent for GM and 4 percent for Ford, but they are also down 5 percent for Mercedes Benz, 24 percent for Volkswagen and 15 percent for Mitsubishi. Sales are up 12 percent for Toyota and 16 percent for Nissan, but they are also up 6 percent for Chrysler, compared with 3 percent for BMW and only 1 percent for Honda.

General Motors and Ford have always been global companies whose corporate headquarters happened to be in the United States. Daimler-Chrysler is a global company whose headquarters happens to be in Germany.

GM has long produced Opels in Germany, Vauxhalls in England and Holdens in Australia. GM also owns Saab, Fiat and part of Subaru, Isuzu, Suzuki and Daewoo. The domestic content of Saturn’s SUV increased in 2004 because its engine is now made by Honda in Ohio rather than by GM in Europe.

Honda’s Pilot and Odyssey come from Alabama, the Honda Ridgeline from Ontario, and the Chevy Suburban from Mexico. The Pontiac GTO comes from Australia, the Ford Crown Victoria from Canada, and the Mazda 6 from Michigan. The Toyota Avalon has 70 percent domestic content, the Honda Civic 75 percent, but Chrysler’s PT Cruiser is only 60 percent domestic.

The Swedish company Saab is owned by GM, but the smallest Saab is built by Subaru, the 9-3 model shares its platform with the Chevy Malibu, and a forthcoming Saab SUV is a well-dressed Chevy.

Ford owns half of Volvo, but Yamaha built the V-8 engine in Volvo’s SUV. Hyundai is now building Sonatas in Alabama and exporting some to India. BMW is building SUVs and sports cars in South Carolina and exporting some to Japan. GM is building Buicks in China (where GM is outselling Toyota and challenging VW), but they can’t be exported outside Asia because production costs are 5 percent higher in China than here.

When it comes to GM’s special difficulties, several popular explanations seem unpersuasive. Many news reports were quick to conclude it is simply a matter of Detroit gas-guzzlers losing out to fuel-efficient Japanese models. Yet gas-guzzling Japanese pickups and SUVs have been selling particularly well, with sales up 13 percent to 15 percent so far this year for Nissan, Honda and Mazda. The Toyota Land Cruiser, Sequoia and Tundra average only 14 to 15 miles per gallonin combined city and highway driving, according to Consumer Reports, and the Nissan Armada and Titan get 13 mpg. Similarly, the 345-horsepower Infiniti M45 is not selling well because it is frugal with fuel.

Some say GM is bloated and inefficient, yet Harbour Consulting says GM has three of the five most productive auto assembly plants in North America, and Ford has one of the others.

GM has 2.5 retired workers for each one now on the payroll, so past decisions about paying extraordinary health and pension benefits at age 55 were a serious mistake. Health insurance costs for current workers are also costly for GM, but overall compensation costs also have to be competitive for foreign auto plants in the United States. Any pretense that socialized medicine subsidizes costs for foreign exporters forgets that corporations are every politician’s favorite source for payroll and profits taxes to pay for such free lunches.

Critics of the styling and performance of new GM models are understandably amazed that the astonishingly ugly Pontiac Aztek ever got the go-ahead, but that’s history. Cadillac’s STS and SRX are competitive with the best offerings from Germany and Japan. Corvette is the world’s undisputed best value among serious sports cars. Although TV ads for the Buick LaCrosse are too gushy, it’s a capable cruiser that looks expensive. GM cut too many corners on the competent Pontiac G6, but that helps to make it (and the Chevy Malibu) a bargain.

I admire the recent efforts of GM, Ford and Chrysler and wish them well. Yet the whole idea of a distinct U.S. auto industry consisting of those three brands is hopelessly obsolete. The most promising markets are overseas, the competition is global, and the “Big Nine” are GM, Toyota, Ford, VW, Daimler-Chrysler, Peugeot-Citroen, Hyundai, Nissan and Honda. All but two are U.S. producers. When it comes to producing cars, truck and parts, the United States is sitting in the driver’s seat.

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.