WASHINGTON — U.S. automakers are in dire straits. While non-U.S. brands are gaining market share, both GM and Ford have announced major plant closings and substantial layoffs. For some, these announcements have raised the specter of a return to the policies of the 1980s, when the United States imposed “voluntary” export restraints on Japanese importers. But new conditions faced by today’s producers, consumers, markets and politicians should prevent us from re-using tools that were not even successful a generation ago.
The two remaining traditional U.S. automakers — General Motors and Ford — are both experiencing major losses in their U.S. operations. The reasons are manifold, ranging from restrictive union contracts and high health-care costs to poor model choices and rapid market shifts. The upshot is a dramatic shrinking of these companies, both as employers and as market players.
Ford has announced plans to close up to 14 plants and eliminate up to 30,000 jobs. GM also plans to reduce its workforce by 30,000 and shutter 12 plants.
In 1985 the Big Three U.S. automakers owned three-quarters of their home market; today GM and Ford hang on to less than one-third of domestic sales. Some of those sales have only been accomplished because of major international input into product design.
At the same time, U.S. investments by foreign car companies are thriving. The Japan Automobile Association reports that its members have opened 28 plants in the U.S. with more than 55,000 employees. Honda, Nissan and Toyota manufacturing abounds in Ohio, Alabama, Michigan and Mississippi. If one were to add the employment created in their dealerships, these firms account for more than 415,000 U.S. jobs.
The Korean firms Hyundai and Kia are following in their footsteps. They are investing heavily in facilities in California and Alabama. This means that automotive industry jobs remain, but they are created by firms not native to the country.
Consumers are much less concerned about whether a brand is domestic or foreign; they worry about quality and price. Increasingly the issue of fuel consumption comes up. In times of skyrocketing gas prices, they don’t want to be saddled with paying more for protecting manufacturers of U.S. origin. They often perceive nondomestic brands as having a higher reputation.
Long gone are the days when employer parking lots required owners of foreign cars to park outside. Newspaper classifieds no longer separate listings of foreign and domestic cars. And rightfully so — who can tell the difference?
By comparison, public procurement has remained behind the times. For example, in spite of high quality and performance, we see very few police departments purchasing Volvo products, even though Ford acquired the Swedes in the last millennium. There seems to be lingering concern by local officials about a voter backlash.
The same worries some policymakers at the national level. There is the desire to lead in a new direction, to reverse a company’s decline and to help constituents. Many workers and their families have suffered through job losses. We need to remember that even if jobs are exchanged at a macro-level between firms in an industry this does not mean that laid-off workers in Detroit will be the ones hired in Canton, Mississippi.
The competitive platform is new. Toyota and other foreign producers are battling each other; they see fellow importers and investors as the competition. They worry about what is yet to come from abroad. For example, what about future imports of the Logan from France’s Renault, which has a sticker price of $6,400?
They plan for the onslaught of cars developed in, say, Malaysia, China or Vietnam? They listen very carefully when the founder of a car company in the past announces plans to regale the U.S. market with the Chery from China.
Key issues concern quality, fuel efficiency, service, safety and low prices as well as research, development and innovation. How will the European Union react to growing automotive import pressures? How can Chinese brand manufacturers such as Geely be convinced to invest rather than import? One can even build an argument linking production expertise with national security.
The U.S. is very fortunate that the market share shifts has not resulted in a replay of the textile industry’s migration abroad. Its large market size has attracted a slew of foreign direct investments and will continue to do so. These investments reflect the continued competitiveness of the U.S. production infrastructure, the capability of local economies to adjust and the flexibility of the workforce and suppliers.
Maintaining these advantages and helping displaced workers find new opportunities are of crucial policy concern. The location of a car company’s headquarters should not be.