The American Automotive Industry

The American automotive industry has led the American economy for many years. This industry has shaped our development, and influenced American culture and social mores. Now, ensnared by globalization and other dominant factors, it faces a difficult reality. The American automotive industry significantly impacted the lives of Americans. Detroit’s “Big Three” had the most significant roles in this. Chrysler, Ford, and General Motors were American symbols. They are credited for a significant percentage of all American jobs; they put numerous blue-collar families into the middle class, and helped America cultivate into the giant of the twentieth century. Unfortunately, the fabled automotive firms are not what they once were and are traveling down a precarious path. The viscosity of its situation has grown to a limitless problem. From a competitive foreign labor force, to an unreasonable foreign trade policy, problems have arisen on a vast spectrum. Out of the many problems that American carmakers have, three of them are the most prominent. The energy crisis, foreign trade policy, and finally, the perception gap are all the tribulations of the industry. If these three problems are deciphered, the American automotive industry may be able to exit out of volatility. The energy crisis began in 1973 when the Organization of Petroleum Exporting Countries (OPEC) cut off the supply of oil to the United States. This was carried on to the late seventies where another energy crisis began. In an effort to save energy the U.S. government began to set standards for fuel economy. This affected the auto industry in ways that the big three could not imagine. American car sales decreased due to fuel standards being suddenly changed. Subsequently, prices began to dwindle into the mid 1980s and the American car companies began to relax. That comfortable situation changed abruptly when oil prices soared in the 1980s, and the Japanese gained a firm grasp on exporting attractive, low-cost, fuel-efficient vehicles to America. This was the beginning of a new era in automotive history. Before this time, fuel-consumption and air-quality was not demanded by the American consumer. Due to the fact that foreign car manufacturers perceive to have the edge on fuel efficiency and emission standards, the foreign industry has an advantage in that sector of automotives. The American industry is capable of taking over by creating alternative energy sources. Alternative energy sources for cars, such as natural gas, electricity, ethanol, vegetable oil, sunlight, and water, contend for consumer use. The US pioneered the alternative fuel source in 1996 when GM released the EV1, an emission free car. In 2004 the Ford Motor Company became the first U.S. automaker to produce a hybrid vehicle. The Ford Escape Hybrid, introduced for the 2005 model year, was both the first hybrid made in the United States and the first hybrid sport-utility vehicle. The US must pursue this area of research into further development if it wants to regain control of the automotive industry.

The second factor that is contributing to the automotive industry’s demise is our foreign trade policy. This foreign trade policy is very lenient for alien countries. Our trade policy allows foreign countries to avoid taxes and duties, while other countries’ have strict guidelines as to what and how goods enter and exit their country. Most of the rates that affect our automotive industry are tariffs. Tariff rates are an important factor in both U.S. export and import levels. Although U.S. duties and those of many of our trading partners have dropped, many developing countries continue to protect their industries with high tariffs. These countries also frequently impose nontariff measures, such as licensing requirements, quotas, unreasonable standards, and testing restrictions. U.S. tariffs on automotive and automotive materials are generally considered to be low relative to those of most other countries. Many important automotive materials can enter the United States tariff-free. Other products can enter the United States free under the GSP, the Caribbean Initiative, or the U.S./Israel Free Trade Agreement. According to the World Trade Organization the U.S. has a $37 billion automotive trade deficit with Japan. This is due to the amount of loopholes Japan takes in our trade policies. In return, when exporting goods to Japan, Japan does not lift their tariffs, but instead raises them. When conducting a test on Korea’s non-tariff barriers on exports, the World Trade Organization found that there were nearly two dozen unreasonable quotas, standards and restrictions.

The following are just a few of the results.

Table 1

Products affected by the barrier Nature of the barrier Trade effects of the barrier Inventory category

Automobiles, electric and electronic products (PCs, communication equipment, cellular phones and CCTV system) Certification procedures Unduly long time and excessive fees are required in acquiring certification marks. Part III - C

- Complex and unreasonable certification procedures Testing and certification arrangements

Automobiles, chemicals, fertilizers, pharmaceutical products Certification procedures For some product groups, special certification procedures are required for each item instead of general procedures for the product group. Part III - C

- Complex and unreasonable certification procedures Testing and certification arrangements

Automobiles - Complex and unreasonable certification procedures Different test and certification requirements are imposed by different member countries (different provinces) belonging to the same regional trading agreements (the same countries). Testing and certification arrangements

Automobiles Testing and inspection Unduly high cost for tests for imported automobiles of small quantities (under 2,000 per annum). Part III - C

- Overly strict test standards and excessive expense Testing and certification arrangements

According to Table 1 the test barriers for US exports are unusually high. However, the US industry can counteract by placing harsh sanctions on foreign imports. Other methods to neutralize these tariffs and barriers are boycotts, fines, or increasing our own tariffs/barriers. These implications can give American exports and imports, not only automotive, a fighting chance in today’s world of globalization. The last factor, the perception gap, is an abstract approach to this problem. The concept behind the idea of the perception gap is fairly simple: something is better because it only