Motor vehicles and parts - Industry Overview

Randall Miller

Total unit sales of new passenger cars and light trucks in the U.S. market will be up about 25 percent in 1993, while unit sales of new class 4-8 trucks will grow about 14 percent. Industry shipments of motor vehicleparts are expected to rise by about 6 percent in constant dollars.

This chapter discusses new, on-road, volume-produced completed vehicles for carrying passengers or cargo (SIC 3711); truck trailers (SIC 3715); franchised new-car dealerships; and motor-vehicle parts, components, and stampings (SIC 3465, 3592, 3647, 3691, 3694, and 3714).

Before reading this chapter, please see "How to Get the Most Out of This Book" on page 1. It will answer questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification (SIC) system. For a discussion of other topics related to this chapter, see chapters 5 (Construction), 12 (Plastics and Rubber), 15 (Electronic Components and Equipment), and 16 (Metalworking Equipment).

The motor vehicle industry is one of the largest components of the U.S. economy. The Commerce Department's Bureau of Economic Analysis (BEA) reported that there were 4,341 U.S.-owned companies operating in the United States in the motor vehicle and equipment sector (SIC 371) in 1987. These firms paid $22.8 billion in compensation to their 711,000 employees, while the value of industry shipments totaled $193 billion. In addition, there were 97 companies with some foreign ownership operating in the United States in 1987, the only year for which comparable data have been assembled so far. These companies employed 40,000 individuals, who were paid $1.1 billion, and generated shipments worth $12.9 billion.

In 1991, the Bureau of Labor Statistics (BLS) reported that total direct employment in the motor vehicle industry averaged 776,000 workers, 4.2 percent of total manufacturing employment. Moreover, because the nation depends so heavily upon motor vehicles to satisfy its transportation and recreation needs, nearly one of every seven jobs in the domestic economy is related to the production, sale, operation, or maintenance of motor vehicles. Final sales of cars and trucks to consumers, business, and government buyers in 1991 totaled $189 billion, directly accounting for 3.3 percent of the nation's GDP. In 1991, total personal consumption expenditures for motor vehicles and equipment were $185 billion, 4.4 percent of U.S. disposible personal income.

Challenges of Competition

The U.S. and other major markets for vehicles and components are essentially saturated, with little prospect that annual growth on a long-term basis will exceed more than 1 or 2 percent. Despite (or perhaps because of) this situation, competition in the United States among all foreign and U.S. manufacturers continues to grow more intense, to the immense benefit of vehicle buyers. In 1992, U.S. purchasers could choose from among 31 major domestic and foreign manufacturers offering a total of 618 separate car and light truck models, almost all of them superior in most respects to those previously offered. Moreover, virtually all new vehicles sold today were developed and brought to market more quickly than those produced only five years ago, and were manufactured more efficiently and with less negative impact upon the environment.

There are probably no major vehicle or parts manufacturers anywhere in the world that now do not have at least some involvement in the U.S. market. This situation has profoundly affected the operations of the U.S.-owned industry, from the smallest parts supplier to the largest vehicle manufacturer. While many U.S. firms have declined or disappeared in the face of stiff competition, others have grown and have increased their share of the worldwide automotive market by becoming more competitive.

Recognizing the higher level of competition that exists and the requirement to match or exceed it, General Motors (GM), Ford, and Chrysler--the Big Three--recently initiated several jointly funded "pre-competitive" research projects that seek to develop new product and manufacturing technologies. Under the terms of the National Cooperative Research Act of 1984, these joint efforts cannot focus on the design or production of specific vehicles, but they can and will pursue the development of generic, fundamental technologies to bring vehicles to the market sooner and at less cost to the public.

The Big Three announced in June 1992 the formation of the United States Council for Automotive Research (US-CAR), an umbrella organization that will coordinate more effectively their existing and future jointly funded R&D programs. The directorship of the council will rotate every two years among the three companies. Under the council's purview is the Automotive Composites Consortium, which seeks to develop new materials for stronger, lighter, and more durable body panels. This consortium has already generated patents for new methods of fabricating polymer-based components. Other R&D consortia among the Big Three include the Auto Oil/Air Quality Improvement Research Program, the CAD/CAM Partnership, the Environmental Science Research Consortium, the High Speed Serial Data Communications Research and Development Partnership, the Low Emissions Technologies Research and Development Partnership, the Occupant Safety Research Partnership, the U.S. Advanced Battery Consortium, and the Vehicle Recycling Partnership. Federally funded and private industrial research labs are participating in several of the consortia, some of which are pursuing new techniques to further reduce vehicle emissions and to improve fuel economy, as well as to create more environmentally friendly manufacturing and recycling procedures. (The Environmental Profile section later in the chapter has a more complete discussion of this topic.)

Competitive pressures have also resulted in a profusion of cooperative manufacturing and marketing ventures between each of the Big Three and foreign firms. For example, GM uses its Chevrolet network to market Geo nameplate cars throughout the country. The Geo line includes compact sedans made in California in a 50-50 joint venture between GM and Toyota; subcompact and sport utility vehicles made in Canada in a 50-50 joint venture between GM and Suzuki; and a compact made in Japan by Isuzu, of which GM owns 38 percent. Mazda builds Ford-badged cars in Japan for the Japanese market. In 1992, Ford acquired a 50 percent interest in Mazda's Michigan plant, which builds the Mazda MX-6 and the Ford Probe on the same basic platform. Chrysler sold Mitsubishi its half of their 50-50 Illinois joint venture in 1991, but subsequently signed a multimillion dollar contract with Mitsubishi to provide engines to the plant to be used in vehicles that both firms will market in 1993. GM and Toyota operate a joint venture in California that produces the Toyota Corolla and the Geo Prizm (previously the Chevy Nova) on the same platform. During 1992, the two firms agreed to merge their separate manufacturing operations in Australia and now will produce individual models on a common platform in a shared facility.

The interweaving of the passenger car industry is also duplicated in the light and heavy truck industry. In 1992, Chrysler initiated joint-venture production in Austria with Styer Daimler Puch of a slightly modified version of Chrysler's U.S. market-leading minivan for the European markets. Ford began U.S. production in 1990 of a "badge-engineered" light pickup truck for sale in the United States beginning the following year as the Mazda Navajo. This was the first of what may be several instances of Japanese manufacturers purchasing vehicles from a U.S. supplier. In 1993, Mazda will totally replace its B-series light pickup it had imported from Japan with a vehicle produced in the United States by Ford. Ford is now assembling a new small passenger van in Ohio that was designed principally by Nissan and that both manufacturers will sell as a 1993 model. During 1992, Ford also formed a joint venture in Portugal with Volkswagen to produce a minivan for the European markets. VW may also sell the vehicle in the United States.

Volvo and General Motors established the Volvo-GM Heavy Truck Corporation in 1988 to take over the manufacture of GM's Class 8 truck tractors. In 1992, GM sold part of its 27 percent share to Volvo, which now owns the 83 percent balance. Volvo-GM Heavy Truck signed an agreement in 1992 with the Mexican truck manufacturer, Trailers de Monterrey, authorizing that firm to be the sole importer and marketer in Mexico of Volvo-GM trucks.

The intensely competitive U.S. vehicle and parts market not only has taken its toll on profits, it also has propelled the motor vehicle industry on a painful but beneficial quest to reduce operating expenditures by improving manufacturing technology, cutting overhead expenses, and increasing productivity. In 1982, at the bottom of the previous trough in production, the industry assembled 7 million cars and trucks with an average of 221,000 production workers (in SIC 3711), or 31.7 vehicles per worker. In 1991, output totaled 8.8 million units. BLS's average annual production employment in 1991 was 229,000, or 38.4 vehicles per worker.

According to the Labor Department's index of output per SIC 371 production worker, the growth of productivity in the motor vehicle and equipment industry averaged 3.9 percent annually between the 1982 base year and 1990, reaching a level of 136.2. While the long-term employment trend will continue gradually downward and the productivity index upward, short-term anomalies will occur. According to preliminary estimates by the Labor Department, SIC 3711 production employment averaged 235,000 persons during July 1992, a 1.4 percent decrease from June 1992. However, output fell from 914,000 units in June 1992 to 576,000 in July, a drop of 37 percent. The SIC 371 productivity index will probably register declines in both 1991 and 1992.

Financial Performance

New light vehicle sales declined steadily between 1986 and 1991, with the exception of a 3 percent upturn in 1988. Consequently, competition in the market has been intense, producing the inevitable negative impact on industry earnings. Corporate losses on domestic motor vehicle and equipment operations before taxes, inclusive of inventory adjustments, totaled $6.9 billion in 1991, following losses of $2.6 billion in 1990. Nevertheless, motor vehicle and equipment manufacturers invested $11.3 billion in 1990 for new and refurbished manufacturing plant facilities and equipment, and $10.3 billion in 1991. Investments are expected to total $10 billion in 1992.

In 1991, the Big Three suffered global net income losses of $7.5 billion on worldwide sales of $208 billion. (See Table 1, which includes 1989-91 data and compares 1991 and 1980, two recessionary years for the domestic automobile industry.) GM's $4.5 billion loss, which included a $1.8 billion write-off for restructuring charges to close 21 plants and lay off 74,000 employees in North America during the following 4 years, was the largest in U.S. corporate history. The Big Three lost a combined $1.1 billion in 1990 on worldwide operations totaling $220 billion.

Table 1: Financial Information: General Motors,
Ford, and Chrysler, 1980-91
(in billions of dollars except as noted)
    Item                         1980    1989    1990    1991
  Profitability
Net sales and revenue            103.4   226.6   219.9   208.2
Gross profit                       8.0    34.5    26.6    19.7
Operating profit                  -4.9     8.8    -3.2   -11.2
Net income                        -4.0     8.4    -1.1    -7.5
Gross profit margin(1)(%)          7.7    15.2    12.1     9.5
Operating profit margin(2)(%)     -4.7     3.9    -1.5    -5.4
Return on sales(3)                -3.8     3.7    -0.5    -3.6
Return on equity(4)               -1.4    12.9    -1.7   -12.9
  Liquidity
Cash and marketable securities     6.6    14.9    13.6    16.4
Working capital(5)                 3.5    16.5     8.8     7.9
Change in working capital          --     -2.7    -7.6    -0.9
Current ratio(6)(%)                1.1     1.3     1.2     1.1
Quick ratio(7)(%)                  0.5     0.8     0.6     0.6
Total debt-to-equity ratio (%)     2.3     0.2     0.3     0.4
(1) Gross profit divided by total net sales and revenue.
(2) Operating profit divided by total net sales and revenue.
(3) Profit after taxes divided by net sales and multiplied by 100.
Profit after taxes divided by equity and multiplied by 100. This ratio expresses
 the rate of
return on stockholders equity.
(5) Current assets minus current liabilities.
(6) Total current assets divided by total current liabilities. This ratio is a r
ough indication of a
firm's ability to service its current obligations.
(7) Cash and cash equivalents plus accounts and notes receivable (trade) divided
 by total
current liabilities. This is a refinement of the current ratio and is a more con
servative measure
of liquidity.
SOURCE: General Motors, Ford, and Chrysler annual reports.

Between 1989 and 1991, the Big Three suffered a steady decline in their sales, revenues, and gross profits, and a drastic drop in net income, which has been reflected in declining profit margins and returns on sales and equity. The liquidity indicators have been more encouraging, showing an increase in cash and marketable securities and a slowing of the previously rapid decline in working capital accounts. In addition, the quick and current ratios (defined in Table 1) remained relatively unchanged between 1980 and 1991.

The steady accumulation of cash and marketable securities in the consolidated balance sheets indicates much stronger financial health than is suggested by net income levels. Comparing the two recessions, the total debt-to-equity ratio was lower in 1990-91 than in 1980, working capital was more plentiful, and gross profitability was significantly improved. On the other hand, declining operating profitability indicates that the companies' cost-control efforts must continue and be strengthened.

The Big Three's parts suppliers have suffered less severely. However, many have experienced a sharp drop in profits due to lack of demand, pricing pressures from Detroit, and foreign competition. In recent years, financial pressures on the supplier sector have greatly increased as their customers often have asked them to finance R&D, inventory, tooling, and logistics operations.

Ward's 1992 Automotive Yearbook includes a financial analysis of the 25 leading suppliers--each with annual sales of at least $1 billion. It reports that none of the 25 firms that have automotive-related businesses reported losses in 1989; 4 ended 1990 in the red; and 10 posted losses in 1991.

INTERNATIONAL COMPETITIVENESS

In addition to exporting from the United States, many companies in this industry engage in importing from their foreign subsidiaries and from their competitors. Equally common are arrangements for joint-venture marketing and production activities between U.S.-owned manufacturers and their competitors, both in the United States and abroad.

At the end of 1991, the value of U.S. direct investment in foreign motor vehicle and equipment production facilities was $22.3 billion on a historical cost basis (the market value at the time the investment was made), up from $20.9 billion at the end of 1990. Foreign direct investment in the United States in this sector was valued on the same basis at $3.7 billion at the end of 1991, about the same as the year before.

Foreign subsidiaries of U.S.-owned motor vehicle and equipment manufacturers generated income totaling $2.3 billion in 1991. This sharp decline from $3.6 billion in 1990 was the result of weak markets, increased costs, and expanded competition. Capital outflows from the United States for direct investment abroad were $958 million in 1991 and $385 million in 1990.

U.S. subsidiaries of foreign vehicle and equipment producers reported losses of $366 million in 1991 on their U.S. operations, following negative income of $314 million the year before. Most European firms lost significant sales and market share in the United States in 1990-91. Two firms withdrew completely from the market. Capital outflows from the United States by foreign firms with direct investment in the United States in this sector totaled $94 million in 1991, compared with capital inflows of $579 million in 1990. The Department of Commerce's BEA estimates that foreign motor vehicle and equipment firms spent $350 million in the United States on research and development projects in 1990.

In 1992, the United States recorded an estimated negative trade balance in motor vehicle and car bodies of $44 billion, 2 percent higher than in 1991. (This is based on an imports for consumption accounting.) The estimated 1992 trade balance in automotive parts was a positive $2.3 billion, compared with a $1 billion surplus in 1990. The United States exported more automotive parts than motor vehicles ($21.8 billion vs. $17 billion) in 1992, while importing more vehicles than parts ($61.1 billion vs. $19.5 billion). As has been the case for many years, most of the automotive deficit is the result of trade with Canada and Mexico--where GM, Ford, and Chrysler operate plants producing vehicles for the U.S. market--and with Japan.

Exports of both vehicles and parts are expected to increase significantly over the next few years. The rate of growth in vehicle imports, and to a lesser extent in parts and accessories, will be slowed by more competitive U.S. products and by additional U.S. production by foreign-affiliated manufacturers. Moreover, a deflated dollar has made imports from Europe and Japan more expensive, while lowering the cost to those countries of U.S.-made vehicles and parts. U.S.-owned car and truck makers have all revitalized their U.S. export operations and are assigning them a greater role in their sales strategies. Japanese-owned auto firms are increasing their programs for shipping models made by their U.S. subsidiaries to their homeland, other markets in Asia, and Europe. These firms are increasing their reliance upon U.S.-made components for their U.S. and Japanese plants, and are sourcing some models for world markets exclusively from their U.S. facilities. U.S. parts producers have discovered that the products they make as original equipment for U.S. and foreign vehicles manufactured in the United States and for the local retail aftermarket also have excellent export potential.

ENVIRONMENTAL PROFILE

While a market niche is emerging on its own for environmentally friendly, "green" vehicles, much of the auto industry's current interest in environmental research has been stimulated by the stringent new clean air standards that California introduced in 1990. The new regulations require that, beginning with the 1998 model year (generally the fall of 1997), 2 percent of all new vehicles sold there must emit no harmful particulates. By 2001, 5 percent must be zero emission vehicles (ZEVs) and by 2003, 10 percent. Massachusetts and New York have passed similar regulations, and other states are considering such legislation.

One of the joint ventures formed by the Big Three in response to this challenge is the Low Emissions Technologies Research and Development Partnership. This joint effort will develop techniques to reduce emissions by refining the internal combustion process and improving the performance of catalytic converters and other exhaust-related components. The program also seeks to improve the ability of engines to run on alternative fuels, including ethanol and methanol mixtures combined with gasoline, liquid natural gas (LNG), and liquid petroleum gas. By 1998, 90 percent of all Texas state-owned vehicles must be fueled by LNG. All local Texas governments must comply by 2002.

It appears that the only feasible way to meet California's requirements may be with electric vehicles. This has led the Big Three and the U.S. Department of Energy (DOE) to form the U.S. Advanced Battery Consortium (USABC) to develop new battery storage technology. The private sector and DOE each contributed $130 million to fund the consortium's efforts. In May 1992, USABC awarded an $18.5 million contract to Ovonic Battery Company of Troy, Michigan, to perfect its prototype of a nontoxic, nickelmetal hydride battery. Ovonic's technology may enable a compact-size vehicle to travel 300 miles before needing a mere 15-minute recharge, accelerate from a standing start to 60 miles per hour in a maximum of 8 seconds, and achieve a maximum velocity of 100 miles per hour. These operating capabilities greatly exceed those of existing electric vehicles. Operating costs of the proposed new battery also are expected to be lower.

Another Big Three consortium that focuses on environmental issues is the Vehicle Recycling Partnership (VRP). Although 90 percent of all motor vehicles now pass through a recycling facility, only 75 percent of the weight of a typical motor vehicle is reclaimed. VRP is researching methods to increase that percentage. Plastics, which accounted for about 6 percent of vehicle weight in 1980, and 8 percent (243 pounds) in 1992, represent a growing, major challenge for the industry. About 100 different plastic formulations are present in the typical vehicle. They are difficult to identify and separate during dismantling operations, but if melted together produce a useless, amorphous mess. The Society of Automotive Engineers introduced a plastics labeling standard in 1992 that may help overcome the problem.

Federal regulations now require each manufacturer's fleet of new passenger cars sold in the United States to average 27.5 miles per gallon (mpg). Light truck fleets must average 20.2 mpg. Manufacturers of non-complying fleets are subject to penalties, while individual models are assessed "gas guzzler" taxes of as much as $7,700 per vehicle. According to the Environmental Protection Agency, domestic passenger cars averaged 26.9 mpg in 1992, and imported car fleets averaged 29 mpg. Domestic light truck fleets averaged 20.4 mpg. The imported light truck fleet achieved an average of 22.4 mpg.

The National Academy of Sciences' National Research Council concluded in early 1992 that it is technically feasible for passenger cars to reach a level of 31-33 mpg for model year 2001, and 34-37 mpg by model year 2006. However, this could require additional manufacturing costs of $500 to $2,750 per vehicle while increasing emissions and reducing vehicle safety. The council suggested that increased taxes on gasoline purchases, coupled with a program of rebates to buyers of especially fuel-efficient vehicles and increased gas-guzzler taxes for vehicles not meeting the standards, would be a more viable method of reducing fuel consumption. During 1992, Congress introduced several bills that would raise fuel economy requirements substantially. None passed, but several may be reintroduced in 1993.

PASSENGER CARS AND LIGHT TRUCKS

Light vehicle sales in 1992 were distributed among 3 American and 8 Japanese manufacturers with U.S. plants, plus 21 other firms with marketing operations in this country. Sales of new imported and domestically made passenger cars and light trucks (collectively, light vehicles) increased about 4.8 percent from 1991 to an estimated 12.9 million units in 1992. Imported light vehicles sales by foreign and U.S.-owned firms accounted for almost 21 percent of light vehicles sales in 1991 and about 18 percent in 1992. Total imports from Japan, including shipments sold by the Big Three, accounted for 16.4 percent of sales in 1991 and an estimated 14.3 percent in 1992 (Table 2).

[TABULAR DATA 2 OMITTED]

Total car sales increased slightly in 1992. However, sales of light trucks jumped 13.7 percent. They now account for 36.4 percent of the combined market, compared with 33.6 percent in 1991. Light trucks, which are purchased primarily by consumers for non-commercial passenger use, include all pickups, vans, sport utility, and multipurpose vehicles under 14,000 pounds of gross vehicle weight.

The Big Three (plus AMC/Jeep, later acquired by Chrysler) sold 3.6 million light trucks in 1985, 89 percent of that segment of the market. Their sales fell to 3.4 million units in 1991, an 83 percent share, but increased to an estimated 4.1 million units in 1992, equivalent to 87 percent of the market. In both years, Japanese firms supplied virtually all of the balance.

Nameplate market shares for the 10 leading participants in the new car market, based on new car unit sales, are shown in Table 3 and Figure 35-1. Although their individual shares have shifted significantly, these 10 firms supplied 96 percent of the total market in 1985, and 95 percent in 1991. The Japanese nameplate share rose from 20 percent of all units in 1985 to 30 percent in 1991, while the Big Three share dropped from 74 percent to 64 percent. Germany, the second largest foreign-owned source of cars for the U.S. market after Japan, has lost a significant portion of its share over the past several years to U.S. and Japanese competitors. In 1991, German nameplates accounted for less than 3 percent of total unit sales.

[TABULAR DATA 3 OMITTED]

During 1992, the competitiveness of the Japanese vehicle makers selling in the United States was adversely affected by their faltering home market, where total sales declined by 4.8 percent in Japan's 1991 fiscal year (April 1-March 31). This reduced operating income and forced engineering, management, and marketing resources to focus more intensely on the home market. The sales decline was the first since 1984. Sales fell an estimated 4.5 percent during JFY 1992. Total net income before taxes for Japan's auto industry was an estimated 431 billion yen in JFY 1992, a drop of 29 percent from JFY 1991 and 54 percent from JFY 1990. Capital costs, which had been as low as 1 percent in calendar year 1990, rose to 6-7 percent in 1992, just as some $6 billion in convertible bonds came due for renewal. According to the Japanese Economic Planning Agency, Japan's auto manufacturers subsequently lowered their JFY 1992 capital spending plans by 19 percent. Some are seeking to implement other cost-control measures, including lengthening their model replacement cycle and reducing parts proliferation, which has run rampant. Conflicting with their cost-control measures are government and worker pressures to reduce overtime and increase pay. The appreciation of the yen against the dollar, which has reduced profit margins, has also complicated the predicament of Japanese auto manufacturers.

In response to these developments, Japanese automakers began to raise prices on their U.S. offerings. This move also was probably in response to bills introduced in the U.S. Congress in 1992 that, if enacted, would have placed limits upon the sale of Japanese vehicles in the United States. According to U.S. industry estimates, there was an average 1992 price differential between comparable Big Three and Japanese nameplate cars of around $2,000 in favor of Detroit. The Japanese share of the U.S. car market dropped slightly to 29.9 percent in 1992, while their light truck share fell an estimated 4.2 percentage points to 12.8 percent. Their overall share of the light vehicle market declined about 2.2 percentage points to 23.6 percent. Daihatsu, the last Japanese firm to enter the U.S. market and also the first to leave it, terminated its sales program in 1992. Another small Japanese firm may also withdraw from direct marketing in the United States in the near future.

Buyers clearly have begun to recognize the improved quality, pricing, and fuel economy of Big Three vehicles in comparison with those from Japanese producers. According to J.D. Power and Associates' consumer ratings, the product quality of cars sold by U.S. automakers improved 23 percent between 1987 and 1991. Asian cars were perceived to have improved 15 percent, and European cars were 25 percent better.

While improving their product offerings and quality, the Big Three are also reducing overhead expenses and direct manufacturing costs. Nonetheless, they also are continuing to spend heavily for new and upgraded manufacturing facilities and technology. Their objective is not only to improve vehicle quality, but also to lower the break-even point on manufacturing operations. Few Big Three facilities can now make a profit on less than 100,000 units of a particular model. The market is fracturing into smaller niche segments, however, and ways must be found to be profitable at lower levels of production.

U.S.-Based Production

One of the most striking changes in the U.S. industry during the past several years has been the steadily increasing local production by Japanese-affiliated firms (Figure 35-2). Honda, Toyota, Nissan, Mazda, Mitsubishi, and Subaru-Isuzu established automobile plants in the United States during the 1980's. From zero in 1982, production by affiliates reached 1.3 million units in 1989, 12 percent of total domestic output. Their production in 1992 was an estimated 1.6 million units, 17 percent of total light vehicle output. About 200,000 units of their 1992 production were assembled with or for the Big Three. There are seven Japanese-affiliated assembly plants in the United States. Four are wholly owned, one is a joint venture involving two independent Japanese firms, and two are separate joint ventures with GM and Ford.

Japanese investment in the United States for car and light truck assembly, stamping, and foundry facilities was worth $6.4 billion in 1989, according to the Japan Automobile Manufacturers Association. They had an annual capacity of 1.6 million vehicles that year and employed 25,000 workers. The local production capacity of the Japanese affiliates may reach 2.4 million cars and light trucks per year by 1995 because of additional investments by Honda, Nissan, and Toyota. Suzuki (in a joint venture with GM), Honda, Toyota, and Hyundai (the South Korean manufacturer) also produce vehicles in Canada for the U.S. market.

According to Harbour and Associates, as reported by Automotive Industries, Japanese facilities in the United States and Canada in 1991 employed an average of 3.27 final assembly line production workers a day per car produced, compared with a combined average of 4.29 workers for the Big Three. All U.S. factories produced at only a 60-65 percent capacity utilization rate in 1991. Historically, auto assembly plants in the United States have not been profitable below an 85 percent level.

One significant factor that has been holding back the overall domestic market has been the growing price elasticity of auto demand (i.e., vehicles have become a more discretionary purchase). Consumers have stretched their replacement cycle, partially because new vehicles are more reliable and owning them longer represents less of a risk.

According to data compiled by the Motor Vehicle Manufacturers Association (MVMA) from R.L. Polk & Company, the average age of the passenger car fleet in the United States increased from 5.6 years in 1970 to 7.9 years in 1991. During the same period the number of cars that were 9 or more years old increased from 12.7 million units (15.8 percent of the car population) to 43.3 million units (35 percent). Most of these vehicles must now be at the edge of their economically useful life and are ready to be replaced.

The price of vehicles has risen to such an extent that many buyers have found it necessary to lengthen the period of their installment loans in order to reduce their monthly payments. According to the Federal Reserve Board, the average new car loan was 54.6 month in the second half of 1992, down slightly from the previous period. This is still significantly higher than the 50-month average in 1986, the last peak in automobile sales. The average monthly payment has nonetheless risen from $258 in 1986 to $308 in 1992.

The value of the average dealer-buyer transaction for the purchase of a new auto rose from $6,847 in 1979 to $16,695 in 1991. On the other hand, there has been a decrease in the average loan payment as a percentage of per capita disposable income, from 2.27 percent to 1.78 percent during the same period. Nonetheless, the number of weeks of median family earnings needed to equal the total transaction price has risen steadily since 1979. It now stands at 24.5 weeks, according to the MVMA. The association also reports that variable operating costs (gas, oil, tires, maintenance) have risen from 23.97 cents per mile in 1979 to 43.64 cents in 1991. The fixed costs of operating a car (insurance, license and registration fees, depreciation, and finance charges) have jumped from $4.96 to $11.55 per day. Variable operating and fixed costs will probably rise at faster rates in the future, helping to make alternative forms of transportation increasingly more attractive in the long term.

Leasing programs are growing rapidly as one method to reduce consumer resistance to increased loan periods and monthly payments. Leases accounted for only 3 percent of consumer transactions in 1982, but 14 percent in 1991. The expected continued growth of leasing in 1993 should help improve sales.

Part of the softness in new car sales in 1991 was caused when manufacturers decided to keep their factory output running at scheduled rates by selling an estimated 2 million new vehicles to their captive rental companies. This was accomplished by offering to buy the vehicles back after only three months of use. However, since they subsequently shipped those vehicles to their dealers for sale as "nearly new" units, sales of new vehicles by the dealers fell. The producers have now shifted strategies and are seeking other ways to solve their excess productive capacity problems.

INTERNATIONAL COMPETITIVENESS

The worldwide operations of the U.S.-owned motor vehicle manufacturers place them among the world's largest auto producers. In 1991, they ranked first, second, and twelfth overall in motor vehicle production, according to Automotive News. In 1991, General Motors produced 7 million vehicles worldwide (7.5 million in 1990), 14.4 percent of the 48.5 million units produced around the world. Ford manufactured 5.4 million units worldwide (5.9 million in 1990), for a world share of 11.1 percent in 1991. Chrysler's production of 1.5 million units (1.7 million in 1990), accounted for a 3.1 percent share of the 1991 world output. Toyota was the third largest producer in 1991 with worldwide output of 4.7 million units. VW was fourth with 3.2 million units, and Nissan was fifth at 3.1 million units.

The Big Three have notable investment positions in several large and small foreign vehicle manufacturers, although there is no direct investment in the Big Three by any foreign vehicle makers. Among its several holdings, GM owns 37.5 percent of the shares of Isuzu, 5.3 percent of Suzuki, 100 percent of Group Lotus (United Kingdom), 50 percent of Saab Automobile Sweden), and 50 percent of Daewoo Motors (South Korea). Investment in the latter is to be withdrawn in 1994. Ford owns 25 percent of Mazda, 10 percent of Kia Motors (South Korea), 100 percent of Jaguar (United Kingdom), and 75 percent of Aston Martin (United Kingdom). Chrysler owns 100 percent of Lamborghini and 15.6 percent of Maserati (both Italian). Chrysler reduced its investment in Mitsubishi Motors from 24 percent to 5.9 percent in 1992. Wall Street analysts speculate that Chrysler will sell its remaining Mitsubishi shares in 1993.

GM and Ford operate highly successful manufacturing subsidiaries in Germany and the United Kingdom. The two companies are thought to be evaluating manufacturing opportunities in Eastern Europe and in the countries of the former Soviet Union. Chrysler sold its European subsidiaries in the late 1970's, but in March 1990 initiated a joint venture in Austria that began producing minivans for the European markets in 1992. All three producers have substantial manufacturing and marketing subsidiary operations in both Canada and Mexico.

Trade

"General imports" of new automobiles during 1991 declined 5 percent to 3.7 million units, reflecting a greater emphasis on U.S. sourcing by Japanese firms, and the overall softness of the domestic market. (These figures exclude production in free trade zones; Table 4 has trade data on all motor vehicles, including used.) The customs value of U.S. new auto imports fell 0.4 percent to $45.6 billion. The volume of cars exported from the United States jumped nearly 7 percent to 835,000 units, while their f.a.s. value rose by 15 percent to $11 billion.

[TABULAR DATA 4 OMITTED]

Consequently, the overall new automobile trade deficit dropped 4.4 percent to $34.6 billion in 1991. Bilateral deficits decreased with Belgium, Brazil, Canada, Germany, Italy, South Korea, Sweden, and the United Kingdom, while increasing with Australia, Mexico, and Japan. In the first half of 1992, the overall negative balance in the U.S. auto trade fell to $16.2 billion, an improvement of 0.5 percent over the same period in 1990. The value of exports increased 12 percent to $6.4 billion, while imports rose 3 percent to $22.6 billion.

The bilateral automobile trade deficit with Japan increased 6 percent to $20.1 billion in 1991. The value of Japanese imports grew slightly to $20.6 billion, although unit imports dropped 4 percent to 1.8 million units. U.S. exports to Japan declined 21.4 percent to $553 million in 1991 because of the slowdown in the Japanese economy. Shipments fell 8,000 units to reach 30,000 units. In the first six months of 1992, the value of imports from Japan held steady at $9.8 billion compared with the same 1991 period, and units declined 7 percent to 796,000. Exports to Japan dropped 1 percent to $319 million, while shipments remained unchanged at 18,000 units.

U.S. vehicle exports to Japan have been increasing for the past several years, aided by a number of factors that have made them a better value in Japan. These factors include the lower value of the dollar in relation to the Japanese yen, reduced Japanese taxes, improved U.S. product quality, a better mix of U.S. products appropriate for the market, increased marketing efforts by the Big Three, and "repatriated" production (exports to Japan) by Japanese-affiliated factories in the United States. Official bilateral consultations between the U.S. and Japanese Governments have resulted in relaxations in Japan's import regulations and in Japan's technical standards certification process. Additional consultations are scheduled.

Registration of Big Three U.S.-made vehicles in Japan rose steadily between 1987 and 1990 to 16,000 units. They fell to 13,700 vehicles in 1991, a decrease of 14 percent from 1990, but an increase of 340 percent over 1987. (Total Japanese registrations fell 4 6 percent in 1991, while registrations of all imports were off 11 percent.) Japan also registered 16,000 U.S.-made Japanese nameplate vehicles during 1991, an increase of 127 percent over 1990. In the first six months of 1992, registrations of U.S. Big Three vehicles totaled 7,000 units, equal to the same period in 1991. Registration of U.S.-made Japanese vehicles totaled 7,400 vehicles, off 9 percent. (Total Japanese registrations were off 6 percent during January-June 1992, while registrations of all imports fell 13 percent.)

The realignment of the dollar against the major currencies in Europe that began in 1985 continues to have a marked impart upon the sales of European car companies in the U.S. market. Most European producers chose to increase their U.S. retail prices, attempting to rely upon profit margins rather than volume to maintain their viability. With a doubling of the "gas guzzler tax" and the imposition of a Federal automobile luxury tax (10 percent of the balance above a $30,000 transaction price) in 1991, European sales became especially susceptible to the greatly increased value represented by the several new Japanese luxury models on the market. The rapidly acquired, excellent reputation now enjoyed by the Japanese luxury cars was not anticipated by most of the European makers. Caught off guard, they have found it difficult to recover. Some have already decided to shift their focus elsewhere. Sterling and Peugeot withdrew from the market in 1991 to concentrate on Europe. Big Three divisions that depend on the large/luxury segment of the market also have been affected by Japanese luxury vehicles, but not to the extent experienced by the Europeans.

Outlook for 1993

Sales of new cars will expand about 8.5 percent to 8.9 million units. Sale of light trucks are forecast to grow 5.7 percent to almost 5 million units. The ongoing decline in long- and short-term interest rates has enabled many households to reschedule or pay off some of their debts. Automobile installment debt alone has dropped about $25 billion, according to the MVMA and the National Automobile Dealers Association. This huge pool of money could be used to fund new and replacement purchases, if consumer confidence in the economy improves and total disposable personal income grows sufficiently.

Sales of Big Three nameplate vehicles increased an estimated 8.3 percent in 1992 over the previous year. Sales should advance another 7 percent in 1993, to reach a total of 10.1 million units in 1993. This will result in an overall market share of 72.5 percent, slightly less than 1992's 72.8 percent, which was their highest level in several years.

Imported Japanese-made light vehicle sales will probably climb during 1993 to 2.1 million units, an increase of 12 percent over the estimated 1992 level. The voluntary restraint action imposed by the Japanese government on its manufacturers' exports to the United States applies only to passenger cars. Although the annual ceiling was reduced from 2.3 million units to 1.65 million, sales of Japanese imports have been trending downward for several years and probably totaled 1.45 million units for 1992. Sales of U.S.-made Japanese vehicles, however, have been expanding. After falling back to an estimated 2.5 million cars and 600,000 light trucks in 1992, sales of Japanese nameplate vehicles may reach 3.4 million units in 1993, including 2.7 million cars. Japanese light vehicle imports (not necessarily sold in the year imported) will probably total 2.1 million units, including 1.65 million cars.

Long-Term Prospects

About 35 percent of the passenger car fleet is 9 years old or more. They are prime candidates for massive replacement, but not necessarily by new cars over the next several years. Since the early 1970's, the long-term sales trend of new cars in the U.S. market has been slightly negative. However, unit sales of light trucks have been growing so rapidly that the overall light market has a long-term growth rate of about 0.9 percent annually. This situation should persist for several more years, although annual sales will continue to oscillate on either side of the trend line.

Fewer citizens will reach driving age in the next 10 years than in the past decade. The negative implication of this development could be offset somewhat, however, by the baby boom's entry into what has typically been their peak earning years, permitting them to own more expensive cars and more of them. (MVMA reports that in 1988, 52 percent of all households with annual income between $35,000 and $49,999 owned 2 cars, and 27 percent owned 3 or more. Of those with incomes of $50,000 or more, 48 percent owned 2 cars, while 34 percent of them owned 3 or more.)

Another factor affecting the industry's long-term growth is the response of Federal and local governments to increasingly congested urban streets and overburdened, deteriorating interstate highways. If their response is inadequate, or if a preference evolves for giving greater support to mass transit, future vehicle sales could be adversely affected. As part of its initial effort to address the issue of existing road infrastructure, Congress has appropriated $660 million for R&D of "intelligent vehicle highway systems" during FY 1992-97 that could greatly reduce traffic congestion and accidents in several critical regional transportation corridors. The appropriation is part of a larger funding to revive and improve the surface transportation network under the Intermodal Surface Transportation Efficiency Act of 1991.

The domestic light vehicle market will continue to become more competitive, with more producers offering new and revised models on ever-shortening time cycles. Market demand will splinter into smaller segments, aided by the success of the major manufacturers in adopting and refining the high degree of flexibility inherent in the lean manufacturing techniques that were pioneered by Japanese firms. Manufacturers are exploiting their new capabilities by aggressively moving to create and fill new market niches with models constructed specifically for them. This strategy places a heavier burden on product planners, market researchers, design and production engineers, and styling studios to generate new concepts and to compress their development cycles. Although there are risks to such an approach, the risks of not responding may be even greater. Manufacturers must also continue to improve their cost-control procedures so that they can extract profits from relatively small annual production volumes.

The battle for market share may exert downward pressure on prices in the future. However, even more stringent safety, environmental, and fuel economy regulations are likely to increase manufacturer costs and prices. Producers will thus have additional impetus to maximize manufacturing productivity and to keep costs under control. Consequently, labor relations will become increasingly important to the industry. This is especially true since vehicle assembly operations are becoming more vulnerable to total disruption by local strikes. The low parts inventory procedures being implemented as part of the lean manufacturing technique allow for no cushion even for the temporary disruption of supplies. (For example, GM lost the scheduled production of 45,000 vehicles in 1992 because of a strike at one of its own parts plants that lasted only 9 days. GM's Saturn subsidiary, which was built to implement lean manufacturing concepts, was forced to terminate manufacturing operations on the day after the strike began.)

Manufacturers from Eastern Europe and the Far East have expressed interest in entering the U.S. market in the next several years, perceiving it as the world's most lucrative, while apparently ignoring that it is also the world's most competitive. These new entrants may succeed because a certain niche exists in the United States for something new from someplace else. They may also find (as South Korean and Yugoslavian manufacturers did when they entered the U.S. market with subcompact in the late 1980's) that sales will drop as rapidly as they grew, if the vehicles do not maintain a price advantage or have a unique personality.

The next several years probably will bring more cross-border mergers, takeovers, and cooperative production and marketing arrangements between firms in the United States, Europe, and Asia. The result will be fewer but more equally matched global contestants. Japanese investments will expand in the United States, Europe, and Asia, while U.S. facilities will operate primarily in North America and Europe. Limited Asian production by at least one of the Big Three is a long-term possibility. In general, European auto manufacturers will remain focused on that region. However, BMW announced in 1992 that it will invest $300 million to establish its first foreign plant in South Carolina. It will produce up to 75,000 units per year of a new model that will supply its worldwide markets. Production is scheduled to begin in 1995. Volkswagen and Mercedes-Benz are thought to be considering adding capacity in either the United States or Mexico to bolster their existing facilities in Mexico.

The Big Three will continue to ship limited quantities of their U.S.-made cars to Europe to fill niche markets. The continuing program by the 12 European Community (EC) countries to remove their remaining internal trade and investment barriers will play only a modest role in directly increasing U.S. exports by the Big Three, since they are already effective cross-country players in those markets. Honda has begun to export from the United States to the EC, and Nissan, Toyota, and Mitsubishi have expressed interest in exporting U.S.-built units to Europe. The recently concluded understanding between the EC and Japan regarding Japanese participation in EC markets between 1992 and 1999 does not apply to their production in the United States.

The Big Three are now gearing up to increase their U.S. exports to Mexico and to reinforce their local operations there. They currently have a 55 percent share of the Mexican market. The recently concluded negotiations between the United States, Mexico, and Canada to create a North American Free Trade Agreement (NAFTA) must now be approved and implemented by the three governments. When that is accomplished, U.S. producers will benefit from greatly improved access to the Mexican market, where growth in new car consumption is expanding rapidly. New car sales in Mexico were an estimated 430,000 units in 1992, up 10 percent over 1991. Some industry analysts predict sales of up to 1.5 million units annually by the year 2000. Mexico now has 85 million citizens, but a registered automobile population of fewer than 6.5 million cars.

The Big Three have had no outside competitors in the full-size segment of the light truck market until Toyota's announcement in 1992 that it will offer a "nearly" full-size pickup in 1993. Toyota will first manufacture this vehicle in Japan and is expected to shift production to the United States in 1994-95 if sales warrant. If the Japanese brands are successful in their efforts to gain a significant share of the full-size segment of the light truck market, the Big Three could suffer tangible financial losses. They derive a significant portion of their North American operating income from sales of light trucks. These vehicles typically cost less to engineer and build, and enjoy longer replacement cycles than automobiles. Ford's Econoline van, for example, was marketed successfully between 1975 and 1991 without any major styling or equipment changes.

U.S. imports from Asia will continue to decrease in units, displaced by increased production in North America by manufacturers from Japan and South Korea. The Big Three may also shift sourcing of some vehicles from their Asian suppliers to their own operations in Mexico. On the other hand, U.S. exports to Asia should increase. Euromotor predicts that the Asian markets will require 12 million units annually by 2010, a 200 percent increase from 1990. The Big Three, as well as Honda, Toyota, and Mitsubishi, are now shipping certain models to Japan from their plants in the United States. GM, Ford, Toyota, and Nissan export to Taiwan from the United States. The Big Three are also engaged in efforts to expand their efforts in other Far Eastern markets that are emerging. Most notable, perhaps, is Chrysler's joint venture in China, where the company owns 31 percent of Beijing Jeep.--Randall Miller and Heather West (Financial Performance section), Office of Automotive Affairs, (202) 482-0669, September 1992.

MEDIUM-DUTY AND HEAVY-DUTY TRUCKS

Medium- and heavy-duty trucks (classes 4-8) are predominantly employed for commercial purposes and tend to closely track overall economic trends. In 1992, retail sales of these trucks increased across the industry and throughout the year, growing to an estimated total of 246,000 units, up about 11 percent from 220,903 units sold in 1991 (Table 5). However, the 1992 performance is considerably below the industry's record of 334,000 units sold in 1988.

Table 5: Medium- and Heavy-Duty Truck Retail
Sales, 1991-97
  (thousands of units)
  Year    Medium 4-7   Heavy 8   Total
1991(1)   122           99       221
1992(2)   132          114       246
1993(3)   147          133       280
1994(3)   162          150       312
1995(3)   172          157       329
1996(3)   180          162       342
1997(3)   185          167       352
(1) Actual.
(2) Estimate.
(3) Forecast.
SOURCE: Data derived from the Motor Vehicle Manufacturers Association and Ward's
Automotive Reports. Estimates and forecasts by U.S. Department of Commerce, inte
rnational
Trade Administration.

Sales of certain class 3 commercial vehicles that are classified by the industry as light trucks totaled 21,256 units in 1991, a 12 percent increase over 1990. Sales are expected to be more than 25,000 in 1992. The popularity of the relatively new, and mostly imported, class 3 vehicles continues to grow.

The medium-truck group consists of classes 4 through 7, defined as 14,001 to 33,000 pounds of allowable gross vehicle weight (GVW), or 6.31 metric tons (MT) to 14.85 MT GVW. The sector is serviced by both domestic and imported products. Buyers primarily are small- to medium-size businesses. Sales totaled 156,062 units in 1990, and 122,173 in 1991. They are expected to increase 8 percent in 1992, to about 132,000 units.

Except for a few hundred imports, heavy-duty, class 8 trucks (33,001 pounds GVW and over, or 14.86 MT GVW and over), are supplied by domestic producers, mostly to large industrial manufacturers and to interstate fleet operators. In 1991, sales of class 8 trucks fell about 18 percent to 98,730 units, the worst year since 1983. Sales are expected to increase more than 15 percent to about 114,000 units in 1992.

Until the mid-1980's, class 3, 4, and 5 commercial trucks had not been very popular in the United States. U.S. chassis manufacturers modified class 2 trucks to meet the demand for classes 3 and 4. The class 5 truck category was largely ignored. As a result, there was significant hidden demand for vehicles specifically manufactured to meet the needs of intraurban haulers.

European and Japanese manufacturers enjoy tremendous economies of scale because they produce standard specification models in similar weight classes for their home markets. Consequently, foreign manufacturers have found a ready and profitable market in the United States. In 1991, 40 percent of class 3 trucks, 6 percent of class 4 trucks, and more than 98 percent of class 5 trucks were imported.

Until the entry of foreign suppliers, class 6 and 7 trucks were mainly supplied by GM, Ford, and Navistar International. To meet competitive pressures, U.S.-owned firms sought to reduce costs by increasing the outsourcing of major components, and by seeking higher volumes through exports. All the class 6 and 7 truck manufacturers have aggressively pursued export markets and have continued to outsource components domestically. Between 1990 and 1992, Navistar severed its import relationship with Nissan Diesel (and its cab-forward, medium-duty truck) and decided to initiate an independent program, while PACCAR and Ford abandoned their Brazilian assembly operations, preferring instead to have control of their production operations in the United States.

The North American class 8 industry is unique when compared with its European and Japanese competitors. The industry is geared to the custom manufacturing of units, assembling one vehicle at a time with various combinations of in-house and outsourced engines and drivetrain components as specified by individual customers. Six class 8 truck manufacturers have dominated the U.S. market during the last five years: Navistar International, Freightliner, and PACCAR have been the market leaders, closely followed by Mack, Volvo-GM, and Ford.

INTERNATIONAL COMPETITIVENESS

U.S.-owned medium and heavy truck producers are competing vigorously with imports and with several foreign-owned firms that sell a mixture of imported and locally produced vehicles. In 1991, more than 14 firms did battle in classes 4 through 8 for the 220,903 units sold in the United States, with every company selling fewer trucks than it did in 1990.

The medium- and heavy-duty truck market has been the scene of many consolidations and withdrawals over the course of the past 10 years. Four large U.S.-owned medium- and heavy-duty firms--Navistar International, GM Truck and Bus, PACCAR's Peterbilt and Kenworth divisions, and Ford's truck operations-accounted for almost 74 percent of the U.S. market in 1991 (Figure 35-3). The three U.S.-based, foreign-owned medium- and heavy-duty truck manufacturers--Daimler-Benz's Freightliner Corporation, Volvo-GM, and Renault's Mack Trucks--accounted for almost 22 percent of the U.S. market in 1991, up from about 20 percent in 1990.

Increased competition and the withdrawal of Italy's Iveco and Sweden's Scania from the U.S. market caused total imports (supplied to both U.S.- and foreign-owned manufacturers) to fall to 6.1 percent of the medium- and heavy-duty truck market in 1991, from 6.9 percent in 1990. However, this is considerably above the 3.8 percent share in 1989.

U S. Owned Manufacturers

The major U.S.-owned manufacturers of medium-duty trucks--Navistar International, Ford, and GM Truck and Bus--controlled about 90 percent of the U.S. market in 1991, unchanged from 1990. The major U.S.-owned manufacturers of heavy-duty trucks-PACCAR, Ford, and Navistar International--accounted for about 53 percent of the market in 1991, down 2.6 percentage points from 1990.

Navistar International is the leader in both the heavy-duty truck and combined medium- and heavy-duty truck markets. The company reported financial losses in 1990 and 1991, and is anticipating another loss in 1992. Navistar gained 1.4 percentage points in the medium-duty truck market in 1991, to a total of almost 31 percent, and gained 0.2 percentage points in the heavy-duty truck market to a total of about 23 percent. It is also the largest U.S. medium-duty truck engine producer. It supplies engines to Ford's medium-duty truck operations and to DINA, a Mexican medium-duty truck manufacturer in which Navistar has a 17 percent interest.

The market share of GM Truck and Bus, GM's medium-duty truck division, fell from about 25 percent in 1990 to 23.5 percent in 1991. GM has been concentrating on the conventional class 6 and 7 truck market, and has a medium-duty, cab-forward ready for production to compete with imports. The new trucks will be class 6-7 products supplementing the popular Isuzu-built Forward and Tiltmaster models that GM imports.

Ford Truck, still the leader in the medium-duty marketplace, was the hardest hit in 1991, losing market share in every class. Its share fell more than 5 percentage points since 1989, to 35.4 percent in 1991, while the share of its heavy-duty trucks fell 1.3 percentage points to 9.5 percent. Ford is retrenching by investing $650 million in its Kentucky truck plant, the company's sole source of medium- and heavy-duty trucks. The plant will have a 1 million-square foot addition and is expected to increase production capacity to 200,000 units per year by 1995. Ford recently acquired a 10 percent equity share in Cummins Engine Company, ensuring a long-term stable supply of engines for its trucks. Ford's Brazilian operation has had difficulty controlling costs, and in 1990 Ford moved production of its Cargo truck from Brazil to Kentucky. Imports were terminated in 1991.

PACCAR's Kenworth and Peterbilt divisions, primarily heavy-duty truck manufacturers, have continued to be profitable despite their share of the heavy-duty market declining from 22 percent in 1990 to 20.5 percent in 1991. PACCAR sold 520 medium-duty trucks and 20,491 heavy-duty trucks in 1991. PACCAR ended its program to import Brazilian medium-duty trucks in early 1992 due to Brazil's inflation and exchange rate problems. PACCAR will now begin assembling them in the United States and is planning to use domestic production for its future requirements. Its Kenworth assembly operation in Mexico should give PACCAR the lead in the fast-growing Mexican class 8 market.

Foreign-Owned Manufacturers

The European truck manufacturers limited in their own market, began to expand their operations in North America by 1980. Volvo, Renault, and Daimler-Benz (DB) bought ever-increasing interests in traditional North American truck manufacturers as they expanded their market shares. DB's Freightliner has been the rising star in the heavy-duty truck market, growing from 15.5 percent in 1986 to 22.9 percent in 1991. Volvo-GM's share increased slightly in 1990-91.

In 1988, Volvo of Sweden merged its portion of White Motor Trucks and Autocar heavy truck operations into a U.S. joint venture with General Motors. GM holds a 17 percent interest (recently reduced from 27 percent) of Volvo-GM Heavy Truck, while Volvo owns the balance and provides the active management of the company. Volvo-GM completed an expansion of local plant capacity in 1990 to enable it to produce class 7 low cab-over-engine straight trucks and terminated its import of similar vehicles in 1991. It is increasing exports through a new distribution agreement with Trailers de Monterrey of Mexico, and a new arrangement with its Swedish-based parent covering other worldwide markets.

In 1981, Daimler-Benz bought Freightliner, an old-line major U.S. producer of class 8 trucks. For the first time, in 1991, Freightliner became a market threat to Navistar International, the class 8 truck market leader for the last 28 years. Freightliner is expected to overtake Navistar in class 8 sales in 1992, and is now targeting the class 6 and 7 market. DB recently completed a local expansion project, adding plant capacity to build class 6 and 7 trucks, and has recently announced its intention of assembling Freightliner models in Mexico, where it has increased its share in a local joint venture to 80 percent.

Renault purchased 46 percent of Mack Truck in 1985 and bought the remainder of the firm in 1990. Mack has continued to lose market share in the United States and has had financial difficulties since 1988. In 1991, Mack's share of the heavy-duty truck market fell to 10.6 percent, 4.7 percentage points lower than in 1986. Mack, the only U.S.-based heavy-duty truck manufacturer that still produces its own class 8 engines, recently announced that its engines will meet the 1994 emissions regulations.

Foreign-Based Manufacturers

U.S. imports accounted for 11 percent of the 122,173 commercial class 4-7 vehicles sold in 1991, up from only 3.1 percent in 1986. Imports were less than 1 percent of the 98,730 class 8 trucks sold in 1991.

Isuzu, Hino, Nissan Diesel, and Mitsubishi-Fuso continue to increase their shares of the medium-duty truck market in the United States. However, their progress has been slow because of high domestic brand loyalty, unfavorable currency exchange rates, and the lack of a large distribution network. The Japanese share of this market rose from 4.6 percent in 1989 to 6.5 percent in 1991. However, their combined share of the medium- and heavy-duty truck market in the United States was only 3.6 percent in 1991. Each of the four Japanese truckmakers is expanding its distribution network. Isuzu, 38.6 percent-owned by GM, has the largest network (237 outlets) and is expected to reach 250 outlets by 1994.

U.S. imports of European and other (except Japanese) medium- and heavy-duty trucks have dropped off significantly, accounting for 2.5 percent of the U.S. market in 1991, compared with 4.6 percent in 1989. Two European importers have withdrawn from the U.S. market. Iveco, the Italian-based manufacturer and pioneer exporter to the U.S. market in classes 3 to 6, discontinued its local sales program in 1991. Scania, the Swedish-based truck manufacturing company that is 100-percent owned by GM, ceased importing Class 8 trucks into the U.S. market in 1992. Scania had been selling heavy-duty trucks in the United States since 1985.

Trade

North America is the largest integrated medium- and heavy-duty truck market in the world. The heavy competition in the U.S. domestic market, and the fall in the value of the dollar in relation to Japanese and European currencies, have boosted U.S. exports. U.S. medium- and heavy-duty truck exports increased an estimated 28 percent in 1992. (The FAS value of total exports and the customs value of general imports are used in this discussion. Medium-duty trucks are defined as ranging from 5 MT to 15 MT GVW, while heavy-duty trucks are over 15 MT GVW.)

U.S. exports of medium- and heavy-duty trucks totaled almost $1.1 billion in 1991, an increase of 13.5 percent over $951 million in 1990. Imports were $948 million in 1991, a decline of almost 13 percent from nearly $1.1 billion in 1990. The trade surplus was $131 million in 1991, a reversal of the previous year's $135 million deficit.

In the first six months of 1992, total exports of medium-and heavy-duty trucks reached $693 million, up strongly from $487 million in the comparable 1991 period. This increase is primarily attributable to more than a doubling of the value of heavy-duty truck exports and a 29 percent increase in the value of road tractor exports. Total imports were $608 million in the first half of 1992, an increase of 30 percent over the same 1991 period. A trade surplus of $165 million is expected in 1992.

Canada has the most medium- and heavy-duty truck trade with the United States, accounting in 1991 for 43 percent and 73 percent of truck exports and imports, respectively. During the first half of 1992, these truck exports to Canada totaled $256 million, a 12 percent increase over the first half of 1991, while imports were $483 million (a 39 percent increase). The result was a trade deficit of $227 million.

U. S. medium- and heavy-duty truck exports to Japan are practically non-existent, while U.S. imports of Japanese commercial trucks accounted for 26 percent of total imports in 1991. In 1992, exports are estimated at only about $243,000, and imports are expected to be $246 million, about the same in both cases as in 1991. During the first six months of 1992, there was a trade deficit of $123 million. However, exports of medium- and heavy-duty trucks to other countries are expected to more than offset the bilateral trade deficits with Canada and Japan in 1992.

Medium- and heavy-duty truck trade with Mexico is insignificant when compared with Canada and Japan. In 1991, U.S. truck exports to Mexico were about $57 million and are expected to be $73 million in 1992. Virtually all Mexican commercial trucks are produced there, and very few are now imported.

Safety and Emissions Regulations

The National Highway Traffic Safety Administration (NHTSA) is working on several new safety regulations that will affect the industry. NHTSA expects to complete by June 1994 performance standards tests for the new antilock brake system for medium- and heavy-duty trucks and trailers. The regulations should be in effect by 1996. The regulations for automatically adjustable brake systems for medium- and heavy-duty trucks (over 10,000 pounds GVW) will go into effect in early 1993.

NHTSA's proposed under ride guard regulations for new trailers and straight body trucks (an update of the 1953 "ICC bar" regulation) are now in the early stages of the regulatory process. In 1991, about 500 highway fatalities could be attributed to rear-end collisions with trucks and truck trailers. NHTSA believes that under ride guards for trailers and trucks will significantly reduce these fatalities.

To meet the Clean Air Act's requirements, commercial truck engine manufacturers had already cut the emission levels of particulates and nitrogen oxides ([No.sub.x]) by more than half between 1988 and 1991. New Federal emissions regulations will be implemented by the beginning of 1994 and again in 1998 for medium- and heavy-duty trucks, requiring major changes in engine design and electronic control systems. The 1994 emissions standards mandate that levels of particulate emissions must be cut by more than half once again. Most industry experts now believe that the cost of meeting these regulations is a fraction of earlier predictions, and has easily been absorbed by the engine manufacturers. All major diesel engine manufacturers have announced that they will meet the 1994 standards. The new diesel emissions regulations give engine manufacturers credits for complying with the law ahead of schedule. The credits can be used on engines sold after January 1, 1994, or can be sold to other manufacturers. Some state governments may tighten their diesel regulations further in 1996. Federal regulations mandate a further 25 percent reduction in [No.sub.x] emissions by 1998.

Outlook for 1993

The sales of medium- and heavy-duty trucks are expected to increase 14 percent to about 280,000. The anticipated increase in industrial output and consumer demand will require additional transport services, encouraging more truck sales. Sales will also be stimulated by the need to replace a rapidly aging national truck fleet. Higher demand will probably be sufficient to allow firms to recover profits. The consolidation of the medium and heavy sectors will likely continue, as will additional international mergers and cooperative ventures. Imports of completed trucks will probably decline in the medium-weight classes. Sales of medium trucks, especially in classes 3 and 4, will increase in 1993, as industries switch to just-in-time low inventory procedures. The usefulness of medium-duty trucks for local delivery and service industries is becoming more widely recognized. Demand for classes 6 and 7 straight trucks, in preference to class 8 tractors, will increase for the same reasons.

Long-Term Prospects

Sales will increase to an estimated 312,000 in 1994, and to about 352,000 by 1997 (Table 5). Imports, as a percentage of the retail sales market, are expected to decline, while exports increase.

The internationalization of the medium- and heavy-duty truck industry has lagged behind that of the passenger car industry. The three largest markets--North America, Europe, and the Pacific Rim--are still dominated by their domestic producers. Industry experts believe that the commercial truck industry will become more international in the 1990's, and that the successful medium- and heavy-duty truck manufacturers of the future must be competitive in their domestic markets as well as in one other major market.

U.S. exports of commercial trucks have not been significant in the past (except to Canada). Manufacturers either lacked the interest and resources or faced insurmountable tariff and non-tariff barriers in expanding abroad. However, 1991 was the beginning of an aggressive export effort by the industry that is likely to continue throughout this decade.

There are sales opportunities for U.S. truck manufacturers in the European Community (EC), where U.S. products are well regarded and highly competitive in all aspects, except pricing. Import duties in the EC range between 17 and 22 percent of a vehicle's landed value. The United States has been pursuing a satisfactory resolution of this problem within the current multilateral trade negotiations under the General Agreement on Tariffs and Trade.

U.S. medium- and heavy-duty truck manufacturers find Mexico particularly appealing, since it promises to be one of the fastest-growing truck markets in the 1990's. U.S.-Mexican truck trade is expected to grow rapidly when the North American Free Trade Agreement (NAFTA) is implemented. U.S. exports to Mexico, limited by quotas and other trade restrictions, are expected to increase rapidly as the barriers fall. Under NAFTA, medium- and heavy-duty trucks (over 8.8 MT GVW under Mexico's definition) must have North American content of 60 percent. Mexican import quotas for road tractors, heavy-duty trucks, and certain buses would be phased out over a 5-year period, and tariffs would be phased out over a 10-year period. The three NAFTA countries would have six years to make motor carrier safety standards compatible among them.

In general, export prospects around the world are improving. U.S. exports are expected to continue to expand as South/Central America, Eastern Europe, and the countries of the former Soviet Union develop their economies and reduce import barriers.

The unique nature of the North American class 8 industry, geared to the custom manufacturing of units from in-source and out-source components, has enabled many component manufacturing companies to develop economies of scale and to make increasing investments in their own research and development programs. In contrast, the European and Japanese commercial truck manufacturers produce most of their major components in-house, leaving the costly engineering and R&D expenses with the truck manufacturers. The large independent manufacturers of large truck components such as engines, gearboxes, and axles, the majority of which are U.S.-owned, are likely to be the principal beneficiaries of the globalization of the commercial truck industry.

Expected increases in prices, due to new U.S. Federal regulations, could encourage buyers to place orders before the regulations are implemented. Federal regulations, requiring automatic brake adjusters and anti-lock brake systems, are not expected to affect patterns of truck sales. However, some Federal and state government diesel emission regulations may tighten further in 1996 and 1998, possibly adding additional sales in 1995 and 1997 before the regulations. go into effect.

Class 8 manufacturers in the U.S. market will continue to pursue a host of technological advancements to improve quality and efficiency. These improvements include enhanced cab designs to make driving and sleeping accommodations more pleasant for drivers; redesigned drivetrains to accommodate more trailer height and payload; and increased fuel economy by reducing vehicle dimensions and weight, reducing aerodynamic drag, and improving engine performance, while meeting new emission regulations. Intelligent vehicle/highway systems (IVHS), on-board computers, and communication equipment used in conjunction with satellites and base units to boost productivity, promise to be a rapidly growing field in truck technology. IVHS can help to reduce traffic congestion, enhance safety, conserve fuel, and increase productivity.

TRUCK TRAILERS

Shipments have fallen from 186,483 units in 1988 to 122,477 in 1991, but are expected to increase to 168,000 in 1992. Shipments of truck trailers are expected to increase 36 percent in constant dollars in 1992, after a decline of 17 percent each in 1990 and 1991. Increased domestic demand, the replacement of the large number of trailers sold in 1984, new regulations allowing longer trailers, and cutthroat price competition have resulted in the very substantial increase in 1992 trailer shipments. The industry is lean and efficient because of the intense competition following deregulation in 1980, but it is operating far below its capacity.

Trailer traffic (the level of travel usage), the best measurement of the industry's activity, fell about 7 percent in 1991. Most of the reduction was due to the recession, but some of it can be attributed to increased competition from growing intermodal (two or more types of transport) service. Intermodal traffic is one of the fastest-growing segments of the transportation industry. In 1992, rail/ trailer traffic will continue to outpace that of truck trailers. However, the 2-3 trailer combinations, if and when they are allowed on all the nation's highways, will likely take business back from trailer/rail intermodal transport.

Outlook for 1993

Shipments of U.S. truck trailers are expected to increase 5 percent, to about 177,000 units. Shipments of detachable trailer chassis and van trailers are expected to increase at the expense of tank and platform trailers.

Foreign trade will play a larger role in 1993, as the globalization of the trailer market continues. Exports of truck trailers will continue to expand. Truck trailer trade with Mexico will continue to develop as medium- and heavy-duty truck exports increase. Overseas exports will likely reach historic highs as the value of the dollar in relation to major foreign currencies remains low. Meanwhile, U.S. industry will continue to become more cost and price efficient.

Long-Term Prospects

Annual growth in sales of truck trailers is expected to be moderate during the forecast period, following the sales surge in 1992-93. The product value of truck trailers produced are estimated to increase 3 percent in constant dollars in 1994, but then taper off through 1997, when truck trailer shipments are expected to fall below 170,000 units.--Charles Uthus, Office of Automotive Affairs, (202) 482-0669, September 1992.

FRANCHISED NEW CAR DEALERSHIPS

Total 1991 sales for all franchised new car dealerships were $305 billion, a 2.6 percent drop from record sales of $313 billion in 1990. Nevertheless, the dealership network continued to make solid contributions to the national economy. Total dealership sales were 16.7 percent of all U.S. retail sales, while employment in dealerships accounted for 12.1 percent of the nation's payroll in 1991.

New vehicle unit sales of franchised dealers in the U.S. market declined 11.5 percent from 1990, to 12.3 million new vehicles sold in 1991 (Figure 35-4). This was the lowest level since the early 1960's. The continuation of the sales slump in new vehicles and weak dealership profit performance will have a permanent effect on the dealership network. To merely survive during the 1989-91 automotive downturn, dealers were compelled to streamline operations, develop new profit centers, and place more emphasis on customer satisfaction.

During 1991, used vehicle sales by franchised dealers decreased 0.7 percent to 14.2 million units (8.84 million units retail and 5.36 million units wholesale). Total repairs declined 4.6 percent to 190 million repair orders. Dealers' payrolls declined 6 percent to $23.5 billion, reflecting a reduction of 6.5 percent in the number of dealers' employees, to 886,400. In addition to expenditures for the cost of vehicles and parts, dealers spent $40 billion for operational costs, which were 5 percent less than in 1990. Dealers' 1991 expenditures included $3.7 billion for rent, $3.5 billion for advertising, and $2.1 billion for interest payments on inventory. Rent and advertising expenditures were similar to 1990 spending levels, while interest payments declined by 22 percent, reflecting lower inventories and interest rates.

Dealership Operations

The dealer network has evolved into a more sophisticated and efficient business. There are far fewer dealers (23,500 in 1991 compared with 44,000 in the early 1950's), and they have adjusted to automobile industry developments and economic hardships. According to the National Automobile Dealers Association (NADA), there were less than 6,000 dealerships selling under 150 new vehicles annually in 1991, compared with 10,000 dealerships in 1981. On the other hand, more than 5,200 dealerships now sell over 750 new vehicles annually (3,600 comparable dealerships in 1981).

The departments and their role within the dealership have also changed over time. Although the average new vehicle department has not been a significant profit generator in recent years, it is still the nucleus of the dealership. The average dealership's new vehicle department's sales were about 60 percent of total sales in 1991, compared with 67.5 percent in 1985. The average dealership sells 520 vehicles per year, versus 404 in 1980, and the average transaction price was $16,695 in 1991 ($7,574 in 1980). Light-duty trucks, which include the popular sport utility units and minivans, represented almost 34 percent of the average dealer's total vehicle sales in 1991, compared with about 18 percent in 1980.

During 1991, due to heated competition and weak demand, gross profits on the sale of new vehicles fell to a record low of 7.1 percent. The new vehicle department's aftermarket income from supporting finance, insurance, and extended service contract sales has enabled it to operate at a profit since 1987. In 1991, this income represented almost 19 percent of gross profits for the new and used vehicle departments. Dealers sold extended service contracts to 30 percent of the new vehicle buyers.

Of the 14.2 million used vehicles sold by franchised dealers in 1991, 62 percent were sold to consumers and 38 percent were wholesaled. About 65 percent of the used vehicle inventory of the average dealer consisted of trade-in vehicles. However, a record 28 percent of the used vehicle supply was obtained from auctions. The increase in auction purchases is attributed to the vehicle manufacturers' current buy-back programs with rental car companies. For the third consecutive year, used vehicle sales surpassed new vehicle sales in 1991, and profits on used vehicles sold were often higher than those on new vehicles.

During 1991, total dealership service and parts sales declined 0.5 percent from 1990's record level to $47.6 billion. Weak new vehicle sales during 1989-90 triggered an erosion of the dealers' service base. However, service and parts sales represented 15.6 percent (the highest share since 1982) of the average dealer's total sales.

Dealership Profits

In 1991, net profits before tax of dealerships were 1 percent of sales, a repeat of the low profit levels in 1989 and 1990. During previous years, the average net profit before tax averaged 2 percent of sales. During 1990-91, 20 percent of all dealers operated at a loss, and between 1989 and 1992, 1,525 dealership closed their doors.

For new vehicle franchised dealers, the 1989-91 sales downturn resulted in the worst profit performance for new vehicles. Dealerships had losses in their new vehicle departments in 1990, and these losses increased significantly in 1991.

Profits in the used vehicle departments increased in 1991 after two years of low profits. For the average dealership, the used vehicle department was responsible for 25 percent of the total sales volume. The dealers' access to auction sales of profitable traded-in, daily rental units influenced the profit upswing.

Other profit centers within the dealership have developed to compensate for marginally profitable departments. New car sales are supported by the sales of aftermarket services, such as finance, insurance, and extended warranties. In addition, profits from the service and parts departments are becoming increasingly more important and represented nearly all of the average dealerships profits in 1991. The substantial investments of some dealers in service equipment, technician training, and customer satisfaction efforts are realizing results, such as increases in market share, operational efficiencies, and customer satisfaction.

The dealer network was able to achieve some positive results during the recent sales slump that have proven to be effective and should further benefit dealers in the long run. In addition to developing new profit centers, dealers have streamlined operations. For the average dealer, inventory carrying costs have been reduced. Dealers now make more concerted efforts to increase customer satisfaction. Staff performance has improved. Dealerships have increased the average number of units sold per store, and many dealers have combined franchise facilities to maximize dealership investments and minimize franchise sales risk.

Outlook for 1993

These accomplishments have enabled most franchised dealers to survive recent hardships and can only further enhance profits during the expected sales recovery in 1993. Light vehicle sales are expected to increase about 7.5 percent to 13.9 million units. Interest rates may rise slightly, but should remain low. The 1993 vehicle price increases, particularly by domestic manufacturers, have been modest. The aging vehicle fleet should trigger some increased demand.

NADA's dealer optimism index, which is based on a quarterly dealer survey, indicates that dealers of all sizes and franchises expect much higher profits through at least the first quarter of 1993. In April 1992, this index reached 156-its highest level since April 1976. The survey indicated that small dealerships (sales of less than 150 units per year) are not as optimistic as larger dealers. Chrysler dealers had the largest increase in confidence due to new products and management.

Long-Term Prospects

The dealership network will likely continue to be the most effective way to sell new vehicles, despite other methods of vehicle distribution that are being considered. The network should continue to enhance its sophistication as computerization and efficient management play integral roles in dealership operations. In addition, as manufacturers' shelf space becomes even more competitive and dealerships continue to sell multifranchise products as a way to balance their franchise portfolio, dealers' clout with their manufacturers should increase.

One area of change is the service and parts department, which is becoming increasingly more important to dealers due to its growing contribution to the overall sales and profits of the dealership. Although the quality of vehicles has improved and has lowered servicing needs, new vehicle functions controlled by electronics have increased to 20 percent in 1992, and are expected to rise significantly by 1994. This means more expertise and advanced equipment for diagnostic servicing are needed. Warranties also keep the customer returning to the dealership. Currently, 30 million units are covered by basic industry warranties, and 60 million units are covered by longer powertrain warranties. Vehicles having these warranties are expected to increase to 45 million (basic) and 61 million (powertrain) by the year 2000. Dealers will continue to offer more quick-service business, which traditionally has been done by independent service outlets, as a way to attract vehicle owners.--Susan Hamrock, Office of Automotive Affairs, (202) 482-1418, September 1992.

AUTOMOTIVE PARTS AND ACCESSORIES

The U.S. automotive parts and accessories industry posted its second consecutive year of growth in 1992, with constant-dollar industry shipments rising an estimated 7 percent from 1991 to total $90.8 billion. Original equipment (OE) suppliers benefited from the increase in U.S. vehicle production, while they continued the struggle to keep pace with the industry's changing dynamics, heightened by the monumental restructuring plans of General Motors (GM). Suppliers to the automotive aftermarket saw sales increase in 1992, as consumers resumed scheduled maintenance and discretionary repairs put off in 1990 and 1991.

The industry comprises manufacturers of automotive stampings (SIC 3465); carburetors, pistons, piston rings, and valves (SIC 3592); vehicular lighting equipment (SIC 3647); storage batteries (SIC 3691); engine electrical equipment (SIC 3694); and motor vehicle parts and accessories (SIC 3714). The industry has two primary sectors: OE suppliers, which produce parts for automakers; and aftermarket parts manufacturers, which produce replacement parts for the 190 million vehicles on the road.

Original Equipment Suppliers

In 1992, the OE industry continued to rationalize its operations. Since the early 1980's, it has been undergoing a restructuring that has emphasized cost reduction, quality improvement, and strategic sourcing--reducing the number of suppliers while sourcing from suppliers that can do everything from prototyping to manufacturing production parts. In June 1992, the OE industry was rocked by a revolutionary restructuring plan by GM, the largest U.S. parts purchaser, to streamline its supplier operations. GM's PICOS (purchased input concept optimization with suppliers) plan was its response to the ever-changing dynamics of the industry. Chrysler and Ford continued their restructuring efforts already in effect.

The PICOS plan could totally revamp GM's supply base, including its seven in-house operations that supply about 70 percent of the parts for GM vehicles. The plan allows GM to accept unsolicited new bids from both foreign and domestic suppliers for contracts it has already negotiated for future models, but gives no advantage to GM's Automotive Components Group (ACG). This global sourcing plan affords GM's foreign parts producers the opportunity to supply its U.S. operations. It also will allow the automaker's U.S. suppliers to sell to GM operations worldwide. GM is also offering to these foreign and domestic suppliers the leasing of factory space and a supply of labor from its "job bank" of idled union workers. This radical move could eventually allow GM to operate its production facilities at full, three-shift capacity, as well as reinstate many of the approximately 15,000 United Auto Workers (UAW) employees in the job bank. GM is already paying these workers up to 95 percent of their after-tax salaries--at a cost of about $1 billion in 1992--as a result of a historic income protection measure agreed to in negotiations with the union in 1990.

The PICOS cost-reduction strategy also demands significant price cuts from suppliers with long-term contracts. This requirement overrules the "3-2-2" plan (price cuts of 3 percent in 1991, 2 percent in 1992, and 2 percent in 1993) that GM implemented in 1991. Although no specific cost-cutting targets have been set, many believe that GM is aiming for savings of about $3 billion in its total U.S. parts purchases of $30 billion.

Chrysler's restructuring plan incorporates a strategic sourcing plan in which the automaker designates the suppliers that it will use for specific commodities. This is intended to reduce the number of suppliers a given assembly plant has to deal with, while establishing the suppliers that Chrysler will do business with over the long term. The company has cut its supply base from more than 3,000 a few years ago to fewer than 2,500 in 1992. This overhaul affects mostly new vehicles. There are 600 to 800 suppliers per model for Chrysler's current models, while the 1993 LH cars and 1994 PL small-car line have 170 and 140 suppliers, respectively. Chrysler's unique cost-cutting strategy relies on supplier input. Through its SCORE (supplier cost-reduction effort) program, it claims to have saved about $150 million over the past three years from supplier cost-reduction ideas for more efficient manufacturing, scheduling, inventory, and shipping. Product costs have been cut through simultaneous engineering and reworking of older tooling.

Ford has reduced its worldwide supplier base by more than half from 1980 levels. In 1991, it implemented dramatic companywide restructuring plans, which called for continued reductions in the number of suppliers. Ford is also asking its parts producers to cut costs by 1 percent annually until 1997. Ford ACG, which produces about 50 percent of its parts for Ford vehicles, is afforded no advantages; the automaker's open bidding system requires internal suppliers to compete against outside suppliers.

OE suppliers have become more than just producers of parts for their customers. Leading component suppliers also provide automakers with services by financing R&D, inventory, logistics, and tooling. Indeed, this high level of direct involvement by suppliers in their customers' operations has improved relations between the two industries. In a recent survey, U. S. automotive suppliers rated Chrysler as having the best relationship with its suppliers, followed by GM, the U.S.-based Japanese automakers, and Ford.

In a move that could help save their suppliers a minimum of $160 million annually, the Big Three announced in 1992 that they hope to achieve a standardized quality assessment system for suppliers by June 1993. This system would adopt uniform supplier reporting methods and standardized quality processes. To date, the U.S. automakers have standardized failure-mode analysis, problem reporting and resolution, critical engineering characteristics, and advanced quality planning.

Aftermarket Suppliers

In 1992, end-user sales of replacement products for cars and trucks increased slightly from 1991's total of $74 billion, as consumers began to resume scheduled maintenance and discretionary repairs put off mainly because of economic uncertainties. According to the Motor & Equipment Manufacturers Association (MEMA), the lengthening of the repair cycle in the recent economic downturn led to an 11 percent jump in the amount of unperformed maintenance--the "untapped aftermarket"--from 1990 to 1991, despite a 2 percent sales increase during this period. (The untapped aftermarket includes service as well as parts expenditures.)

Although aftermarket sales have risen steadily since the mid-1980's, the amount of maintenance put off by consumers has almost doubled, according to MEMA statistics. Sales of car and truck replacement parts at the end-user level have risen 28 percent between 1984 and 1991. Aftermarket sales totaled $57.8 billion in 1984; $35.1 billion (61 percent) was spent on car products and $22.7 billion (39 percent) on truck products. Of the $74 billion in 1991 replacement part sales, car products accounted for $41.2 billion (56 percent) and truck products for $32.8 billion (44 percent). However, MEMA figures indicate that the untapped aftermarket has risen 83 percent, from $28.7 billion in 1986 to $52.6 billion in 1991.

Aftermarket parts producers, like OE suppliers, have been undergoing a dramatic restructuring, with firms regrouping to reduce costs and debt and enhance their competitive positions in the international market. Several aftermarket acquisitions worth millions of dollars occurred in 1992. These included Federal-Mogul Corp.'s acquisition of TRW Inc.'s aftermarket business (annual sales of $300 million and employment of about 900) for $210 million. Cooper Industries Inc. acquired Luxembourg's Moog Automotive Group Inc., a maker of replacement parts for cars and light trucks that had $475 million in 1991 revenues and employed 3,000. Several other large replacement parts manufacturers also made strategic acquisitions during 1992.

Competition in the aftermarket, which accounts for a major share of U.S. parts demand, has also increased. In recent years, OE suppliers, squeezed by automakers' restructuring plans, have begun vying for a share of the lucrative replacement parts market, which they view as a big growth opportunity. Competition from Japanese suppliers in both the United States and Japan has also posed a significant challenge for U.S. aftermarket parts producers. Many U.S. replacement parts manufacturers have found it difficult to supply the increasing number of Japanese imports in the fleet, as replacement parts for Japanese imports are traditionally manufactured by OE suppliers. Also, Japanese suppliers have recognized the aftermarket's growth potential and large profit margins and have made an effort to enhance their share of the market.

Employment

In 1992, total employment in the U.S. parts industry (including foreign-owned suppliers) grew for the first time since 1988, reflecting increases in motor vehicle production and aftermarket sales. Employment totaled an estimated 624,000, up about 7 percent from 1991. The number of production workers grew almost 10 percent to reach 507,000 in 1992.

The surge in industry employment in 1992 comes after a three-year decline resulting from supplier consolidation in both the OE and aftermarket sectors. Many of the large aftermarket firms idled workers to reduce costs, closing or consolidating facilities nationwide. Supplier bankruptcies ballooned in 1990 and 1991.

The UAW has sought to slow the trend of falling union employment caused by the tightening of the supply base and increased OE outsourcing to non-union plants. By 1994, Chrysler will move 1,500 jobs in-house to comply with its 1990 agreement with the union that requires work that meets certain competitive criteria to be done by the company instead of outside vendors. Chrysler has already moved its stamping and camshaft and crankshaft production to its own plants.

UAW workers at GM parts plants have struck several times in the past two years to protest outsourcing decisions. These strikes have had a much broader impact than in the past because the automotive industry has largely adopted the Japanese system of just-in-time production that keeps inventories low. In early September 1992, the workers at a vital stamping plant in Lordstown, Ohio, that supplied GM plants nationwide struck over the proposed closing of a tool and die shop that employed 240 workers. The stoppage idled 42,900 workers nationwide and closed 9 GM assembly plants due to lack of parts. After losing $8 million to $10 million daily for 9 days, GM and the union reached a settlement that would keep certain work in the shop through the end of 1993, and required GM to hire 160 additional workers in the plant's production area. Two weeks after the Lordstown settlement, workers struck at a GM body assembly plant in Lansing, Michigan. A settlement was reached four days later, as the UAW and GM reached a compromise allowing the elimination of some production workers at the facility.

Aftermarket supplier membership in the UAW has waned in recent years, as the percentage of U.S. workers at independent auto parts suppliers represented by the UAW has fallen from about 50 percent in 1978 to about 25 percent in 1990.

INTERNATIONAL COMPETITIVENESS

As U.S. vehicle makers have created global operations, component producers have been forced to match this international expansion to maintain their central supplier roles. Market leaders in the United States have established production plants in most of the principal vehicle-producing regions of the world--Canada, Europe, and Mexico. Most of the strongest U.S. components suppliers have long had a substantial presence in the European market--seven U.S. companies have sales in Europe exceeding $1 billion annually. Many suppliers believe that international operations are the key to their survival and are seeking to reinforce their presence through acquisitions and "greenfield" (new plant) investments in fast-growing sectors. A consequence of increased global integration is the move to "supplier families," which are joint operations of parts manufacturers able to offer the capabilities and resources demanded by global customers.

International Trade

The United States has posted a deficit in automotive parts trade since 1983, and the deficit steadily worsened until it peaked in 1989 at $15.5 billion. In 1990 and 1991, the deficit was lower, due chiefly to the global automotive recession. The trade gap narrowed to $5.6 billion in 1991--the lowest since 1985. However, in 1992, the deficit worsened to an estimated $10 billion, with exports of $23 billion and imports of $33 billion (Table 6).

[TABULAR DATA 6 OMITTED]

Most of this deficit can be attributed to trade with Japan. From 1985 to 1992, the U.S. parts deficit with Japan jumped from $3.1 billion to $9.8 billion. The ballooning bilateral deficit is mainly due to U.S. parts imports from Japan, which have more than tripled from $3.3 billion to $10.5 billion during this period. This has occurred because Japanese automakers in the United States have sourced parts mainly from Japan and because the majority of the growing aftermarket demand created by Japanese vehicles has been supplied by Japan-based parts producers. U.S. parts imports from Japan have far outpaced U.S. parts exports to Japan, which increased from $200 million in 1985 to $800 million in 1992.

The industry's trade performance with the three other major parts-producing regions--Canada, Mexico, and the European Community (EC)--reflects the increasing significance of international trade. Canada, the only major country with which the United States has consistently registered a parts trade surplus, remained the largest parts trading partner of the United States. Between 1985 and 1992, Canada received about 61 percent of U.S. parts exports and accounted for 33 percent of U.S. imports.

The volume of parts trade with Mexico has risen steadily since 1985, due primarily to increased vehicle production in Mexico and the liberalization of local content requirements. U.S. parts exports have more than doubled--from $1.9 billion in 1985 to $6 billion in 1992. U.S. parts imports from Mexico have also increased substantially during this period, from $2.3 billion to $5.3 billion.

The U.S. parts imbalance with the EC has grown from $882 million in 1985 to $2.3 billion in 1992. U.S. exports to the EC increased from $744 million to $1.5 billion, while imports from the EC more than doubled from $1.6 billion to $3.8 billion.

Foreign Direct Investment

Perhaps the main impetus for the radical restructuring of the U.S. automotive parts industry has been the increase in foreign competition in the domestic market. As of June 1992, Japanese, European, and Canadian firms had invested in about 475 auto parts plants in the United States (not including in-house parts producers of U.S.-based Japanese automakers). Of these, 351 (74 percent) are wholly foreign owned, and 124 (26 percent) are joint ventures. (These data include plants that manufacture auto parts not under the six SIC codes defined in this chapter, such as tires and glass.) There are also 10 foreign-owned auto parts R&D centers in the United States-9 owned by Japanese and 1 by Germans.

Since the establishment of the first U.S.-Japanese parts manufacturing joint venture in 1970, Japanese direct investment in the U.S. parts industry has flourished, especially since the mid-1980's. U.S.-based Japanese suppliers now number about 290, comprising 167 wholly owned subsidiaries and 123 joint ventures, mostly with U.S. firms (Figure 35-5). Total capital investment is estimated at $3.8 billion. In comparison, U.S. penetration of the domestic Japanese parts market is slight, comprising a single wholly U.S. owned parts plant and a handful of joint ventures and licensees. According to a MEMA survey, about 78 U.S. suppliers had liaison offices in Japan in 1992.

Although U.S.-based Japanese automakers have relied heavily on U.S.-based Japanese suppliers and their parent firms in Japan for parts, they have been steadily increasing their U.S. sourcing since 1985. In Japanese FY 1991 (ending March 31), the Japanese purchased $10.5 billion worth of U.S. parts, more than six times their FY 1985 purchases of $1.7 billion (Table 7). Most of these purchases have supplied Japanese automakers manufacturing in the United States; only a small share has been exported to Japan. In January 1992, following President Bush's trip to Japan, Japanese automakers predicted that their U.S. parts sourcing would reach $19 billion in 1994, assuming a 50 percent increase in their U.S.-based vehicle production. (These statistics make no distinction, however, between U.S. parts suppliers with no foreign affiliation and U.S. suppliers that are Japanese subsidiaries.)

[TABULAR DATA 7 OMITTED]

Recent trends reveal that the Japanese are increasing their purchases of U.S. "design-in" parts--those that require closer involvement with U.S. companies during the early design stages of a vehicle. Initially, Japanese sourcing of U.S. parts was limited to common parts that required little or no design-in, such as audio speakers, tires, carpeting, and accessories. However, recent purchases have reflected higher investment in critical components, such as drivetrains and engines. For example, Japanese purchases of engine parts from U.S. suppliers have been growing steadily, from $206 million in 1985 to $1.4 billion in 1991.

As of April 1992, Japanese automakers in both the United States and Japan were purchasing parts from about 2,087 U.S.-based OE and aftermarket suppliers (including Japanese affiliates), double the 1988 total of 1,046. Most of the U.S.-based Japanese vehicle assemblers have at least one of the Big Three as customers. GM, which currently supplies parts to nine Japanese automakers, sold about $170 million worth of auto parts to the Japanese in 1991 and planned to boost that level to $200 million in 1992. By 1996, GM expects to increase its auto parts exports to Japan to $450 million annually. Ford ACG is continuing to expand its customer base outside of the company, initially with automakers (Mazda, Nissan, and Volkswagen) with which the company already has links. In addition, Ford recently promised to supply Toyota. In 1992, Chrysler struck its first deal to supply a Japanese automaker in the United States; in 1993, its Acustar components division will supply gasoline vapor absorbers to Toyota, which will export them to Japan in 1994.

European investment in the U.S. parts industry comprises 168 firms, all of which are wholly owned, mostly by German companies. Canada has invested in about 17 parts plants in the United States, only 1 of which is a joint venture.

Outlook for 1993

Constant-dollar industry shipments are predicted to grow about 6 percent over 1992 to total $96.3 billion, primarily because of increased U.S. motor vehicle production. Continued growth in replacement parts sales brought about by an increase in maintenance and repairs should also contribute to higher industry shipments. GM's PICOS plan, the U.S. sourcing plans of Japanese automakers, and the still-growing U.S.-Japan automotive parts trade deficit will be under close industry scrutiny in 1993.

GM has indicated that, since the June 1992 implementation of its PICOS plan, fewer than 25 percent of its contracts have been awarded to a different vendor and has claimed to have achieved significant cost reductions and productivity gains. However, both suppliers and automakers will be watching with trepidation the effects of the radical plan on the industry. Parts makers, struggling to bring their operations out of the red, could resist demands to cut prices, especially those companies that were enticed by long-term contracts in 1991 and accepted the 3-2-2 plan. Some suppliers have said that, while they will continue to bid on GM contracts involving commodity products, they will not bid on those requiring major investments in technology, facilities, and equipment. Other U.S. automakers fear that they also may be negatively affected by the drastic cost-cutting measures. There has been some concern expressed that GM's suppliers, hit by the price cuts mandated by the PICOS plan, will try to hike their prices with other automakers. Many also question the cost effectiveness of reopening contracts and moving business from one supplier to another, especially if costly retooling is required.

Some of GM's internal parts operations have lost contracts due to the PICOS requirements, and the automaker's seven-member internal parts family may undergo some house cleaning. GM is conducting a "strategic operational assessment" of its Inland Fisher Guide and Delco Remy divisions, to be completed early in 1993. The result could be cutbacks and plant shutdowns at both divisions, which employ 48,000 of about 200,000 workers in GM's components group. However, PICOS has been beneficial to GM's European ACG, which increased its share of GM Europe purchases from 8 percent to 25 percent within five years after the plan was implemented in Europe.

In addition, an unsuccessful outcome to GM's September 1993 labor negotiations could hinder its ability to restructure itself quickly. Many in the industry believe that GM will use its PICOS outsourcing plan to pressure the UAW into accepting lower-tier wages for its parts suppliers, which employ about 80,000 union members. Such an outcome would help lower GM's costs per employee (now about $35 hourly, compared with about $15 per hour in a typical U.S. component manufacturer). However, the Lordstown settlement may have weakened GM's position in the upcoming labor talks.

The PICOS plan may also lure foreign parts producers to the United States. Suppliers based in areas where wages and benefits are higher than in the United States may consider using GM plant space to cut costs and help garner North American business. German manufacturers, smarting from the increasing cost of their wage settlements with unions and the dollar's weakness against the German D-mark, may find the offer especially appealing. Indeed, one study predicts that high domestic labor costs will force German automakers to source 15 percent or more of their parts abroad in the future.

There is no near-term relief in sight for the growing U.S. auto parts trade deficit, which is forecast at about $11.5 billion in 1993. U.S. parts imports are expected to total about $35.5 billion, of which Japan should account for $11.5 billion, Canada for $ 1 0 billion, Mexico for $8 billion, and the EC for $3.5 billion. U.S. parts exports in 1993 are predicted at about $24 billion, with Canada accounting for $13 billion, Mexico for $5.5 billion, the EC for $1.5 billion, and Japan for $800 million.

The Japanese automakers' plans to increase U.S. sourcing are not expected to have a major impact on the growing trade imbalance with Japan, even if the Japanese goal of purchasing $19 billion worth of parts by 1994 is attained. Most purchases will continue to supply U.S.-based Japanese automakers, with only a small share exported to Japan. U.S. sourcing by U.S.-based Japanese automakers could be limited by U.S. fuel-economy rules mandated by the Corporate Average Fuel Economy (CAFE) law. In order to offset the lower fuel economy averages of their imported luxury models, several Japanese manufacturers are keeping the U.S. domestic content of their U.S. production below the 75 percent threshold required to classify these models as "domestic." For example, the North American content of the 1993 Nissan Stanza replacement (the Altima) will be held to about 70 percent, becoming eligible for the firm's "import" fleet. Since the car will exceed the Federal standard of 27.5 mpg, it will help offset the lower fuel economy average of such cars as the Nissan Infiniti Q45.

Long-Term Prospects

Annual growth in constant-dollar industry shipments is expected to slow from 1994 to 1997. OE shipments will reflect the slow growth of vehicle production, and aftermarket sales are expected to grow modestly. In the latter part of the 1990's, U.S. OE suppliers will face increased demands from their customers as industry restructuring continues, as well as stiffer foreign competition.

Rationalization of the industry will continue into the latter part of this decade. The OE supply base will be reduced to what automakers feel is the optimum level. One industry analysis predicts that as much as 20 percent of the first-tier supply base will have disappeared by the end of the decade. Chrysler expects to employ fewer than 1,000 production suppliers by 1995, and is anticipating reducing the number to 750 in the late 1990's, Ford plans to pare its current supply base by one-third 69 1995. According to industry sources, GM employs 50,000 to 60,000 more production workers than it needs in its domestic assembly, stamping, and engine operations. It plans to shut 21 plants by the end of 1995, including 4 powertrain and 11 components plants. The aftermarket should continue to experience mergers, acquisitions, and bankruptcies.

The ability of U.S. parts producers to survive this winnowing hinges on enhancing their role as suppliers of services as well as auto parts. Automakers will delegate more component and systems R&D work to the supply industry and expect their suppliers to provide financing, inventory, and logistics services. Suppliers must shoulder these increased responsibilities while also striving to compete on price and ensure their own financial survival.

Suppliers with design and engineering expertise stand to benefit in the late 1990's. The Big Three and the Japanese automakers will seek alliances with suppliers that have both R&D and design-in capabilities. Japanese vehicle manufacturers, which have long practiced design-in with their supplier affiliates, have started to or plan to involve more U.S. suppliers in the design process.

Cracking the Japanese OE market is a major U.S. goal in the 1990's. Most new Japanese entries to the U.S. market will probably be joint ventures with U.S. firms, since many parts now being imported from Japan do not have sufficient demand from U.S.-based Japanese automakers to justify a stand-alone plant. This trend should benefit U.S. suppliers with no prior foreign affiliation, many of which believe the best way to gain access to Japanese automakers is to form an alliance with a U.S.-based Japanese supplier. U.S. suppliers that have been successful have found that the process has been much more expensive than planned. However, they have gained new engineering, process control, and tooling skills, as well as introductions to other Japanese automakers.

Securing a contract with a Japanese automaker may also be easier due to economic pressures in Japan that have weakened the Japanese keiretsu system of interlocking companies. Some analysts believe that the keiretsu system has started to unravel because Japanese automakers are finding it difficult to maintain an entire supplier chain. Several Japanese automakers have held seminars with their suppliers to address ways of diversifying and becoming more independent. The U.S. Government, through its ongoing MOSS (market-oriented, sector selective) talks with Japan, will continue to strive toward further opening the Japanese market to U.S. parts producers, as well as fostering long-term, mutually beneficial relationships between U.S. suppliers and Japanese automakers and suppliers.

Materials and Equipment Trends

Federal emissions and safety regulations, coupled with demands for higher fuel mileage, have prompted U.S. OE and aftermarket suppliers to explore the use of new materials possessing strength, performance, and weight advantages over competitive materials such as steel and cast iron. One industry study predicts that North American demand for advanced materials for light vehicles will reach 7.8 billion pounds in 1996, up an average of 6.8 percent annually from 1991. Aluminum, plastics, and ceramics have increased market potential.

It is expected that aluminum will continue to be used to replace heavier iron or steel components. Aluminum accounts for about 176 pounds of the average 1992 U.S. car weight, and conservative forecasts predict the use of 350 pounds per car by the year 2000. Some Japanese manufacturers suggest that 500 pounds could be used. Aluminum should remain the dominant substitute material for engine and mechanical applications, with developments expected in its use in engine blocks, radiators, and cylinder heads. The metal will also be more widely used in structural applications and exteriors. Ford is considering an all-aluminum skin for its next-generation (1996) Taurus/Sable cars and is developing another version of the car with an aluminum substructure (probably a spaceframe) in addition to aluminum panels. The industry should also see a change to aluminum suspension and drivetrain parts.

Plastics use in the automotive industry has increased steadily in recent years due to its lighter weight, lower production cost, and rust and dent resistance. One industry study predicts total plastics use in automotive applications will grow from 334 million pounds in 1991 to about 655 million pounds in 2001. The top 10 automotive applications comprise bumper systems, gas tanks, window encapsulation, hoods, intake manifolds, rocker arm covers, fuel pumps, non-pneumatic spare tires, and door and fender outer body panels. The study also identifies opportunities where total plastics weight may remain constant but the type of plastics and processing technologies will change, such as instrument panels, where the structural needs of passive restraint systems are opening new process opportunities. Ford's research laboratory and Ge's R&D division plan to collaborate in a 5-year, $10.8 million program to demonstrate the ability to manufacture structural composite parts for automobiles from cyclic thermoplastic polymers. More automotive uses for lightweight plastic components are being researched by developers of electric vehicles, which must use lighter weight materials to offset the excessive weight (about 800 pounds) of batteries.

Electronics continue to be a growth area in the automotive sector. By the year 2000, the content of electronic components in automobiles is expected to jump more than 200 percent from 1987 levels. Some of the most intense development of vehicle components is taking place in the area of sensors and transducers. Electronics proliferation is expected to lead to new markets, such as filters that protect systems from interfering with each other. Many projects using electronics applications are now under way to smooth the flow of traffic and make the most efficient use of road space.

Recent equipment trends reveal a growing number of installations of safety and personal-comfort systems. Driver- and passenger-side airbags and antilock brakes continue to show strong growth as factory-installed equipment on domestically made cars. Personal-comfort equipment in the luxury cars of the 1980's is becoming standard, with installation rates on the rise for electric windows and sun roofs, power-operated seats and exterior mirrors, stereo radio and cassette systems, and thermostatically controlled heating and ventilation systems.

According to a recent industry study, developments in engine redesign by the year 2000 include multivalve heads, two-stroke engines, and variable valve timing/overlap. Some automakers are now using and testing lean-burn engines, which provide significant improvements in fuel economy. However, lean-burn vehicles have had difficulty in meeting the new emission standards for nitrogen oxides. Both suppliers and manufacturers are working to develop better catalytic converters. Research has revealed that electrically heated units and units equipped with a hydrocarbon trap have been able to treat emissions in the first two minutes of operation, when most of an automobile's pollutants are emitted unchecked.

Emissions standards will become progressively tighter as the decade unfolds, prompting suppliers to step up their research of materials and equipment to meet pressing automotive needs in the environmental area. Suppliers to the space, aerospace, and defense industries have teamed up with the Big Three, which hope to combine the knowledge, skills, and capabilities of primary R&D organizations (both Federally funded and private industrial research labs) to develop technologies for reduced vehicle emissions and improved fuel economy.

International Trade and Investment

The U.S. auto parts trade deficit is not expected to improve drastically in the mid-1990's: U.S. parts imports are still expected to far outpace exports. Imports should rise, due chiefly to the high value of shipments from Japan. Although rising manufacturing costs in Japan could slow the growth rate of parts shipments from Japan, imports from Japan are expected to increase as U.S.-based Japanese vehicle production grows to an estimated 2 million by 1997. Increased U.S. sourcing by Japanese automakers is not expected to offset the rise in Japanese parts imports.

Although U.S. suppliers have been encouraged by a tremendous increase in the number of inquiries from Japanese automakers, recent reports indicate that the $19 billion goal might not be met due to lagging Japanese vehicle sales. In addition, there will be increased competition from Japanese suppliers, many of which face bankruptcy.

Overall U.S. parts exports should increase slowly. Shipments to Japan and the European Community will probably be hindered by the slowdown in their economies. On the other hand, U.S. exports will be buoyed mainly by increased shipments to Mexico. The expected implementation of the North American Free Trade Agreement (NAFTA) beginning in 1994 should raise the average annual growth rate of exports to Mexico.

NAFTA will allow U.S. OE and aftermarket suppliers improved access to the growing Mexican market, as well as the opportunity to structure their overall North American manufacturing operations to maximize quality and international cost competitiveness. The proposed agreement calls for a 10-year phasing out of Mexican parts tariffs (now 15-20 percent). Three-fourths of the tariffs on OE and aftermarket parts will be eliminated within five years. The pact would also require increasing levels of North American content in parts, which will be fixed at 62.5 percent for engines and transmissions, 60 percent for specific parts subject to a value content requirement, and 50 percent for all other parts at the end of the 8-year phase-in period for rules of origin. NAFTA would shave Mexico's value-added content from its current 36 percent to 34 percent upon initial implementation of the pact, declining until eliminated in 10 years. In addition, the agreement ensures that North American firms will be able to invest freely in new Mexican plants and to take over joint ventures.

Foreign investment in the U.S. parts industry should continue to grow slowly. The number of new Japanese parts plants established in the United States annually should wane as the decade progresses. More European suppliers are expected to locate in the United States to supply BMW's new South Carolina assembly plant, which is expected to begin production in 1995. However, BMW will also provide opportunities for U.S. suppliers and is encouraging them to investigate building parts plants near its new 50-acre assembly facility. Although initial sourcing will be limited to suppliers in Germany and the 28 U.S. companies from which BMW already purchases about $250 million annually, the German automaker expects to achieve a domestic content level of 50 percent.

U.S. automotive parts companies will continue their transition to a global industry. They will likely experience an increased number of foreign mergers and acquisitions as they adopt a more international position to spread the costs of product development and R&D. Sharply higher supplier investment is expected in Mexico, Asia, and Eastern and Western Europe.--Mary Ann Slater, Office of Automotive Affairs, (202) 482-1420, September 1992.

Additional References

U.S. Automotive Parts Trade With Japan: 1991 Annual Report to the Secretary of Commerce, February 1992, The Auto Parts Advisory Committee, U.S. Department of Commerce, Office of Automotive Affairs, Room 4036, Washington, DC 20230. Telephone: (202) 482-1418. Distribution System of the Japanese Auto Parts Aftermarket, 1991, Office of Automotive Affairs, Room 4036, U.S. Department of Commerce, Washington DC 20230. Telephone: (202) 482-1418. Japanese Direct Investment in U.S. Manufacturing, August 1991, Economics and Statistics Administration and Technology Administration, U.S. Department of Commerce, Washington, DC 20230. Telephone: (202) 482-0096. Automotive Industries (monthly), Chilton Company, Chilton Way, Radnor, PA 19089. Telephone: (215) 964-4152. Automotive News (weekly), Crain Communications, Inc., 1400 Woodbridge, Detroit, MI 48207. Telephone: (313) 446-6000. Automotive Parts and Accessories Association (APAA), 4600 East-West Highway, third floor, Bethesda, MD 20814. Telephone: (301) 654-6664. Automotive Parts International (biweekly), P.O. Box 50120, Washington DC, 20004. Telephone: (202) 857-8454. Automotive Service Industry Association (ASIA), 444 North Michigan Ave., Chicago, IL 60611. Telephone: (312) 836-1300. Euromotor Reports (annuals and specials), Euromotor Reports, Ltd, 105/106 New Bond St., London, W1Y 9LG, United Kingdom. Telephone: [44] (71) 493-7711. Heavy Duty Manufacturers Association (HDMA), P.O. Box 1638, Englewood Cliffs, NJ 07632. Telephone: (201) 569-8500. Heavy Duty Trucking (monthly), HIC Corporation, 1800 East Deere Ave., Santa Ana, CA 92705. Telephone: (714) 261-1636. Japanese Automotive Supplier Investment Directory, October 1991, Office for the Study of Automotive Transportation, College of Engineering, University of Michigan, Chrysler Center, Ann Arbor, MI 48109. Telephone: (313) 764-5592. MVMA Motor Vehicle Facts and Figures '92, and World Motor Vehicle Data 1992 (annuals), Motor Vehicle Manufacturers Association, Suite 300, 7430 Second Ave., Detroit, MI 48202. Telephone: (313) 872-4311. Modern Bulk Transporter (monthly), Tunnell Publications, Suite 200, 4200 South Shepherd Dr., Houston, TX 47098. Telephone: (713) 523-8124. Motor & Equipment Manufacturers Association (MEMA), P.O. Box 13966, Research Triangle Park, NC 27709-3966. Telephone: (919) 549-4800. National Automobile Dealers Association, 8400 Westpark Dr., McLean, VA 22102, Telephone: (703) 821-7050. The Autoparts Report (twice monthly), International Trade Services, P.O. Box 5950, Bethesda, MD 20824-5950. Telephone: (301) 857-8454. The Harbour Report, Competitive Assessment of the North American Automotive Industry 1989-92, Harbour and Associates, Inc., 900 Wilshire Blvd., Suite 111, Troy, MI 48084. Telephone: (313) 36247 10. The Machine That Changed the World, 1990, Daniel Jones, Daniel Roos, James Womack, Massachusetts Institute of Technology, Building E40-359, Cambridge, MA 02139. Telephone: (617) 253-8540. The Power Report on Automotive Marketing (monthly), J. D. Power and Associates, Suite 200, 30401 Agoura Rd., Agoura Hills, CA 91301. Telephone: (818) 889-6330. The U.S.-Japan Bilateral 1994 Trade Deficit, 1991, David Andrea, Michael Flynn, Sean McAlinden, Brett Smith, Office for the Study of Automotive Tranportation, College of Engineering, University of Michigan, Chrysler Center, Ann Arbor, MI 48109. Telephone: (313) 764-5592. Trailer/Body Builders (monthly), Tunnell Publications, Suite 200, 4200 South Shepherd Dr., Houston, TX 77098. Telephone: (713) 523-8124. Truck Sales and Leasing (monthly), Suite 214, 1045 Taylor Ave., Baltimore, MD 21204. Telephone: (301) 828-1092. Ward's Automotive Reports (weekly); Ward's Automotive International (twice monthly); and Ward's Automotive Yearbook (annual), Ward's Communications, 28 West Adams St., Detroit, MI 48226. Telephone: (313) 962-4433.

COPYRIGHT 1993 U.S. Department of Commerce
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