Automotive Industry and Free Trade Agreement

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Summary

More than one million Americans are employed in manufacturing motor

vehicles, equipment and parts. But the industry has changed dramatically since the

U.S. “Big Three” motor vehicle corporations (General Motors, Ford and Chrysler)

produced the overwhelming majority of cars and light trucks sold in the United

States, and directly employed more than that many people themselves. By 2003,

most passenger cars sold in the U.S. market were either imported or manufactured

by foreign-based producers at new North American plants (so-called “transplant”

facilities). The Big Three now dominate only in light trucks, and are being

challenged there by the foreign brands. The Big Three have shed about 600,000 U.S.

jobs since 1980, while about one-quarter of Americans employed in automotive

manufacturing (nearly 300,000) work for foreign-owned companies — and that

excludes Chrysler, which was acquired by Daimler Benz of Germany in 1998.

These changes have had major effects on the structure and location of the U.S.

motor vehicle industry. Michigan has been the state most directly and adversely

affected, losing about 100,000 auto industry jobs since the late 1970s. Most other

Midwest auto belt states have either held steady or posted gains in total industry

employment, even if they have lost Big Three jobs. Some southern states, notably

Kentucky and Tennessee, have been the largest net gainers of jobs in the industry.

The transplant vehicle manufacturers virtually all began and have remained non-

union; the United Auto Workers (UAW) union has lost more than half its members

since 1979 — from 1.5 million to less than 700,000. Big Three representatives state

that they are now burdened with health care and pension costs of as much as $1,500

per vehicle in competing with foreign-based companies and have sought tax relief

from Congress to alleviate this disadvantage.

The global industry also has changed. In North America, there has been

regional consolidation, enabled by trade policy changes leading to the North

American Free Trade Agreement of 1994. Congress approved a federal bailout of

Chrysler in 1979 and forced the Reagan Administration to negotiate quotas on

imports from Japan in the 1980s. Nevertheless, the overall U.S. deficit in automotive

trade widened from $9 billion in 1979 to more than $100 billion annually since 2000.

Acting under World Trade Organization rules, the United States has pressed Japan,

Korea and China, among others, to reduce their automotive trade and investment

barriers.

Fuel economy and environmental issues in the automotive industry have also

been subjects of major concern in Congress, and these issues have had important

effects on the motor vehicle market. Currently, the manufacturers are suing

California to prevent its regulation of emissions of carbon dioxide and other

greenhouse gases, which they claim is preempted by federal statute. This report will

be updated as warranted by developments.

Contents

Introduction and Key Findings........................................1

Developments in the U.S. Domestic Automotive Industry ..............2

The Automotive Industry in the International Context .................4

Impact of Fuel Economy and Emissions Standards....................6

Automotive Industry Outlook and Policy Issues ..........................7

Recent Legislation .............................................8

Policy Issues for the 109th Congress ...............................9

Pension and Health Care Issues ...............................9

Currency Exchange Rates ...................................9

Labor Representation......................................10

Fuel Economy and Emission Standards........................10

Pickup Trucks in U.S.-Thailand Free Trade Agreement (FTA)...
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