Even the most casual of TTAC readers will have noticed that we frequently feature stories about the strength of the Chinese economy and the increasing importance that China has to automakers everywhere. This afternoon I was actually standing on the factory floor of a noted “transplant” automaker and I found myself wondering: Is it too late for the United States to follow the “Chinese way” to create more opportunities for domestic vehicle production?
WARNING: Do not read any further if you are easily enraged by protectionism…
The factory I was standing in this afternoon was built by government intervention just as much as it was built by Ohio construction workers or a Japanese board of directors. In 1981 the United States Government bullied Japan into accepting a “cap” of 1.68 million Japanese-built cars into the United States annually. This program persisted, in one form or another, until 1994. Don’t confuse this with the “chicken tax” which applies to imported trucks, by the way.
The short-term impact of this agreement was to constrain the supply of popular Japanese cars. The “Additional Dealer Profit” sticker became common at Honda, Nissan, and Toyota dealerships. Subaru and Mitsubishi, neither of which sold terribly competitive vehicles at the time, found their fortunes buoyed by the plain fact that they were permitted to bring in some Japanese cars and that buyers who couldn’t afford the Honda ADP (which was often 20% of sticker or more) went to their local Subaru or Mitsubishi dealer instead. This is plain supply and demand, and in this case it worked just like it works in the Economics 101 textbooks which, to my knowledge, have never been perused by the average Internet car-forum reader.
The Big Three Japanese automakers had already planned some United States auto production due to concerns about the yen’s increasing strength, but the VRA forced their hand and pretty soon everybody who could afford to build a US plant had done so. Today, foreign-owned, US-located automobile plants produce as much as two-thirds of the “import cars” sold in this country. Even if you don’t like “big government” or economic interventionism, it’s hard not to agree that:
a) Domestic automakers were going to lose that market share anyway, so
b) They might as well lose it to companies which at least assemble in the United States.
Meanwhile, Ford, GM, and Chrysler have fled to Canada and Mexico. General Motors, in particular, seems to be on a crusade to have as much of each car as possible built in China. And speaking of China… only a very optimistic person would expect that China will not eventually enter the United States market with cars that meet the needs of buyers. This could create a situation where even the “foreign” automakers are forced to move production to China, the same way that the computer business became almost exclusively Chinese once Michael Dell started that particular race to the bottom.
What to do?
My solution, offered up for discussion, is an annual foreign VIN auction. It works like so:
Every year, the United States Government will auction off a fixed number of “foreign” VINs, without which an automobile may not be legally operated on most public roads. Any automobile with a final assembly point outside the United States, or any automobile with a domestic content percentage below (pick your favorite number here, perhaps 75%) must obtain a VIN from the auction in order to be sold in this country.
Automakers will submit sealed bids for the number of VINs they wish to purchase. So… for a mini-example, let’s say that:
- Bugatti bids $10,000 for 1000 VINs
- Porsche bids $3,000 for 15,000 VINs
- Ford bids $1,200 for 300,000 VINs
- Hyundai bids $1,000 for 200,000 VINs
- Toyota bids $500 for 500,000 VINs
If the “cap” is 500,000 VINs (which it obviously would not be):
- Bugatti gets all their VINs and pays $10M
- Porsche gets all their VINs and pays $45M
- Ford gets all their VINs and pays $360M
- Hyundai gets 184,000 VINs and pays $184M
- Toyota gets none.
The real math would be considerably more complicated. However, this scheme would do a few things:
- Exotic cars would be unaffected in real terms
- It would introduce a balancing cost to offset the cost savings of building cars in countries which practice currency manipulation or where the daily wage is below certain standards
- It would help balance some of the costs of conforming to United States environmental regulations, thus helping the air and water stay cleaner in the long run
- It would encourage automakers to build cars where they are sold without the draconian “50:50″ regulation of China’s market
- It would encourage domestic manufacturers to produce cars domestically
What would the government do with the money? The same thing it always does: waste it. Who cares what they do with it? My suggestion: use it to fund unemployment benefits. The purpose isn’t to give the government more money. Instead, we want to do what the VRA did in 1981: encourage people to build cars here in the United States, where manufacturing jobs are kind of scarce.
There are certainly some objections to my evil plan. I have helpfully demolished them below.
This just raises the cost of cars for the consumer! In the short term, yes. In the long run, it increases the chances of the consumer having a job. Henry Ford, robots, you know the drill.
Other nations will retaliate with their own trade sanctions! What are we selling, as a nation, to other countries? Airplanes, motor vehicles (most of which are made by transplant automakers), industrial chemicals, and food. How much of it are we selling? Not a lot. The value of just the automobiles, automobile parts, and electronic devices we import from other nations is greater than our total exports. In other words: So. Freakin’. What.
What about NAFTA? Amend it, wipe it out, whatever. I don’t see what NAFTA has done for the United States. I thought it would lead to cheap Mexican weed, but I am told by the people who consume such plants that all the Mexican stuff is “schwag” and the “chronic” comes from good old American hydroponic facilities.
I don’t want my car made by American workers. I do web design in Sausalito for a living and I am engaged in a personal Kulturkampf against the American working class, to which I feel superior, and that includes my parents, who were factory laborers who gave up their retirement to send me to UC. Please feel free to walk into the ocean and not come back.