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The US Motor Vehicle Industry The U.S. Motor Vehicle Industry: Confronting a New Dynamic in the Global Economy Bill Canis Specialist in Industrial Organization and Business Brent D. Yacobucci Specialist in Energy and Environmental Policy March 26, 2010 Congressional Research Service 7-5700 www.crs.gov R41154 CRS Report for Congress Prepared for Members and Committees of Congress The U.S. Motor Vehicle Industry: Confronting a New Dynamic in the Global Economy Summary This report provides an in-depth analysis of the 2009 crisis in the U.S. auto industry and its prospects for regaining domestic and global competitiveness. It also analyzes business and policy issues arising from the unprecedented restructurings that occurred within the industry. The starting point for this analysis is June-July 2009, with General Motors Company (GM or new GM) and Chrysler Group LLC (or new Chrysler) incorporated as new companies, having selectively acquired many, but not all, assets from their predecessor companies. The year 2009 was marked by recession and a crisis in global credit markets; the bankruptcy of General Motors Corporation and Chrysler LLC; the incorporation of successor companies under the auspices of the U.S. Treasury; hundreds of parts supplier bankruptcies; plant closings and worker buyouts; the cash-for-clunkers program; and increasing production and sales at year’s end. This report also examines the relative successes of the Ford Motor Company and the increasing presence of foreign-owned original equipment manufacturers (OEMs), foreign-owned parts manufacturers, competition from imported vehicles, and a serious buildup of global overcapacity that potentially threatens the recovery of the major U.S. domestic producers. This report, which establishes a context for examining the industry and analyzes a unique but highly specific period in the U.S. automobile industry’s history, will not be updated. Congressional Research Service The U.S. Motor Vehicle Industry: Confronting a New Dynamic in the Global Economy Contents Introduction ................................................................................................................................1 Global Chaos as Credit Markets Tighten ...............................................................................1 State of the Economy: Auto Production and Sales Outlook ..........................................................2 Industry Hits Bottom in 2009 ................................................................................................4 Motor Vehicle Production................................................................................................4 Motor Vehicle Sales ........................................................................................................5 Supply Chain Shakeout .........................................................................................................8 Automobile Unions Continue to Shrink...............................................................................10 GM and Chrysler: Rescue and Rebirth ......................................................................................15 The Shape of New GM and New Chrysler...........................................................................16 Government and UAW VEBA Trustee Ownership of GM and Chrysler .........................17 Assets and Liabilities Left in Bankruptcy ......................................................................21 Creditor Fallout.............................................................................................................23 Controversy over the Size of Dealer Networks ..............................................................25 New Management and New Directions..........................................................................27 Ford Motor Company: A Different Path.....................................................................................32 Ford Strengthens Capital Base and Market Share.................................................................32 New Designs Yield Top Performers...............................................................................33 Forms of Federal Support..........................................................................................................34 Shape of Federal Support ....................................................................................................34 Auto Task Force’s Exit Strategy ..........................................................................................38 Foreign-Owned Automakers Adjust and Expand........................................................................41 Global Auto Markets: Prospects for the Detroit Three..........................................................43 The Toyota Standard ...........................................................................................................50 Worldwide Overcapacity: Will It Affect the U.S. Vehicle Market? .......................................53 New Environmental Standards: Will They Remake the Auto Industry? ......................................55 Fuel Economy and Greenhouse Gas Standards: Opportunities and Challenges.....................55 Cap-and-Trade Legislation: Net Cost or Net Benefit to Automakers?...................................58 Advanced Technology: Competitive Game Changer? ................................................................59 Electric Vehicles Promise Remake of the Industry...............................................................59 Other Research and Development Directions.......................................................................60 Congressional Actions.........................................................................................................61 Figures Figure 1. Geography of North American Auto Production............................................................3 Figure 2. New General Motors’ Ownership Structure Following Bankruptcy .............................20 Figure 3. New Chrysler’s Ownership Structure Following Bankruptcy ......................................20 Figure 4. Capacity Utilization in the U.S. Motor Vehicle Sector, 1972-2009 ..............................54 Figure 5. Estimated Cumulative Incremental Cost Through MY2016 for Selected Manufacturers Under the Proposed Rule...................................................................56 Congressional Research Service The U.S. Motor Vehicle Industry: Confronting a New Dynamic in the Global Economy Figure 6. Estimated Per-Vehicle Incremental Costs Through MY2016 for Selected Manufacturers Under the Proposed Rule ................................................................................57 Figure D-1. Many Suppliers for Every Vehicle ..........................................................................67 Tables Table 1. U.S. Auto Production Declines.......................................................................................4 Table 2. U.S. Motor Vehicle Sales, 2008 and 2009.......................................................................7 Table 3. Initial VEBA Payments by the Detroit 3.......................................................................15 Table 4. Auto Companies Before and After Bankruptcy.............................................................17 Table 5. GM and Chrysler Boards of Directors ..........................................................................28 Table 6. Federal Auto Industry Financing Program....................................................................35 Table 7. U.S. Motor Vehicle Sales by Manufacturer, 1988 vs. 2008 ...........................................42 Table 8. New Cars Registered in Japan: Top Five Brands in 2009..............................................46 Table 9. Top Foreign Brands Sold In Japan, 2009 ......................................................................47 Table A-1. North American Vehicle Assembly Plants.................................................................63 Table B-1. Who Owns What......................................................................................................65 Table C-1. Top 10 Sales Under “Cash for Clunkers”..................................................................66 Appendixes Appendix A. Locations of North American Auto Manufacturing................................................63 Appendix B. The Global Automakers........................................................................................65 Appendix C. Top U.S. “Cash for Clunkers” Sales......................................................................66 Appendix D. Many Suppliers for Every Vehicle ........................................................................67 Contacts Author Contact Information ......................................................................................................68 Congressional Research Service The U.S. Motor Vehicle Industry: Confronting a New Dynamic in the Global Economy Introduction This report provides an in-depth analysis of the 2009 crisis in the U.S. auto industry and its prospects for regaining domestic and global competitiveness. It also analyzes business and policy issues arising from the unprecedented restructurings that occurred within the industry. The starting point for this analysis is June-July 2009, with General Motors Company (GM or new GM) and Chrysler Group LLC (or new Chrysler) incorporated as new companies, having selectively acquired many, but not all, assets from their predecessor companies. This report seeks to provide
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