Global Automakers

Response to Allegations Made at Democratic Policy Committee Hearing on Trade Policy and U.S. Auto Industry

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March 16, 2006

March 16, 2006

The Honorable Byron Dorgan
United States Senate
322 Hart Senate Office Building
Washington, D.C. 20510

Dear Senator Dorgan:

I am writing to address some of the statements made at the Democratic Policy Committee meeting on February 17 on “Trade Policy and the U.S. Auto Industry.” The Association of International Automobile Manufacturers, Inc. (AIAM) would like to take this opportunity to correct the record and put these issues into perspective.

Contention 1:

One witness said the “mercantilist trade practices” of the Japanese and Korean governments are responsible for their auto trade imbalances with the U.S.

Facts:
AIAM cannot speak for the Japanese and Korean governments. However, there are some important facts that should be brought to the attention of the Committee. These facts illustrate how dramatically business conditions in these countries have changed.

In Japan, only three independent Japanese automakers still exist – Toyota, Honda and Mitsubishi (for many years DaimlerChrysler owned 20 percent or more). All other Japan-based manufacturers are either controlled or partially owned by American and European companies, at least until the last couple of months when GM sold its 20 percent share of Fuji Heavy Industries and most of its stake in Suzuki. Renault and Nissan have merged with Renault having control. Ford Motor Company controls Mazda Motor Company. GM retains portions of Isuzu and Suzuki.

In Korea, Hyundai Automotive Group is the only remaining Korean-owned company. General Motors, Suzuki and Shanghai Automotive Industry Corp. (SAIC) purchased Daewoo and renamed it GM Daewoo Auto and Technology (GMDAT). Renault acquired the Samsung Group’s Automobile Division in 2000, Tata Motors of India acquired Daewoo Commercial Vehicle in 2004, and SAIC of China acquired Ssangyong Motor in 2005. If the above-stated contention is accurate, it is doubtful these acquisitions and controlling investments in Japanese and Korean companies could have occurred.

Automobile exports from Japan to the United States declined by 52 percent from 1986 to 2005, as U.S. sales of imported Japanese vehicles declined from nearly 3.3 million units to 1.7 million units last year. This occurred as sales of North American-produced Japanese brand vehicles increased from about 600,000 in 1986 to over 3.7 million units last year, thus outnumbering total imports from Japan in 1986. The reason for the overall increase in sales of Japanese nameplate vehicles in the United States is simple – consumers are buying the products they prefer.

As for U.S.-Korean auto trade, sales of imported Korean vehicles by the Korean companies have increased from about 170,000 units in 1986 to about 700,000 units last year. (It should also be noted that Chevrolet’s sales of the Korean-made Aveo rose from 56,000 units in 2004 to 68,000 last year.) In response to this market acceptance, Hyundai has opened a manufacturing plant in Alabama and Kia recently announced it will build its first U.S. production facility in Georgia.

U.S. exports to both Korea and Japan are small (slightly over 28,500 units combined last year). Exports to Japan are low because the U.S. companies have chosen to invest there rather than sell North American-produced products. Some of the low export volume to Korea can also be attributed to GM’s investment in GMDAT.

These facts help explain what is happening with respect to U.S. auto trade with Korea and Japan. They demonstrate that these developments are not the result of mercantilist trade policies, but business conditions in these countries and the acceptance by U.S. consumers of the products offered by the international manufacturers.

Contention 2:

Witnesses indicated that currency manipulation by the Japanese and Korean governments results in a “subsidy” for Japanese and Korean automakers.

Facts:
As the U.S. Treasury Department has repeatedly found (most recently in November of last year), there is no evidence of currency manipulation by the Japanese or Korean governments. As recently as January 2006, the Congressional Research Service (CRS) reported that any intervention by Japan in international currency markets “seems to have had little lasting effect,” adding that Japan ceased intervening altogether in early 2004. No manipulation, no subsidy.

Korea has followed a free floating foreign exchange system since the 1997-1998 Asian financial crisis. According to the Treasury Department’s November report on exchange rate policies, Korea’s real effective exchange rate appreciated by 16.9 percent over the January 2002-September 2005 period. An appreciating exchange rate is not likely to cause a subsidy to a country’s exporters.

Contention 3:

One witness opposed reducing the tariff on pickup trucks in negotiations toward a U.S.-Thailand Free Trade Agreement, asserting that Japanese manufacturers would export trucks from Thailand to the United States.

Facts:
Toyota, Nissan and Honda make pickup trucks in North America. DaimlerChrysler builds pickup trucks for Mitsubishi in Michigan. Hyundai will begin building SUVs in Alabama this spring.

Many manufacturers make pickup trucks in Thailand. Both GM and Ford make trucks in Thailand. The trucks made in Thailand are designed to meet the market demands of Southeast Asia and are not suitable for sale in the U.S. None meet current U.S. safety and emission regulations. These are the facts.

As a matter of principal, AIAM believes the 25 percent truck tariff is an anachronism and supports its elimination in the context of a U.S.-Thai Free Trade Agreement.

Thank you for your attention to these important issues. Should you have any questions, please do not hesitate to contact me directly.

Sincerely,

Timothy C. MacCarthy
President and CEO

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