Say goodbye to the auto industry…

As most of the country now knows, Chrysler has decided to close it’s Fenton Missouri plant and scale back it’s Wentzville plant to just one shift.  Chrysler says that the plant closures are due to rising gas prices and declining sales.  Obviously, that’s true, but there are other factors that are involved as well, and I’m wondering how long it will be before anyone starts talking about them.

The fact that potentially thousands of Missourians are going to be losing their jobs is terrible, and I feel for every family who’s life is now in chaos.  But what really bothers me is that this didn’t have to happen.

For years, the auto industry has taken massive losses due to high labor costs, high taxation and regulation.  Because of previous labor agreements, the auto industry currently pays over $1 billion dollars in retirement benefits annually.  Think about that.  Every year, they have to make $1 billion dollars just to break even, and that’s not counting the cost of having to run the daily operations.  No wonder they’re going under.

But even though the above factors definately contributed to the problem, they certainly aren’t the main cause.  I believe that the main reason the auto industry is failing is due to the unfair trade policies that have been forced upon U.S. manufactures.

Now don’t get me wrong, I know that U.S. automakers welcome competition from Japanese companies and other international competitors. I believe that competition in a free and fair environment is good for consumers, good for innovation, and good for creating ever safer and more fuel-efficient cars. However, the U.S. government continues to passively accept subsidized imported vehicles from Japanese automakers who are not competing fairly because their government effectively subsidizes its auto industry through the use of an artificially low yen. This policy has led to the skyrocketing levels of auto exports to the U.S. that harm the economy and cost American jobs by giving Japanese automakers an unfair and unearned advantage over American automakers.

The artificially low yen has helped fuel our trade deficit with Japan, which hurts the U.S. economy and gives Japanese automakers an unfair advantage over American automakers. Nearly two-thirds of that deficit, or $56 billion out of a total $88 billion, is exclusively a result of Japanese auto products.

This issue is not trivial or just a technicality. The impact of an artificially low yen on the automotive sector is a major competitive factor in the whole automotive industry: The misaligned yen gives the average imported Japanese car a huge windfall cost advantage over U.S. automakers and other competitors in the market. This ‘yen effect’ also crosses over to Japanese vehicles made in the U.S. because of the high level of subsidized imported auto parts used in their U.S. plants.

A few facts:

• With a yen valued at 118 to the dollar, Japanese automakers enjoy an average windfall $4,000 cost advantage per vehicle more than they would if the yen traded at its true value. The overall subsidy Japanese automakers gain for the 2.2 million vehicles they import totaled $8.8 billion in 2006.
• The total yen subsidy provided to Japanese automakers in 2006 was $13.4 billion – $8.8 billion for car & truck exports to the U.S. and $ 4.6 billion for imported parts used in American-made Japanese cars.
• More than half (52%) of all automobiles manufactured in Japan were designated for export in 2006, exceeding 50% for the first time in 19 years. In fact, even as demand within Japan for new autos is declining, Japanese companies are adding production capacity to Japan-based facilities, reactivating assembly lines, adding workers and postponing planned factory closures as they move to export ever greater numbers of vehicles.

It is time for U.S. policy to place the needs and survival of its own manufacturing sector first. To do so will require the U.S. to demand that the Japanese allow the yen to regain its undistorted value. Japan must be pressed to bring its currency into alignment and trim its excessive currency reserves.