Why the Auto Industry Must Break Its Addiction to Import Quotas

By Samuelson, Robert J. | American Banker, June 14, 1984 | Go to article overview
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Why the Auto Industry Must Break Its Addiction to Import Quotas

Samuelson, Robert J., American Banker

Watching the auto industry, it seems increasingly clear that at least two of the three major U.S. firms -- Ford and Chrysler -- are angling for permanent protection from Japanese imports. They've become addicted to the profitable effects of the quotas, and -- like all addicts -- they're peddling their own version of reality that holds that the addiction isn't so bad after all.

Chrysler chairman Lee A. Iacocca is a master at this. He's all for the free market but claims that the Japanese have an "unfair" edge in low taxes and an artificially low exchange rate that Chrysler -- on its own -- can't overcome. Mr. Iacocca puts the advantage at $1,600 a car and says that, otherwise, he can compete. Actually, the facts are:

*The yen is a fifth higher now than in 1975, but Japanese imports have risen 140%. A University of Michigan study puts the Japanese cost advantage at $1,300 to $2,200 a car, reflecting factory efficiencies and lower labor costs. The Japanese can sell all the cars they're allowed under the "voluntary" annual quote (1.9 million) at high prices. But the study warned that if the Japanese ever turn their cost superiority into price cutting, it would threaten "the continued existence of the U.S. automotive industry in its current form."

*Despite quality improvements that U.S. companies claim to have made (and probably have), the reputation of American cars continues to slide. Drivers most want maintenance-free operation from a car, according to John Hemphill of J.D. Power & Associates. In 1979, 28% of drivers rated U.S. cars "excellent" or "very good" on dependability; by 1983, that was 24%. Meanwhile, comparable ratings for Japanese cars rose from 19% to 30%, according to the Power surveys. Like It or Not, Prices Are Up

Perhaps the most offensive bit of industry propaganda is that quotas haven't increased car prices and -- more preposterous -- that auto prices have risen less than inflation -- that is, cars are becoming relatively cheaper. Even the industry's own statistics indicate Manufacturers Association reports, the average price of a new car was $4,051, and average weekly earnings were $145; a car cost the equivalent of 27.9 weeks of earnings, down from 35.4 weeks in 1960. Since 1973, the cost of a car, measured in weeks of earnings, has risen steadily. It was 31.3 in 1978, 32.3 in 1980, and 37.5 in 1983.

Moreover, consumers are behaving as if prices had risen. Deterred by high new car prices, they're holding onto their cars longer (the average age of a car was 7.2 years in 1982, up from 5.7 years in 1973). And more buyers are being forced into the used car market. Used car prices, therefore, have jumped even more than new car prices, rising about a fifth faster since 1980.

When auto executives say car prices are rising less than inflation -- as Ford treasurer David N. McCammon did recently -- they're using government statistics either incompetently or dishonestly. It's true that the consumer price index for new cars rose less (6.5%) than the overall index (9.5%) from 1981 to 1983. But auto executives know (or ought to) that many adjustments have been made to the consumer price index that understate the true price of cars.

For starters, the Bureau of Labor Statistics adjusts the consumer price index for "quality changes" in new cars, and these adjustments have recently eliminated up to half the price increase from the index.

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