Automobiles and Light-Duty Trucks: Industry Profile Final Report Prepared for Aaiysha F. Khursheed U.S. Environmental Protection Agency OAQPS, AQSSD, ISEG (MD-15) Research Triangle Park, NC 27711 Prepared by Smita B. Brunnermeier Brooks M. Depro Mary K. Muth Laura J. Bloch Research Triangle Institute Center for Economics Research Research Triangle Park, NC 27709 EPA Contract Number 68-D-99-024 RTI Project Number 7647-002-130 December 2000
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Automobiles and Light-Duty Trucks: Industry Profile
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Automobiles and Light-DutyTrucks: Industry Profile
Final Report
Prepared for
Aaiysha F. KhursheedU.S. Environmental Protection Agency
OAQPS, AQSSD, ISEG(MD-15)
Research Triangle Park, NC 27711
Prepared bySmita B. Brunnermeier
Brooks M. DeproMary K. Muth
Laura J. BlochResearch Triangle Institute
Center for Economics ResearchResearch Triangle Park, NC 27709
EPA Contract Number 68-D-99-024
RTI Project Number 7647-002-130
December 2000
EPA Contract Number 68-D-99-024RTI Project Number 7647-002-130
Automobiles and Light-DutyTrucks: Industry Profile
Final Report
December 2000
Prepared for
Aaiysha F. KhursheedU.S. Environmental Protection Agency
OAQPS, AQSSD, ISEG(MD-15)
Research Triangle Park, NC 27711
Prepared by
Smita B. BrunnermeierBrooks M. Depro
Mary K. MuthLaura J. Bloch
Research Triangle InstituteCenter for Economics Research
5-1 U.S. Domestic Production and Apparent Consumption, 1990–1997 . . . . . . . . 5-35-2 U.S. Imports and Exports of Passenger Cars, 1990–1997 . . . . . . . . . . . . . . . . . 5-45-3 Consumer Price Indexes for All Items Compared to New and Used
5-4 U.S. Exports of Passenger Cars by Country of Destination, 1990–1997 . . . . . . 5-75-5 Consumer Price Indexes (All Urban Consumers) for All Items and For
New and Used Cars (1992 = 100), 1990–1997 . . . . . . . . . . . . . . . . . . . . . . . . . 5-85-6 Market Prices for New Cars in Nominal and Real 1992 Dollars . . . . . . . . . . . . 5-9
DRAFT
viii
DRAFT
ix
LIST OF ABBREVIATIONS
AAMA American Automobile Manufacturers Association
ABS advanced braking systems
CPI consumer price index
CR4s four-firm concentration ratios
CR8s eight-firm concentration ratios
EIA economic impact analysis
EPA U.S. Environmental Protection Agency
HAP hazardous air pollutants
HHIs Herfindahl-Hirschman indexes
ISEG Innovative Strategies and Economics Group
LDT light-duty truck
MSRP Manufacturers Suggested Retail Price
NAFTA North American Free Trade Agreement
NAICS North American Industry Classification System
NESHAP national emission standards for hazardous air pollutants
NUMMI New United Motor Manufacturing, Inc.
OAQPS Office of Air Quality Planning and Standards
SBA Small Business Administration
SIC Standard Industrial Classification
1Automobiles are defined as vehicles designed to carry up to seven passengers but do not include sport utility
vehicles (SUVs), vans, or trucks. Light duty trucks are defined as vehicles not exceeding 8,500 pounds that
are designed to transport light loads of property and include SUVs and vans (AAMA/AIAM /NPCA, 2000).
1-1
SECTION 1
INTRODUCTION
The U.S. Environmental Protection Agency’s (EPA’s) Office of Air Quality Planning
and Standards (OAQPS) is compiling information on plants that assemble automobiles and
light-duty trucks (LDTs) as part of its responsibility to develop national emission standards
for hazardous air pollutants (NESHAP) under Section 112 of the 1990 Clean Air Act
Amendments.1 The NESHAP will limit air emissions from the coating process for
automobiles and LDTs and is scheduled to be proposed in early 2001. The Innovative
Strategies and Economics Group within OAPQS is responsible for developing an economic
impact analysis (EIA) that evaluates the economic impacts associated with the regulatory
options considered for this NESHAP. This industry profile of the automobile and LDT
assembly industry provides information that will be used to develop and implement the EIA
methodology.
Although the NESHAP will most directly affect facilities that use coatings in
automobile and LDT assembly operations, the rule will also indirectly affect the coatings
manufacturers. For the automobile and LDT assembly industry, the relevant Standard
Industrial Classification (SIC) and North American Industry Classification System (NAICS)
codes are
C SIC 3711: Motor Vehicle and Passenger Car Bodies and
C NAICS 33611: Automotive and Light Duty Motor Vehicle Manufacturing.
Within the five-digit NAICS classification, the following six-digit NAICS codes are
applicable:
2A major source of HAP emissions is defined as a facility that emits, or has the potential to emit, 10 or more
tons of any HAP or 25 or more tons of any combination of HAPs.
1-2
C NAICS 336111: Automobile Manufacturing and
C NAICS 336112: Light Truck and Utility Vehicle Manufacturing.
These codes include not only automotive assembly plants but also plants that manufacture
automotive vehicle bodies. For the indirectly affected coatings manufacturing industry, the
relevant SIC and NAICS codes are
C SIC 2851: Paints, Varnishes, Lacquers, Enamels, and Allied Products;
C SIC 2891: Adhesives and Sealants; and
C NAICS 3255: Paint, Coating, and Adhesive Manufacturing.
Within the four-digit NAICS classification, the following six-digit NAICS codes are
applicable:
C NAICS 325510: Paint and Coating Manufacturing and
C NAICS 325520: Adhesive Manufacturing.
These codes include facilities that manufacture coatings for a variety of industries in addition
to the automobile and LDT assembly industry.
The domestic automobile industry is a large, mature industry, but its size is expected
to increase as foreign producers locate additional production facilities in the United States,
and the LDT market continues to remain strong. In 1998 and 1999, the automobile and LDT
assembly industry was comprised of 66 establishments, which are owned by 14 domestic and
foreign companies and employ more than 160,000 workers. The coating operations of all of
these facilities are major sources of hazardous air pollutant (HAP) emissions.2 The majority
of HAP emissions from the coating process are released in the priming and finishing
operations. However, some emissions also occur during cleaning operations and
miscellaneous activities such as applying adhesives. Some of these facilities also coat
miscellaneous metal parts and miscellaneous plastic parts, which will be regulated under
separate NESHAP rules.
This industry profile is organized into four additional sections. Section 2 describes
the affected production process, inputs, outputs, and costs of production. Section 3 describes
the industry organization, including market structure, manufacturing plants, and parent
1-3
company characteristics. Section 4 describes the uses and consumers of automobiles and
light trucks. Finally, Section 5 provides market data on the automobile and light truck
industry, including market volumes, prices, and projections. While the industry profile
focuses on the automobile and light duty truck assembly industry, information is also
provided on the indirectly affected coatings industry.
2-1
SECTION 2
SUPPLY-SIDE OVERVIEW
In this section, the supply side of the coating process for the automobile and LDT
assembly industry is discussed. First, the production process for coating vehicles is
described, including inputs used in the production process and final outputs produced.
Second, the characteristics of the coatings are described. Finally, data on the costs of
production are presented with particular emphasis on the costs of coatings.
2.1 Production Process
Motor vehicle assembly plants combine automotive parts from equipment
manufacturers to produce finished vehicles for sale to consumers. Once they have assembled
the components of the vehicle body, the body goes through a series of coating operations. In
this section, the coating process and the characteristics of the coatings used are described.
2.1.1 Coating Process
As illustrated in Figure 2-1, the coating process for automobiles and LDTs consists of
the following operations:
Step 1: surface preparation operations—cleaning applications, phosphate bath, and
chromic acid bath;
Step 2: priming operations—electrodeposition primer bath, joint sealant application,
antichip application, and primer-surfacer application; and
Step 3: finishing operations—color coat application, clearcoat application, and any
painting necessary for two-tone color or touch-up applications (EPA, 1995).
Most releases of HAPs occur during the priming operations (Step 2) and the finishing
operations (Step 3); thus, these steps are described in more detail here, followed by a
description of the final vehicle assembly activities. However, the order and the method by
2-2
Figure 2-1. Car Painting ProcessSources: American Automobile Manufacturers Association. 1998. Motor Vehicle Facts and Figures 1998.
Detroit: AAMA.
U.S. Environmental Protection Agency. September 1995. Profile of the M otor Vehicle Assemble
Industry. EPA 310-R-95-009. W ashington, DC: U.S. Government Printing Office.
2-3
which these operations occur may vary for individual facilities. Once completed, the coating
system typically is as shown in Figure 2-2.
2.1.1.1 Primary Operations
After the body has been assembled, anticorrosion operations have been performed,
and plastic parts to be finished with the body are installed, priming operations begin (Step 2).
The purpose of the priming operations is to further prepare the body for finishing by
applying various layers of coatings designed to protect the metal surface from corrosion and
assure good adhesion of subsequent coatings.
First, a primer coating is applied to the body using an electrodeposition method in
which a negatively charged auto body is immersed in a positively charged bath of primer for
approximately 3 minutes (EPA, 1995). The coating particles migrate toward the body and
are deposited onto the body surface, creating a strong bond between the coating and the body
to provide a durable coating (EPA, 1995). Once deposition is completed, the body is rinsed
in a succession of individual spray and/or immersion rinse stations and then dried with an
automatic air blow-off (Vachlas, 1995). Following the rinsing stage, the deposited coating is
cured in a electrodeposition curing oven for approximately 20 minutes at 350 to 380°F (EPA,
1995).
Next, the body is further water-proofed by sealing spot-welded joints of the body. A
sealant, usually consisting of polyvinyl chloride and small amounts of solvent, is applied to
Figure 2-2. Priming OperationsAdapted from: Poth, U. 1995. “Topcoats for the Automotive Industry.” Automotive Paints and
Coatings, G. Fettis, ed. New York: VCH Verlagsgesellschaft mbH.
1In some facilities, an infrared heated flash zone is used to evaporate the solvent (Green, 2000c).
2-4
the joints. The body is again baked to ensure that the sealant adheres thoroughly to the spot-
welded areas (EPA, 1995).
After water-proofing, the body proceeds to the antichip booth. The purpose of
antichip primers is to protect the vulnerable areas of the body, such as the door sills, door
sides, under-body floor pan, and front and rear ends, from rocks and other small objects that
can damage the finish. In addition, antichip primers allow for improved adhesion of the top
coat. In the process, a substance usually consisting of a urethane or an epoxy ester resin, in
conjunction with solvents, is applied locally to certain areas along the base and sill sections
of the body (EPA, 1995; Vachlas, 1995).
The final step in the priming operation is applying the primer-surfacer coating. The
purpose of the primer-surfacer coating is to provide “filling” or hide minor imperfections in
the body, provide additional protection to the vehicle body, and bolster the appearance of the
topcoats (Ansdell, 1995). Unlike the initial electrodeposition primer coating, primer-surfacer
coatings are applied by spray application in a water-wash spray booth. The primer-surfacer
consists primarily of pigments, polyester or epoxy ester resins, and solvents. Because of the
composition of this coating, the primer-surfacer creates a durable finish that can be sanded.
Primer-surfacers can be color-keyed to specific topcoat colors and thus provide additional
color layers in case the primary color coating is damaged. Since water-washed spray booths
are usually used, water that carries the overspray is captured and processed for recycling
(Poth, 1995; EPA, 1995). Following application of the primer-surfacer, the body is baked to
cure the film, control solvent releases, minimize dirt pickup, and reduce processing time.
2.1.1.2 Finishing Operations
After the primer-surfacer coating is baked, the body is then sanded, if necessary, to
remove any dirt or coating flaws. The next step of the finishing process is the application of
the topcoat, which consists of a color basecoat and a clearcoat. This is accomplished in a
manner similar to the application of primer-surfacer in that the coatings are sprayed onto the
body. In addition to pigments and solvents, aluminum or mica flakes can be added to the
color basecoat to create a finish with metallic or reflective qualities. Instead of baking, the
color basecoat may be allowed to “flash off,” meaning that the solvent evaporates without
the application of heat (EPA, 1995).1 The pigments used in both primers and paints are an
integral part of the paint formulation in that they provide the color of the coatings. The
2-5
Table 2-1. Chemical Components of Pigments Found in Automobile and LDT Paint
Pigment Color Chemical Components
White Titanium dioxide, white lead, zinc oxide
Red Iron oxides, calcium sulfate, cadmium selenide
Orange Lead chromate-molybdate
Brown Iron oxides
Yellow Iron oxides, lead chromate, calcium sulfide
Green Chromium oxide, copper, phosphotungstic acid, phosphomolybdic acid
E.I du Pont de Nemours and Co. Wilmington, DE $24,767 $4,480 101,000
PPG Industries Pittsburgh, PA $7,510 $801 32,500
Source: Hoover’s Online. Company Capsules. <http://www.hoovers.com>. As obtained on January 13, 2000.
4-1
SECTION 4
DEMAND-SIDE OVERVIEW
In this section, the uses and consumers of the automobile and LDT are described.
First, the consumers, product characteristics and the purpose of consumption are described.
In addition, substitution possibilities are given, and demand elasticity estimates are provided.
4.1 Demand Characteristics
Individual consumers, companies, and the government lease or purchase automobiles
and LDTs. Over the past several years, consumption by individual consumers, which
accounted for 47 percent of 1997 sales, has decreased, while consumption by businesses,
which accounted for 51 percent of 1997 sales, has increased (see Table 4-1). Government
purchases make up 1 to 2 percent of consumption. While individuals generally purchase
automobiles and LDTs for personal use, companies purchase automobiles so their employees
may use them on work-related business or so their customers may use them, as in the case of
automobile rental companies. Federal, state, and local governments purchase automobiles
for use during government-related work, including military operations, escorting officials,
and site visits. In general, government-purchased vehicles are more utilitarian than vehicles
purchased by individual consumers and companies.
In 1997, sales of passenger cars and LDTs were approximately equal (AAMA, 1998).
However, the individual consumers who purchase new passenger cars differ somewhat from
those who purchase new LDTs. As shown in Table 4-2, purchasers of new passenger cars
are fairly evenly split between male and female, but men make up three-quarters of the LDT
purchasers. New passenger car purchases are greatest for the 45 to 54 age range, but LDT
purchases are high for the broader 35 to 54 age range. The highest education level for
vehicle purchases is similar for both vehicle types, with the high percentages for the
categories of some college and college graduates. Passenger car purchases are higher in the
Northeast but the differences in the North Central, South, and West, are minor. Finally,
median household income for passenger car purchasers is lower at $59,900 compared to
$68,000 for LTD purchasers.
4-2
When choosing an automobile or LDT to purchase or lease, consumers consider the
following characteristics:
C function of the vehicle (e.g., sedan, coupe, wagon, pickup truck, minivan, SUV);
C performance characteristics, such as capacity, mileage per gallon, horsepower,four-wheel drive versus two-wheel drive;
C aesthetic characteristics, such as design and visual appeal;
C comfort characteristics, such as seating, equipment adjustments, and airconditioning;
C safety characteristics, such as air bags and advanced braking systems (ABS);
C perceived reliability and durability; and
C price, including financing and leasing options.
Table 4-1. U.S. Car Sales by Market Sector, 1980–1997
Units by Consuming Sector (103) % of Total Sales
Year Consumer Business Government Total Consumer Business Government
1980 6,062 2,791 126 8,979 67.5% 31.1% 1.4%
1985 7,083 3,822 134 11,039 64.2% 34.6% 1.2%
1986 7,658 3,666 127 11,450 66.9% 32.0% 1.1%
1987 6,748 3,395 135 10,278 65.7% 33.0% 1.3%
1988 6,802 3,699 138 10,639 63.9% 34.8% 1.3%
1989 6,375 3,402 136 9,913 64.3% 34.3% 1.4%
1990 5,768 3,567 149 9,484 60.8% 37.6% 1.6%
1991 4,538 3,752 97 8,387 54.1% 44.8% 1.2%
1992 4,558 3,683 113 8,354 54.6% 44.1% 1.4%
1993 4,669 3,941 108 8,718 53.6% 45.2% 1.2%
1994 4,612 4,255 124 8,991 51.3% 47.3% 1.4%
1995 4,313 4,211 162 8,686 49.7% 48.5% 1.9%
1996 4,065 4,328 134 8,527 47.4% 50.7% 1.6%
1997 3,880 4,233 131 8,245 47.1% 51.3% 1.6%
Source: U.S. Department of Commerce, B ureau of Economic Analysis, as reported in American Automobile
Manufacturers Association (AAM A). 1998. Motor Vehicle Facts and Figure 1998. Detroit: AAMA.
4-3
Table 4-2. Demographics of New Automobile and LDT Buyers, 1998
Characterist ic
New Passenger Car Buyers
Total
New Light Truck Buyers
Total
Gender
Male 51.6% 71.2%
Female 43.1% 24.3%
No Answer 5.3% 4.5%
Total 100.0% 100.0%
Age of Principal Purchaser (in years)
Under 25 7.0% 4.0%
25–29 7.7% 7.4%
30–34 8.3% 10.0%
35–39 8.0% 12.7%
40–44 9.3% 13.3%
45–49 11.5% 12.7%
50–54 11.0% 12.3%
55–59 7.6% 8.5%
60–64 6.7% 6.2%
65 and over 17.3% 8.7%
No Answer 5.6% 4.1%
Total 100.0% 100.0%
Highest Education Level
8th grade or less 0.6% 1.1%
Some high school 2.1% 3.0%
High school/no college 15.5% 18.1%
Some college 23.5% 23.9%
College graduate 28.7% 25.5%
Post graduate 20.2% 16.1%
Trade/technical 4.7% 8.3%
Other 1.3% 1.0%
No answer 3.3% 3.1%
Total 100.0% 100.0%
Census Region
Northeast 21.8% 17.2%
North central 28.4% 32.4%
South 31.6% 32.0%
West 18.2% 18.4%
Total 100.0% 100.0%
Median Household
Income $59,900 $68,000
Source: J.D. Power and Associates, 1998 Vehicle Quality Survey as reported in American Automobile
Manufacturers Association (AAM A). 1998. Motor Vehicle Facts and Figure 1998. Detroit: AAMA.
4-4
According to a survey conducted by Consumers Union, reliability, price, and appearance are
the top three reasons why a consumer chooses a particular vehicle (Consumer Reports,
2000c).
Coatings obviously affect the appearance of a vehicle, but they also affect its
durability since they provide protection from rust, acid rain, chipping, and scratching. A
consumer can readily observe the appearance characteristics of coatings, including, most
obviously, its color, shininess, and whether it is a metallic coating. For the year 2000,
metallic silver is expected to make up 22 percent of car sales, followed by black at 17
percent, white at 15 percent, blue at 12 percent, and green at 11 percent (Consumer Reports,
2000a). In the future, metallic paints on vehicles are expected to remain popular and special
effects coatings are expected to increase.
While the benefits of coatings for the appearance of vehicles are easily observable
when a consumer purchases a car, the durability aspects of the coatings are only observable
over time. The average age of a passenger vehicle on the road in 1997 was 8.7 years and has
been increasing over time from an average age of 5.6 years in the 1970s (AAMA, 1998). As
the vehicle ages, coatings that rust, chip, and scratch easily greatly diminish the appearance
and could potentially diminish the integrity of the vehicle. Thus, because the quality of the
coating cannot be entirely observed at the time of purchase, the reputation of the company
that manufactures the cars is important. If the company has a history of problems with the
durability of coatings on the cars they manufacture, then their ability to sell vehicles in the
future could be reduced.
4.2 Substitution Possibilities in Consumption
The possibilities for substitution in the automobile and LDT industries arise from the
choices among different makes and models of vehicles, between purchasing a vehicle versus
leasing, between new versus used vehicles, and among different forms of alternative
transportation. The quality of the coatings on a vehicle may subtly affect these choices. As
described above, a company with a history of problems with its coatings may lose market
share over time to companies that manufacture vehicles with durable coatings. In addition, if
coating quality is an issue, a consumer may be more inclined to buy cars more often or to
lease rather than purchase a vehicle because the consumer would be driving the vehicle
during the years in which its appearance is best. The market for used vehicles may
potentially be affected by the quality of coatings because consumers would be more willing
to purchase a used vehicle if its appearance is satisfactory but less willing if the coatings are
declining as the vehicle ages. Thus, the market for used vehicles may affect manufacturers
4-5
of new vehicles in two opposite directions. If good quality used vehicles are available for
purchase, consumers may purchase used vehicles as a substitute for new vehicles, thus
reducing the size of the market for new vehicles. However, if the resale market for a
particular model is good (i.e., the model retains its value over time), then the manufacturer
may be able to obtain a higher price for the same model when it is new. The last possibility
for substitution, the use of alternative forms of transportation such as buses, subways, and
bicycles, is likely much less affected by appearance and quality of coatings because these
forms of transportation tend to be lifestyle choices for particular individuals.
4.2.1 Demand Elasticity Estimates
Based on empirical estimates provided in the economics literature, the own-price
elasticities of demand for automobiles are elastic, the cross-price elasticities of demand are
inelastic, and the income elasticities are elastic (see Table 4-3). Trandel (1991) estimated an
overall own-price elasticity of –2.42, which falls between the individual automobile model
elasticities estimated by Berry, Levinsohn, and Pakes (1995) and the aggregate estimates for
domestic, European, and Asian vehicles estimated by McCarthy (1996). The estimated
cross-price elasticities, which are the cross-price elasticities of demand between similar class
cars, range from 0.28 to 0.99. Both Trandel (1991) and McCarthy (1996) estimate “market-
price” elasticities of demand that are the sum of the own-price and cross-price elasticities of
demand. These represent the change in quantity demanded with respect to a 1 percent
increase in all car prices, such as would occur with an excise tax. Their estimated “market-
price” elasticity values range from –0.78 to –1.43. Finally, McCarthy (1996) is the only
paper that reports income elasticities, which are estimated to be 1.62 for domestic vehicles,
1.93 for European vehicles, and 1.65 for Asian vehicles.
4-6
Table 4-3. Estimates of Elasticities of Demand for Automobiles from the EconomicsLiterature
Elasticity Estimates
Source Data Own-Price
Cross-
Pricea
Market-
Priceb Income
Trandel, 1991 1983-1985 aggregate
data for 210 models
–2.42 0.989 –1.43 Not reported
Berry, Levinsohn,
and Pakes, 1995
1971-1990 aggregate
data for 2217
model/year
combinations
–3.52 to –6.36
based on model
Not reported Not reported Not reported
McCarthy, 1996 1989 consumer data
for 1,564 individuals
Domestic vehicles –1.06 0.28 –0.78 1.62
European vehicles –1.85 0.76 –1.09 1.93
Asian vehicles –1.42 0.61 –0.81 1.65
a The cross-price elasticity is taken with respect to price changes for similar class cars.b The market-price elasticity equals the own-price plus the cost-price elasticity. It represents the change in
quantity demanded with respect to a 1 percent increase in all car prices.
5-1
SECTION 5
MARKET DATA
This section provides data on domestic production, domestic consumption, imports,and exports of automobiles and light duty trucks. In addition, it also includes data onaverage retail prices and a discussion of the relationship between retail prices and thewholesale prices received by automobile and LDT assemblers. Finally, this section discussestrends and projections for the automotive industry.
5.1 Market Volumes
Data on the volumes of automobiles and light duty trucks produced and consumedannually in the United States, including imports and exports, are discussed below.
5.1.1 Domestic Production and Consumption
Table 5-1 provides data on domestic production, factory sales, change in inventory,imports, and exports of passenger cars, which includes both automobiles and LDTs, for the10-year period 1988 through 1997. The change in inventory represents the differencebetween domestic production and factory sales. In years for which manufacturers makemore vehicles than they sell, inventories increase, and likewise, in years for which they makefewer vehicles than they sell, inventories decrease. Apparent consumption is calculated fromthese data by adding factory sales and imports and subtracting the change in inventories andexports. As noted in Table 5-2, the annual percentage changes in production andconsumption are highly variable from year to year. In recent years, domestic production andfactory sales have decreased year to year, and changes in apparent consumption have beennegligible (see Figure 5-1).
5.1.2 International Trade
As indicated in Table 5-1, international trade is a major component of the U.S.market for automobiles. Total annual U.S. imports and exports of passenger cars for the1990s are graphed in Figure 5-2. Over the past decade, imports of cars into the United States
5-2
Tab
le 5
-1.
Pas
seng
er C
ar P
rodu
ctio
n, F
acto
ry S
ales
, Cha
nge
in I
nven
tori
es, a
nd I
nter
nati
onal
Tra
de, 1
988–
1997
Yea
rD
omes
tic
Pro
duct
ion
Fac
tory
Sale
sC
hang
e in
Inve
ntor
yaT
otal
Impo
rts
Tot
al
Exp
orts
App
aren
tC
onsu
mpt
ionb
1988
7,11
3,13
77,
104,
617
8,52
0N
A78
1,17
1N
A
1989
6,82
3,09
76,
807,
416
15,6
81N
A77
8,37
3N
A
1990
6,07
7,44
96,
049,
749
27,7
003,
944,
602
793,
757
9,20
0,59
4
1991
5,43
8,57
95,
407,
120
31,4
593,
736,
462
754,
950
8,38
8,63
2
1992
5,66
4,20
35,
685,
299
–21,
096
3,57
4,72
285
1,07
48,
408,
947
1993
5,98
1,04
65,
961,
754
19,2
923,
808,
460
864,
238
8,87
6,68
4
1994
6,61
3,97
06,
548,
562
65,4
084,
097,
014
1,01
9,25
89,
626,
318
1995
6,35
0,73
36,
309,
836
40,8
974,
113,
917
989,
367
9,43
4,38
6
1996
6,08
3,22
76,
140,
454
–57,
227
4,06
4,44
797
3,63
49,
231,
267
1997
5,92
7,28
16,
069,
886
–142
,605
4,35
7,22
01,
075,
303
9,35
1,80
3
Avg
.6,
207,
272
6,20
8,46
9–1
,197
3,96
2,10
688
8,11
39,
068,
490
NA
= N
ot a
vaila
ble
aC
hang
e in
Inv
ento
ry =
Dom
estic
Pro
duct
ion
– Fa
ctor
y Sa
les
bA
ppar
ent C
onsu
mpt
ion
= F
acto
ry S
ales
+ I
mpo
rts
– E
xpor
ts
Sour
ce:
Am
eric
an A
utom
obile
Man
ufac
ture
rs A
ssoc
iatio
n. 1
998.
Mot
or V
ehic
le F
acts
and
Fig
ures
199
8. D
etro
it: A
AM
A.
5-3
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Domestic Production Apparent Consumption
Figure 5-1. U.S. Domestic Production and Apparent Consumption, 1990–1997
Table 5-2. Annual Growth Rates of Passenger Car Production and Consumption,1990–1997
Year Domestic Production Apparent Consumption
1990 –11% —
1991 –11% –9%
1992 4% 0%
1993 6% 5%
1994 11% 8%
1995 –4% –2%
1996 –4% –1%
1997 –3% 2%
Average Annual Percentage –1.5% 0.4%
5-4
have increased by approximately 10 percent. In comparison, exports of cars from the UnitedStates have increased by approximately 35 percent but are only one-fourth of the size ofimports.
Table 5-3 provides data on imports of passenger cars by country during the 1990s. In1997, imports from Canada made up nearly 40 percent of U.S. imports, followed by Japan at32 percent, and Mexico at 12 percent. However, these import data do not include cars builtin the United States for the U.S. market by foreign companies; these cars are considereddomestic production. In addition, many of the vehicles produced in Canada and Mexico, theUnited States’ largest trading partners, are produced by U.S. companies for the U.S. market. It has become easier for U.S. companies to locate production facilities in these countries inrecent years because the United States has a special trading relationship defined under theNorth American Free Trade Agreement (NAFTA). Most recently, imports have jumpedsharply as foreign automobile manufacturers have begun to offer SUVs in response toincreased demand for SUVs by the American public (U.S. Department of Commerce,1999c).
Table 5-4 provides data on U.S. exports of passenger cars by country during the1990s. In 1997, exports to Canada made up the majority of U.S. exports at 58 percent,followed by Japan at 7 percent, Mexico at 6 percent, and Germany at 5 percent. Over time,exports may decline as U.S. manufacturers locate plants in the countries where the cars are tobe sold or in countries with lower costs of production (U.S. Department of Commerce,1999c).
5.2 Market Prices
Table 5-5 and Figure 5-3 illustrate the relative increases in prices for new and usedcars compared to the overall price level. During the 1990s, the consumer price index (CPI)for new cars rose more slowly than the CPI for all items, even while new cars improved andadded safety and emissions equipment. In comparison, the CPI for used cars rose faster thanthe CPI for all items as the market for used vehicles increased substantially. Specifically,from 1990 to 1997, the CPI rose by 23 percent for all items, by 17 percent for new cars, andby 28 percent for used cars.
Table 5-6 presents U.S. car prices in nominal and real 1992 dollars from 1991 to1997. The average prices of import cars were nearly 60 percent higher than domestic cars in1997. As shown, nominal market prices for domestic cars consistently increased from 1991
5-5
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
1990 1991 1992 1993 1994 1995 1996 1997
Total Imports Total Exports
Figure 5-2. U.S. Imports and Exports of Passenger Cars, 1990–1997
to 1997 while the real prices have remained relatively unchanged. However, real prices forimport cars have increased dramatically.
Another way to look at the price of a car is to calculate the number of weeks of themedian family income that is required to purchase the average car. During the 1990s, thenumber of weeks increased slightly from 24.0 in 1991 to 25.4 weeks in 1994, but haddeclined back to 23.5 weeks in 1997. Thus, family incomes are rising faster than the price ofthe average car.
The relationship between the prices paid by consumers for cars and the wholesaleprices received by car manufacturers is not readily known. The Manufacturers SuggestedRetail Price (MSRP) is usually above the price that consumers actually pay for a vehicle andincludes the markup received by the dealership that sells the vehicle. Invoice prices, whichwould appear to be a wholesale price, are readily available from automobile pricing services,such as Autobytel.com, nadaguides.com, and Edmunds.com, but do not reflect the actualprices received by manufacturers. The prices they receive may be below the invoice baseprice because of dealer holdbacks, dealer incentives, and rebates. Dealer holdback is a
5-6
Table 5-6. Market Prices for New Cars in Nominal and Real 1992 Dollars
Year
Average Expenditure Per New Car
Weeks of MedianFamily Earnings toEqual Average New
Source: American Automobile Manufacturers Association (AAMA). 1998. Motor Vehicle Facts and Figures1998. Detroit: AAMA.
percentage of the MSRP that the manufacturer pays the dealer to assist with the dealer’sfinancing of the vehicle while it is on the dealer’s lot (Edmunds.com, 2000b). For year 2000models, the amount of the holdback ranges from zero to 3 percent depending on themanufacturer. Incentives and rebates are programs offered by the manufacturer to increasesales of vehicles that are selling slowly. Rebates may be offered as either direct cash back tothe buyer or low-rate financing (Edmunds.com, 2000a). For year 2000 models, the cashrebate amounts range from $0 to $4,000 per vehicle but are typically in the $500 to $2,000range depending on the model. Low-rate financing is as low as 0.9 percent. Dealerincentives are dollar amounts passed directly to the dealership (Edmunds.com, 2000a). Foryear 2000 models, dealer incentives are as high as $10,000 per vehicle but are typically morein the $250 to $1,000 range for vehicles on which they are offered. According to ConsumerReports (2000b), the wholesale price of cars, after subtracting holdbacks, incentives, andrebates, ranges from zero percent below invoice prices for the BMW 323i four-door to 13.9percent for the Lincoln Continental.
5-7
Tab
le 5
-3.
U.S
. Im
port
s of
New
Ass
embl
ed P
asse
nger
Car
s by
Cou
ntry
of
Ori
gin,
199
0–19
97
Yea
rC
anad
aG
erm
any
Japa
nSo
uth
Kor
eaM
exic
oSw
eden
Uni
ted
Kin
gdom
Oth
erT
otal
Impo
rts
1990
1,22
0,22
124
5,28
61,
867,
794
201,
475
215,
986
93,0
8427
,271
73,4
853,
944,
602
1991
1,19
5,98
717
2,44
61,
789,
138
191,
449
249,
499
62,9
0514
,874
60,1
643,
736,
462
1992
1,20
0,35
820
6,12
41,
637,
066
133,
244
266,
149
76,8
3211
,007
43,9
423,
574,
722
1993
1,46
8,27
218
4,35
61,
597,
391
126,
576
299,
634
58,7
4220
,048
53,4
413,
808,
460
1994
1,59
1,32
618
7,99
91,
593,
169
217,
962
360,
370
63,8
6728
,239
54,0
824,
097,
014
1995
1,67
8,27
620
6,89
21,
387,
193
216,
618
463,
305
82,6
3442
,176
36,8
234,
113,
917
1996
1,68
8,12
323
4,48
01,
190,
581
225,
613
550,
622
86,5
9543
,616
44,8
174,
064,
447
1997
1,72
2,19
929
8,03
21,
383,
519
222,
535
539,
384
79,7
2543
,726
68,1
004,
357,
220
Avg
.1,
470,
595
216,
952
1,55
5,73
119
1,93
436
8,11
975
,548
28,8
7054
,357
3,96
2,10
6
Sour
ce:
Am
eric
an A
utom
obile
Man
ufac
ture
rs A
ssoc
iatio
n (A
AM
A).
199
8. M
otor
Veh
icle
Fac
ts a
nd F
igur
es 1
998.
Det
roit:
AA
MA
.
5-8
Tab
le 5
-4.
U.S
. Exp
orts
of
Pas
seng
er C
ars
by C
ount
ry o
f D
esti
nati
on, 1
990–
1997
Yea
rC
anad
aF
ranc
eG
erm
any
Japa
nK
uwai
tM
exic
oSa
udi
Ara
bia
Tai
wan
Oth
erC
ount
ries
Tot
alE
xpor
ts
1990
505,
352
10,4
7534
,485
39,1
882,
919
12,8
2723
,288
66,6
0998
,614
793,
757
1991
495,
373
5,56
338
,284
28,1
6016
,312
10,5
9228
,270
44,9
3487
,461
754,
950
1992
459,
910
8,70
456
,615
40,5
9815
,208
4,26
135
,502
90,2
3114
0,04
585
1,07
4
1993
480,
909
2,94
244
,038
56,7
417,
923
4,03
632
,827
71,3
3216
3,49
086
4,23
8
1994
559,
513
6,08
339
,568
100,
400
9,24
636
,569
18,5
8772
,491
176,
801
1,01
9,25
8
1995
492,
107
2,53
826
,690
130,
524
6,66
118
,649
12,5
2361
,002
238,
673
989,
367
1996
502,
652
3,80
259
,462
109,
917
7,70
846
,562
18,2
5335
,141
190,
137
973,
634
1997
626,
629
2,51
457
,426
71,7
892,
565
62,9
1110
,146
24,6
9721
6,62
61,
075,
303
Avg
.51
5,30
65,
328
44,5
7172
,165
8,56
824
,551
22,4
2558
,305
163,
981
915,
198
Sour
ce:
Am
eric
an A
utom
obile
Man
ufac
ture
rs A
ssoc
iatio
n (A
AM
A).
199
8. M
otor
Veh
icle
Fac
ts a
nd F
igur
es 1
998.
Det
roit:
AA
MA
.
5-9
5.3 Industry Trends
The motor vehicle industry in the United States is a large, mature market in whichmost of the vehicles produced are geared toward the preferences of U.S. consumers. U.S.consumers generally prefer larger, more powerful vehicles than consumers in other parts ofthe world, in part because gas prices are significantly lower in the United States relative toother countries. However, domestic production of motor vehicles in the United States isprojected to increase in the next 5 years primarily due to two factors. First, foreignautomobile manufacturers, such as Honda and BMW, are locating more of their productionfacilities in the United States to serve the U.S. market. Automobiles produced from thesefacilities would previously have been classified as imports, but after relocation of productionfacilities, they are considered domestic production. Second, the LDT market, in which U.S.manufacturers dominate, is surging especially as manufacturers are offering more car-likeamenities in these vehicles. The U.S. Department of Commerce (1999c) projects thatdomestic automobile manufacturing facilities will have capacity utilization rates of 90percent or more over the next few years.
Offsetting these increases in domestic production is the fact that U.S. manufacturersare expected to move some production facilities to locations with lower costs of productionsuch as Mexico and Canada. Relocation to Mexico and Canada has become easier partly
Table 5-5. Consumer Price Indexes (All Urban Consumers) for All Items and For Newand Used Cars (1992 = 100), 1990–1997
Year All Items New Cars Used Cars
1990 93.1 94.2 95.4
1991 97.1 97.6 104.3
1992 100.0 100.0 100.0
1993 103.0 102.4 108.7
1994 105.6 105.9 115.0
1995 108.6 108.3 127.0
1996 111.8 110.2 127.5
1997 114.4 110.4 122.6
Source: American Automobile Manufacturers Association (AAMA). 1998. Motor Vehicle Facts and Figures1998. Detroit: AAMA.
5-10
90
95
100
105
110
115
120
125
130
1990 1991 1992 1993 1994 1995 1996 1997
Year
All Items New Cars Used Cars
Figure 5-3. Consumer Price Indexes for All Items Compared to New and Used Cars(1992 = 100), 1990–1997
because of NAFTA. In addition to lower costs of production, other countries may have less-stringent environmental regulations than the United States’ regulations, which translates intolower costs as well. When production facilities are relocated to other countries, what wasformerly considered domestic production becomes imports if the vehicles are delivered to theU.S. market. However, if the vehicles are intended for the domestic country in which theyare produced, they are no longer considered either “domestic production” or “imports.” Toserve the markets in other countries, however, U.S. manufacturers have developed and willcontinue to develop smaller, less costly models than those produced for the U.S. market. Most of the growth in the global vehicle market will be in less-developed countries such asChina, India, Latin America, and eastern Europe in which the typical U.S. automobile isoverly equipped and prohibitively expensive.
Over time, automobile manufacturers are adopting a more global approach toautomobile manufacturing. This change in approach comes as the industry continues toconsolidate and foreign and domestic firms merge or form joint ventures (e.g., Mazda and
5-11
Ford, Daimler-Benz and Chrysler). In the more global approach, automobile manufacturersare reducing the number of unique automobile platforms and using them throughout theworld. This approach allows them to reduce product development costs and spread thedevelopment costs over a greater number of vehicles. In addition, under the global approach,automobile manufacturers can locate plants in the countries in which production costs arelowest.
Overall, the U.S. Department of Commerce (1999c) projects that the U.S. share of theworld motor vehicle markets, including cars, trucks, and buses, will increase from 22 percentin 1997 to 27 percent in 2003. U.S. output in these markets is projected to rise an average of4.6 percent per year from 1997 to 2003 with a corresponding net increase of 25 percent invalue of shipments.
R-1
REFERENCES
AAMA/AIAM/NPCA. January 7, 2000. “Glossary of Terms: Automobile and Light Duty
Truck NESHAPs.”
American Automobile Manufacturers Association (AAMA). 1998. Motor Vehicle Facts
and Figures 1998. Detroit: AAMA.
Ansdell, D.A. 1995. “Surfacers.” Automotive Paints and Coatings, G. Fettis, ed. New
York: VCH Verlagsgesellschaft mbH.
AUTOFACTS. <http://www.autofacts.com/free/ne9901A2.htm>. As obtained on February
2000.
Automotive Industries. “Automobile Manufacturers.” <http://www.ai-online.com/>. As