oversight

Industrial Base: U.S. Tactical Wheeled Vehicle Manufacturers Face Period of Uncertainty as DOD Purchases Decline and Foreign Sales Potential Remains Unknown

Published by the Government Accountability Office on 2012-09-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States Government Accountability Office

GAO              Report to Congressional Committees




September 2012
                 INDUSTRIAL BASE

                 U.S. Tactical Wheeled
                 Vehicle Manufacturers
                 Face Period of
                 Uncertainty as DOD
                 Purchases Decline and
                 Foreign Sales
                 Potential Remains
                 Unknown




GAO-12-859
                                            September 2012

                                            INDUSTRIAL BASE
                                            U.S. Tactical Wheeled Vehicle Manufacturers Face
                                            Period of Uncertainty as DOD Purchases Decline and
                                            Foreign Sales Potential Remains Unknown
Highlights of GAO-12-859, a report to
congressional committees




Why GAO Did This Study                      What GAO Found
DOD’s need for TWVs dramatically            The U.S. tactical wheeled vehicle (TWV) industrial base includes seven
increased in response to operational        manufacturers that utilize common suppliers of major subsystems, such as
demands and threats experienced in          engines and armor. Four of these manufacturers reported that their reliance on
Afghanistan and Iraq. TWVs primarily        sales to the Department of Defense (DOD) varies, in part, as they also produce
transport cargo and personnel in the        commercial vehicles or parts. Collectively, the seven manufacturers supplied
field and include the High Mobility         DOD with over 158,000 TWVs to meet wartime needs from fiscal years 2007
Multi-purpose Wheeled and Mine              through 2011. DOD, however, plans to return to pre-war purchasing levels,
Resistant Ambush Protected vehicles.        buying about 8,000 TWVs over the next several years, in part, due to fewer
The U.S. TWV industrial base, which         requirements.
includes manufacturers and suppliers
of major subsystems, increased              Almost 28,000 U.S.-manufactured TWVs were purchased for use by foreign
production to meet DOD’s wartime            governments from fiscal years 2007 through 2011. Approximately 92 percent of
requirements. That base now faces           these vehicles were paid for using U.S. security assistance funds provided to
uncertainties as DOD’s budget               foreign governments. Iraq and Afghanistan were the largest recipients of such
declines and operational requirements       assistance, but officials stated that DOD does not plan to continue funding TWV
for these vehicles decrease. In addition    purchases for these countries. While sales to foreign governments are unlikely to
to sales to DOD, U.S. manufacturers         offset reductions in DOD purchases, manufacturers reported that foreign sales
sell vehicles to foreign governments.       are becoming an increasingly important part of their revenue stream.
The Senate Armed Services                   Comparison of TWV Sales to DOD and Foreign Governments, Fiscal Years 2007 through 2011
Committee Report on a bill for the
National Defense Authorization Act for
Fiscal Year 2012 directed GAO to (1)
describe the composition of the U.S.
TWV industrial base, (2) determine
how many U.S. manufactured TWVs
were purchased by foreign
governments from fiscal years 2007
through 2011, and (3) identify factors
perceived as affecting foreign
governments’ decisions to purchase
these vehicles. GAO analyzed data
from DOD on U.S. and foreign
government TWV purchases, as well
as sales data from the four primary
U.S. TWV manufacturers. GAO also            Sales of U.S.-manufactured TWVs to foreign governments may be affected by
collected data from five foreign            multiple interrelated factors, including the availability of used DOD vehicles for
governments, including those that did       sale, foreign competition, differing vehicle requirements, and concerns
and did not purchase U.S. TWVs.             associated with U.S. arms transfer control regimes. U.S. manufacturers said
What GAO Recommends                         sales of used Army TWVs to foreign governments could affect their ability to sell
                                            new vehicles. U.S. manufacturers and foreign governments also identified a
GAO is not making recommendations           number of non-U.S. manufacturers that produce TWVs that meet foreign
in this report. DOD, the Department of      governments’ requirements, such as right-side drive vehicles. While U.S.
State, and two manufacturers provided       manufacturers can produce vehicles that meet these requirements, vehicles they
technical or clarifying comments on a       produced for DOD generally have not. Finally, manufacturers and foreign officials
report draft that were incorporated as      had mixed views on how the U.S. arms transfer control regimes may affect
appropriate.                                foreign governments’ decisions to purchase U.S. vehicles. U.S. manufacturers
View GAO-12-859. For more information,
contact Belva Martin at (202) 512-4841 or
                                            and foreign officials expressed concerns with processing times and U.S. end-use
martinb@gao.gov.                            restrictions, but foreign officials also said that such concerns have not been a
                                            determining factor when purchasing TWVs that meet their requirements.
                                                                                      United States Government Accountability Office
Contents


Letter                                                                                 1
             Background                                                                4
             U.S. TWV Industrial Base Includes a Number of Manufacturers
               Whose Reliance on Sales to DOD Vary                                     9
             TWV Sales to Foreign Governments Were Relatively Few and
               Generally Purchased with U.S. Funds                                   15
             U.S. Manufacturers and Foreign Governments Identified Multiple
               Interrelated Factors That May Affect TWV Foreign Sales                19
             Concluding Observations                                                 25
             Agency Comments and Third-Party Views                                   26

Appendix I   GAO Contact and Staff Acknowledgments                                   28



Tables
             Table 1: DOD TWVs by Type Acquired, Fiscal Years 2007 through
                      2011                                                             5
             Table 2: Conventional Arms Transfer Policy Criteria                       7
             Table 3: Ranges of TWV Manufacturer Reported Reliance on DOD
                      Sales                                                          14
             Table 4: Foreign TWV Manufacturers as Identified by
                      Manufacturers and Foreign Governments                          21


Figures
             Figure 1: TWV Manufacturers, Vehicles Produced, and Market
                      Share for DOD TWVs, Fiscal Years 2007 through 2011             10
             Figure 2: Commonality of Suppliers for Major Vehicle Subsystems
                      in DOD TWVs                                                    11
             Figure 3: Declining DOD Purchases by TWV Family, Fiscal Years
                      2007 through 2017                                              12
             Figure 4: Comparison of TWV Sales to DOD and Foreign
                      Governments, Fiscal Years 2007 through 2011                    16
             Figure 5: Comparison of Funding Types for TWV FMS, Fiscal Years
                      2007 through 2011                                              18




             Page i                                            GAO-12-859 Industrial Base
Abbreviations

AECA              Arms Export Control Act
DCS               direct commercial sales
DOD               Department of Defense
FMS               Foreign Military Sales
FMTV              Family of Medium Tactical Vehicles
HMMWV             High Mobility Multi-purpose Wheeled Vehicle
JLTV              Joint Light Tactical Vehicle
MRAP              Mine Resistant Ambush Protected
TWV               tactical wheeled vehicle
USML              United States Munitions List




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Page ii                                                         GAO-12-859 Industrial Base
United States Government Accountability Office
Washington, DC 20548




                                   September 13, 2012

                                   Congressional Committees

                                   Tactical wheeled vehicles (TWV) have played a critical role in supporting
                                   the warfighter, as most recently demonstrated in Afghanistan and Iraq.
                                   TWVs are primarily designed for use by forces in the field to transport
                                   cargo and personnel and are capable of operating on primary and
                                   secondary roads, trails, and cross-country terrain. The Department of
                                   Defense’s (DOD) need for TWVs increased dramatically in response to
                                   the operational demands and threats, such as improvised explosive
                                   devices, experienced by U.S. forces during Operation Enduring Freedom
                                   and Operation Iraqi Freedom. For example, DOD’s procurements for two
                                   types of TWVs—the High Mobility Multi-purpose Wheeled Vehicle
                                   (HMMWV) and the Family of Medium Tactical Vehicles (FMTV)—
                                   increased from 5,500 in 2002 to 27,350 vehicles in 2006. To meet these
                                   requirements, the U.S. TWV industrial base, which includes vehicle
                                   manufacturers and their suppliers of major subsystems and parts,
                                   increased vehicle production. However, that industrial base now faces a
                                   period of uncertainty as requirements for these vehicles decrease with the
                                   withdrawal of U.S. forces from Iraq and the planned drawdown in
                                   Afghanistan, along with declines in DOD’s budget.

                                   In addition to sales to DOD, the U.S. TWV industrial base also sells
                                   vehicles to foreign governments. The sale of U.S. arms and dual-use
                                   items, including TWVs, to friendly nations and allies is an integral
                                   component of both U.S. national security and foreign policy. 1 The Arms
                                   Export Control Act (AECA) authorizes the President to control the export
                                   and import of arms. 2 The AECA authorizes the U.S. government to sell
                                   arms to foreign governments through government-to-government
                                   agreements as part of the Foreign Military Sales (FMS) program. 3 It also
                                   authorizes the issuance of export licenses for U.S. manufacturers to sell


                                   1
                                    For the purposes of this report, the term arms refers to defense articles, defense
                                   services, and related technical data as specified by 22 U.S.C. § 2778 and defined in 22
                                   C.F.R. Part 120. Dual-use items are those which have both military and commercial
                                   applications.
                                   2
                                    22 U.S.C. §§ 2751-2799aa-2.
                                   3
                                    FMS is limited to eligible countries and international organizations. 22 U.S.C. § 2753.




                                   Page 1                                                           GAO-12-859 Industrial Base
arms directly to eligible foreign governments, known as direct commercial
sales (DCS). Regardless of the method of sale, each FMS request or
DCS license application is reviewed by officials from DOD and the
Department of State (State) to ensure the sale would not result in harm to
U.S. interests and is consistent with national security and foreign policies.

In response to directions in the Senate Armed Services Committee
Report 4 on a bill for the National Defense Authorization Act for Fiscal
Year 2012, we (1) described the composition of the U.S. TWV industrial
base and the extent of manufacturers’ reliance on sales to DOD,
(2) determined how many U.S. manufactured TWVs foreign governments
purchased in fiscal years 2007 through 2011, and (3) identified factors
that are perceived as affecting foreign governments’ decisions to
purchase these vehicles.

To describe the composition of the U.S. TWV industrial base, we
obtained, reviewed, and discussed with DOD officials service-level TWV
strategy, acquisition planning, budget, and program office documents. We
identified the new TWVs acquired by DOD in fiscal years 2007 through
2011 and new TWVs anticipated for acquisition in fiscal years 2012
through 2017—the period projected in current budget documents. 5 We
identified vehicle manufacturers that produced those vehicles, either fully
or partially, within the United States and consider them part of the U.S.
TWV industrial base for the purposes of this review. We obtained past
and planned acquisition data for these TWVs from the Army TACOM Life
Cycle Management Command, Marine Corps Systems Command, the
Mine Resistant Ambush Protected Joint Program Office, the Air Force Air
Logistics Center, and the Navy Expeditionary Program Office. We also
obtained data from and interviewed the four U.S. manufacturers that
produced approximately 92 percent of all TWVs purchased by DOD in
fiscal years 2007 through 2011 regarding their reliance on DOD sales and
their supplier base. While we did not obtain data from the other three
manufacturers on their reliance and supplier base, the DOD TWV
procurement data we obtained include their sales to DOD in fiscal years
2007 through 2011. We assessed the reliability of the data reported by
DOD and manufacturers through interviews with knowledgeable officials


4
S. Rep. No. 112–26, at 30 (2011).
5
 We did not include TWV parts purchased by DOD or any efforts intended to sustain or
upgrade its existing vehicles.




Page 2                                                       GAO-12-859 Industrial Base
and electronic data testing for missing data, outliers, and obvious errors
and determined the data to be sufficiently reliable for our purposes.

To determine how many U.S. TWVs were purchased by foreign
governments, we obtained FMS and DCS data for fiscal years 2007
through 2011. We obtained FMS data from the Army TACOM Life Cycle
Management Command’s Security Assistance Management Directorate
and the Marine Corps Systems Command’s International Programs
Directorate as they directly facilitate the FMS process for TWVs within
DOD. We obtained DCS data from the four TWV manufacturers included
in our scope. The FMS data we obtained from DOD contain foreign sales
data for the three remaining TWV manufacturers, but we did not collect
DCS data from them. We limited FMS and DCS data to vehicles that were
purchased by DOD in fiscal years 2007 through 2011 and also sold to
foreign governments. We assessed the reliability of FMS data reported by
DOD by interviewing officials knowledgeable about the data and cross-
checking the data with FMS records from the four manufacturers we met
with. We assessed the reliability of DCS data reported by the four
manufacturers we met with by interviewing officials knowledgeable about
the data and performing electronic testing. Based on those efforts, we
determined that the FMS and DCS data reported to us were sufficiently
reliable for our purposes.

To identify factors perceived as affecting foreign government decisions to
purchase U.S. TWVs, we interviewed representatives from the four U.S.
TWV manufacturers included in our scope, foreign government officials
from five selected countries, and DOD, State, and Department of
Commerce (Commerce) officials. We interviewed officials from three
countries that were among the biggest buyers of U.S. TWVs through the
FMS program in fiscal years 2007 through 2011 or DCS in fiscal years
2008 through 2011. We also interviewed officials from two allied countries
that did not purchase U.S. TWVs through the FMS program in fiscal years
2007 through 2011 or DCS in fiscal years 2008 through 2011 to gain
additional perspectives. Some of the five countries were in the process of
purchasing TWVs. Collectively, these officials provided information on
foreign manufacturers of TWVs and foreign TWV requirements. Because
the countries provided us with information on the size and composition of
their TWV fleets, which some regard as sensitive, we are not identifying
the countries that participated in our review by name. To determine how
the U.S. arms transfer control regimes may affect such sales to foreign
governments, we also reviewed the AECA, Export Administration Act of
1979, International Traffic in Arms Regulations, DOD’s Security
Assistance Management Manual, and related U.S. guidance. To


Page 3                                               GAO-12-859 Industrial Base
                            determine how many U.S. TWV sales to foreign governments were
                            denied, we interviewed officials from State’s Directorate of Defense Trade
                            Controls and Regional Security and Arms Transfer offices and
                            Commerce’s Bureau of Industry and Security. We also reviewed available
                            State export licensing data for fiscal years 2008 through 2011 and
                            Commerce’s data for fiscal years 2007 through 2011. 6

                            We conducted this performance audit from October 2011 to September
                            2012 in accordance with generally accepted government auditing
                            standards. Those standards require that we plan and perform the audit to
                            obtain sufficient, appropriate evidence to provide a reasonable basis for
                            our findings and conclusions based on our audit objectives. We believe
                            that the evidence obtained provides a reasonable basis for our findings
                            and conclusions based on our audit objectives.



Background
Tactical Wheeled Vehicles   DOD and the military services classify TWVs by weight or payload
                            capacity into three categories—light, medium, and heavy—although the
                            definitions of each class vary among the services. Each class generally
                            includes multiple variants or models built on a common chassis. For
                            example, the Army’s FMTV consists of 2.5- and 5-ton capacity trucks,
                            each with the same chassis and includes cargo, tractor, van, wrecker,
                            and dump truck variants. Table 1 lists the TWVs acquired by the military
                            services over five fiscal years, fiscal years 2007 through 2011.




                            6
                             Licensing data for DCS were obtained from State’s DTRADE system, which was
                            implemented in 2008. We did not obtain State licensing data collected prior to its
                            implementation.




                            Page 4                                                          GAO-12-859 Industrial Base
Table 1: DOD TWVs by Type Acquired, Fiscal Years 2007 through 2011

Vehicle class   Vehicle family                                           Number of variants        Military service
Light           High Mobility Multi-purpose Wheeled Vehicle                                 5      Army, Marine Corps, Air Force, Navy
Medium          Light Medium Tactical Vehicle                                               3      Army
                Medium Tactical Vehicle                                                    10      Army
                Medium Tactical Vehicle Replacement                                        11      Marine Corps
Heavy           Heavy Expanded Mobility Tactical Truck                                      6      Army
                Palletized Load System                                                      1      Army
                M915 Series Line Haul Tractor                                               2      Army
                Heavy Equipment Transport System                                            1      Army
                Logistics Vehicle System Replacement                                        3      Marine Corps
Not applicablea Firefighting Truck                                                          2      Army
                Mine Resistant Ambush Protected vehicle                                    13      Army, Marine Corps, Air Force, Navy
                                          Source: GAO summary of DOD information.
                                          a
                                           The military services do not classify these vehicles by class.


                                          Requirements for TWVs have evolved over the last decade, in part, due
                                          to the operational threats encountered in Afghanistan and Iraq. TWVs
                                          were traditionally viewed as utility vehicles that required little armor
                                          because the vehicles operated behind the front lines. However, the tactics
                                          used against forces in these countries dictated that vehicles needed more
                                          protection. For example, the HMMWV was conceived and designed to
                                          support operations in relatively benign environments behind the front line,
                                          but it proved to be highly vulnerable to attacks from improvised explosive
                                          devices, rocket-propelled grenades, and small arms fire when it was
                                          required to operate in urban environments. As a result, DOD identified an
                                          urgent operational need for armored tactical vehicles to increase crew
                                          protection and mobility of soldiers. Although the initial solution—the Up-
                                          Armored HMMWV—provided greater protection, the enemy responded by
                                          increasing the size, explosive force, and type of improvised explosive
                                          devices, which were capable of penetrating even the most heavily
                                          armored vehicles. Consequently, the Mine Resistant Ambush Protected
                                          (MRAP) vehicle was approved in 2007 as a rapid acquisition capability.
                                          DOD recognized that no single manufacturer could provide all of the
                                          vehicles needed to meet requirements quickly enough, so it awarded
                                          contracts to multiple manufacturers.




                                          Page 5                                                                  GAO-12-859 Industrial Base
U.S. Arms Transfer Control   The AECA authorizes the President to control the export of arms, such as
Regimes                      TWVs. 7 The authority to promulgate regulations on these items has been
                             delegated to the Secretary of State. 8 State administers arms transfer
                             controls through the International Traffic in Arms Regulations and
                             designates, with the concurrence of DOD, the articles and services
                             deemed to be arms. 9 These arms constitute the United States Munitions
                             List (USML). 10 DOD’s TWVs are generally designated as Category VII
                             (Tanks and Military Vehicles) items on the USML.

                             Arms, including TWVs, can be sold and exported to foreign governments
                             through the FMS program or DCS. Under the FMS program, the U.S.
                             government procures items on behalf of eligible foreign governments
                             using the same acquisition process used for its own military needs. While
                             State has overall regulatory responsibility for the FMS program and
                             approves such sales of arms to eligible foreign governments, DOD’s
                             Defense Security Cooperation Agency administers the program.
                             Alternatively, the DCS process allows foreign governments to directly
                             negotiate with and purchase arms from U.S. manufacturers. For TWVs
                             controlled on the USML, manufacturers must generally apply for an
                             export license to State’s Directorate of Defense Trade Controls, which
                             authorizes the export of arms to foreign governments. 11

                             State officials assess all arms export requests through the FMS program
                             and DCS license applications against 12 criteria specified in the
                             Conventional Arms Transfer Policy, as summarized in table 2. 12 DOD
                             officials assess the technical risks of the sensitive or classified electronic
                             equipment associated with the sale of TWVs to foreign governments,
                             including the type of armor, sensors or weapons attached to the vehicle,
                             and any signature information. Aside from these technologies, State and


                             7
                             22 U.S.C. § 2778(a).
                             8
                             Exec. Order No. 11,958, 42 Fed. Reg. 4,311 (Jan. 24,1977).
                             9
                             22 C.F.R. §§ 120 - 130.
                             10
                                 22 C.F.R. § 120.2 and Part 121.
                             11
                               While most defense articles and services on the USML require a license for export, the
                             International Traffic in Arms Regulations contain some exemptions and authorize
                             exceptions.
                             12
                               According to Presidential Decision Directive 34, all arms transfer decisions should take
                             into account the 12 criteria identified in the conventional arms transfer policy.




                             Page 6                                                          GAO-12-859 Industrial Base
DOD officials said the departments generally consider the technology
associated with TWVs comparable to commercially available trucks and
do not have any additional policies pertaining to the sale of TWVs to
foreign governments.

Table 2: Conventional Arms Transfer Policy Criteria

 1.    Consistency with U.S. regional stability interests, especially when considering
       transfers involving power projection capability or introduction of a system which may
       foster increased tension or contribute to an arms race.
 2.    The degree to which the transfer supports U.S. strategic and foreign policy interests
       through increased access and influence, allied burden sharing, and interoperability.
 3.    The human rights, terrorism and proliferation record of the recipient and the potential
       for misuse of the export in question.
 4.    Consistency with international agreements and arms control initiatives.
 5.    Appropriateness of the transfer in responding to legitimate U.S. and recipient
       security needs.
 6.    The impact of the proposed transfer on U.S. capabilities and technological
       advantage, particularly in protecting sensitive software and hardware design,
       development, manufacturing, and integration knowledge.
 7.    The degree of protection afforded sensitive technology and potential for
       unauthorized third-party transfer, as well as in-country diversion to unauthorized
       uses.
 8.    The ability of the recipient effectively to field, support, and appropriately employ the
       requested system in accordance with its intended end-use.
 9.    The risk of revealing system vulnerabilities and adversely impacting U.S. operational
       capabilities in the event of compromise.
 10. The impact of U.S. industry and the defense industrial base whether the sale is
     approved or not.
 11. The availability of comparable systems from foreign suppliers.
 12. The risk of adverse economic, political or social impact within the recipient nation
     and the degree to which security needs can be addressed by other means.
Source: Department of State.



In accordance with the AECA, recipient countries of arms, including
TWVs, must generally agree to a set of U.S. arms transfer conditions,
regardless if sold through the FMS program or DCS. 13 The conditions
include agreeing to use the items only for intended purposes without
modification, not to transfer possession to anyone not an agent of the
recipient country without prior written consent of the U.S. government,


13
  See, e.g., 22 U.S.C.§ 2753.




Page 7                                                              GAO-12-859 Industrial Base
and to maintain the security of any defense article with substantially the
same degree of protection afforded to it by the U.S. government. To
ensure compliance with these conditions, recipient countries must permit
observation and review by U.S. government representatives on the use
and possession of U.S. TWVs and other arms.

While the majority of TWVs that DOD purchases are regulated on the
USML, a small number that lack armor, weapons, or equipment that
would allow armor or weapons to be mounted are considered to be dual-
use items—having both commercial and military applications. These
items are controlled under the Export Administration Act of 1979, 14 which
established Commerce’s authority to control these items through its
Export Administration Regulations and Commerce Control List. 15 On the
Commerce Control List, DOD’s TWVs are generally designated as
Category 9 (Propulsion Systems, Space Vehicles, and Related
Equipment) items. For DCS of such items, U.S. manufacturers must
comply with the Export Administration Regulations to determine if an
export license from the Commerce’s Bureau of Industry and Security is
required.




14
  Authority granted by the act lapsed on August 20, 2001. 50 U.S.C. app. § 2419.
However, Executive Order 13222, Continuation of Export Control Regulations, which was
issued in August 2001 under the authority provided by the International Emergency
Economic Powers Act (50 U.S.C. § 1702), continues the controls established under the
act and the implementing Export Administration Regulations. Executive Order 13222
requires an annual extension and was recently renewed by Presidential Notice on August
15, 2012. 77 Fed. Reg. 49699 (Aug. 16, 2012).
15
  Under the Export Control Reform initiative, State has proposed revisions to Category VII
of the USML that, among other things, are intended to more clearly identify ground
vehicles controlled on the USML and those controlled on the Commerce Control List. The
proposed rule would also move certain spare and replacement parts from the USML to the
Commerce Control List. State officials did not have a timeframe for the completion of
these proposed changes. 76 Fed. Reg. 76100 (Dec. 6, 2011).




Page 8                                                         GAO-12-859 Industrial Base
U.S. TWV Industrial
Base Includes a
Number of
Manufacturers Whose
Reliance on Sales to
DOD Vary
Numerous Vehicle           The U.S. TWV industrial base includes seven vehicle manufacturers, over
Manufacturers and          90 major subsystem suppliers, and potentially thousands of parts and
Suppliers Comprise the     component suppliers. Four of the seven manufacturers provided
                           approximately 92 percent of all TWVs purchased by DOD in fiscal years
U.S. TWV Industrial Base   2007 through 2011. Figure 1 identifies the manufacturers, the vehicles
                           they produced, and the percent of all vehicles purchased by DOD from
                           each manufacturer in fiscal years 2007 through 2011.




                           Page 9                                           GAO-12-859 Industrial Base
Figure 1: TWV Manufacturers, Vehicles Produced, and Market Share for DOD TWVs,
Fiscal Years 2007 through 2011




a
General Dynamics acquired Force Protection in December 2011.


Although these manufacturers produced 11 different families of TWVs,
which included over 50 vehicle variants, they generally relied on common
suppliers for major subsystem components. For example, the
manufacturers relied on six or fewer suppliers to provide components,
such as engines or tires. In contrast, the manufacturers relied on more
than 25 armor suppliers, in part, because there was a shortage of vehicle
armor during initial MRAP production. DOD reported that the
requirements for armor, in response to the conflicts in Iraq and
Afghanistan, provided an opportunity for several suppliers to begin
producing armor, which eventually resolved the armor shortage. In
addition to these suppliers, manufacturers we met with reported there
were potentially thousands of other companies that produced parts for
these vehicles. See figure 2 for more information on the number of
suppliers that produced major subsystems on DOD’s TWVs.




Page 10                                                        GAO-12-859 Industrial Base
Figure 2: Commonality of Suppliers for Major Vehicle Subsystems in DOD TWVs




                                       Note: For the purposes of this analysis, DOD and manufacturers excluded items, such as armaments
                                       and mission equipment (communications and situational awareness subsystems), because the
                                       military services buy these items for their vehicles and provide them as government furnished
                                       equipment. Additionally, 125 suppliers are indicated in the figure but some suppliers provided
                                       components for multiple subsystems, reducing the total to 91 suppliers.




DOD Plans to Buy Few                   DOD purchased over 158,000 TWVs in fiscal years 2007 through 2011
TWVs over the Next                     but plans to buy significantly less from now through fiscal year 2017. DOD
Several Years                          demands for TWVs increased dramatically in response to the operational
                                       demands and threats experienced by U.S. forces during Operation
                                       Enduring Freedom and Operation Iraqi Freedom. For example, between
                                       fiscal years 1998 through 2001, before these two wars began, Army
                                       budget documents indicate plans to purchase approximately
                                       5,000 HMMWVs. After the start of Operation Enduring Freedom, Army
                                       budget documents in 2003 reflected an increased requirement for
                                       HMMWVs and, at the time, it planned to purchase approximately 23,000
                                       though fiscal year 2009. However, after Operation Iraqi Freedom began,
                                       the need for HMMWVs increased further and the Army reported that it
                                       ultimately purchased approximately 64,000 between 2003 through 2009.

                                       As U.S. forces began to draw down from the conflicts in Iraq and
                                       Afghanistan, DOD’s operational requirements for TWVs declined. For
                                       example, while DOD bought over 100,000 TWVs in fiscal years 2007 and



                                       Page 11                                                            GAO-12-859 Industrial Base
2008, DOD plans to purchase less than 1,000 TWVs in fiscal years 2015
and 2016. In all, DOD plans to purchase approximately 8,000 TWVs in
fiscal years 2012 through 2017, as shown in figure 3.

Figure 3: Declining DOD Purchases by TWV Family, Fiscal Years 2007 through 2017




Future defense budgets will likely constrain new vehicle purchases and
the size of a fleet the military services will be able to sustain. Army
officials told us that it would cost approximately $2.5 billion per year to
sustain its current fleet of approximately 260,000 TWVs and meet any
new TWV requirements. Officials stated, however, that the Army can no
longer afford and does not need such a sized fleet, in part, due to budget
cuts and potential force structure changes. The Army is re-evaluating how
many TWVs it needs and can afford, which will be outlined in a revised
TWV strategy. In developing this revised strategy, Army officials
recognize that the Army has a relatively young fleet of TWVs, averaging
9 years of age, many of which will be part of its fleet through 2040.


Page 12                                                GAO-12-859 Industrial Base
While this revised strategy has not been completed, the Army has already
made changes to reduce its TWV costs. For example, in February 2012
the Army reduced the number of FMTVs it planned to purchase by
approximately 7,400 vehicles. At that time, the Army also terminated a
HMMWV modernization effort, known as the Modernized Expanded
Capability Vehicle, which was intended to improve vehicle performance
and crew protection on over 5,700 HMMWVs. Officials stated that this
effort was terminated, in part, because of DOD-wide funding constraints.
Army officials estimate that these actions will result in a total savings of
approximately $2.7 billion in fiscal years 2013 through 2017. Furthermore,
Army officials stated that the Army plans to reduce the size of its TWV
fleet to match force structure requirements. They also stated that, as of
July 2012, the Army plans to reduce its total fleet by over 42,000 vehicles.
Officials added that more vehicles could be divested depending on any
future force structure changes and budget constraints.

Despite budget constraints, the industrial base will have some
opportunities over the next several years to produce a new TWV for DOD.
The Joint Light Tactical Vehicle (JLTV) is a new DOD program, designed
to fill the gap between the HMMWV and MRAP by providing near-MRAP
level protection while maintaining all-terrain mobility. As we previously
reported, the Army and Marine Corps are pursuing a revised
developmental approach for JLTV and awarded technology development
contracts to three industry teams. 16 The program completed the
technology development phase in January 2012. Last month, the Army
awarded three contracts for the JLTV’s engineering and manufacturing
development phase. While production contracts will not be awarded for
some time, DOD reports that it plans to purchase approximately
55,000 JLTVs over a 25-year period with full rate production beginning in
fiscal year 2018. With production of other TWVs for DOD largely coming
to an end in fiscal year 2014, DOD considers the JLTV program to be
critical in maintaining an industrial base to supply TWVs to the military.

In addition to new production, the Army and Marine Corps also plan to
invest in sustainment efforts that could be completed by the U.S. TWV
industrial base. These efforts include restoring or enhancing the combat


16
  GAO, Defense Acquisitions: Future Ground-Based Vehicles and Network Initiatives
Face Development and Funding Challenges, GAO-12-181T (Washington, D.C.: Oct. 26,
2011); and Defense Acquisitions: Issues to Be Considered as DOD Modernizes Its Fleet
of Tactical Wheeled Vehicles, GAO-11-83 (Washington, D.C.: Nov. 5, 2010).




Page 13                                                     GAO-12-859 Industrial Base
                           capability of vehicles that were destroyed or damaged due to combat
                           operations. 17 For example, Marine Corps officials reported that it plans to
                           recapitalize approximately 8,000 HMMWVs beginning in fiscal year 2013.
                           In addition, the Army is in the process of resetting the portion of its FMTV
                           fleet that was deployed through at least fiscal year 2017 as well as
                           recapitalizing some of its heavy TWVs.


Manufacturer Reliance on   Despite the significant decrease in DOD TWV purchases, the four
Sales to DOD Varied        manufacturers we met with generally reported that these sales remain an
                           important part of their revenue stream. However, there is a wide range in
                           the degree to which the manufacturers were reliant on DOD in a given
                           year. For example, as shown in table 3, one manufacturer reported that
                           for 2007 its revenue from sales to DOD accounted for 4 percent of its total
                           revenue while another manufacturer reported such revenue was as high
                           as 88 percent, with the other two manufacturers falling within that range.

                           Table 3: Ranges of TWV Manufacturer Reported Reliance on DOD Sales

                                                                            Percent of revenue from DOD sales
                            Year                                                     Low                   High
                            2007                                                      4%                    88%
                            2009                                                     26%                    72%
                            2011                                                     14%                    73%
                           Source: GAO analysis of manufacturer data.



                           Among the four manufacturers, the extent of reliance on revenue from
                           DOD sales varied, in part, because of vehicles sold in the commercial
                           truck and automotive sectors. Aside from producing TWVs,
                           manufacturers produced or assembled commercial vehicles, such as
                           wreckers, fire trucks, school buses, and handicap-accessible taxis, as




                           17
                             The Army defines reset and recapitalization efforts as actions taken to restore
                           equipment to a desired level of combat capability commensurate with the equipment’s
                           future mission. It encompasses maintenance and supply activities that restore and
                           enhance combat capability to equipment that was destroyed, damaged, stressed, or worn
                           out beyond economic repair due to combat operations by repairing, rebuilding, or
                           procuring replacement equipment. Recapitalization rebuilds or repairs equipment to a
                           level that improves the performance capabilities of the equipment or returns the
                           equipment to a “zero mile/zero hour” level with original performance specifications.




                           Page 14                                                     GAO-12-859 Industrial Base
                           well as vehicle components, such as engines, transmissions, and
                           suspensions.

                           According to the four manufacturers, their suppliers of TWV major
                           subsystem components generally produced items in the commercial
                           automotive and truck industries. For example, according to
                           manufacturers, suppliers generally produced parts, such as engines,
                           transmissions, axles, and tires for their commercial vehicles in addition to
                           supplying parts for the TWVs they produce. However, vehicle armor, a
                           major TWV component, is primarily a defense-unique item and those
                           suppliers were not typically used in the manufacturers’ commercial
                           vehicles.


DOD Has Several Studies    DOD currently has several studies under way to better understand the
Under Way to Assess the    U.S. TWV industrial base, its capabilities, and how declining DOD sales
U.S. TWV Industrial Base   may affect it. In 2011, DOD’s Office of Manufacturing and Industrial Base
                           Policy began a multifaceted review of the U.S. TWV industrial base that
                           includes surveying suppliers, conducting site visits, and paneling experts.
                           The Army’s TACOM Life Cycle Management Command also has ongoing
                           studies, including a review to assess the health of the industrial base and
                           others intended to identify its supplier base and any risks associated with
                           sustaining DOD’s TWV fleet. Some of the goals of these different studies
                           are to better understand how different vehicle supply chains affect others,
                           identify single point failures in the supply chain, and provide DOD
                           leadership with improved information so they may better tailor future
                           acquisition policies.


                           U.S. manufacturers sold relatively few TWVs for use by foreign
TWV Sales to Foreign       governments in fiscal years 2007 through 2011, when compared to the
Governments Were           158,000 vehicles sold to DOD over that same period. However, most of
                           the manufacturers we met with stated that while sales of TWVs to foreign
Relatively Few and         governments have not equaled those sold to DOD, such sales are
Generally Purchased        becoming an increasingly important source of revenue as DOD
with U.S. Funds            purchases fewer vehicles. According to data provided by DOD and the
                           four manufacturers, foreign governments purchased approximately
                           28,000 TWVs, either through the FMS program or through DCS, in fiscal
                           years 2007 through 2011. In addition to these sales to foreign
                           governments, manufacturers reported they exported approximately
                           5,000 other TWVs that were different vehicles than those DOD purchased
                           during that time period. Nearly all TWVs sold to foreign governments
                           were sold through the FMS program rather than through DCS. DOD


                           Page 15                                               GAO-12-859 Industrial Base
reports that about 27,000 TWVs were sold through the FMS program,
while the four manufacturers we met with reported that about
700 vehicles were sold through DCS in fiscal years 2007 through 2011. 18
See figure 4 for a comparison of TWVs sold to DOD and to foreign
governments through the FMS program and DCS in fiscal years 2007
through 2011.

Figure 4: Comparison of TWV Sales to DOD and Foreign Governments, Fiscal Years
2007 through 2011




a
DCS data only reflects data provided by the four manufacturers we met with and is limited to vehicle
models purchased by DOD.


Approximately 95 percent of TWVs purchased through the FMS program
from fiscal year 2007 through 2011 were paid for using U.S. government
funding through different security and military assistance programs. The
U.S. Congress authorizes and appropriates funds for assistance


18
    This includes the export of TWVs controlled under State or Commerce regulations.




Page 16                                                               GAO-12-859 Industrial Base
programs that support activities, such as security, economic, and
governance assistance in foreign countries. Examples of such assistance
programs include the Afghanistan Security Forces Fund and Iraq Security
Assistance Fund, which were sources of funding for TWVs purchased for
Afghanistan and Iraq through the FMS program. While Afghanistan and
Iraq were the largest recipients of U.S. manufactured TWVs through such
assistance programs, DOD officials informed us that as the war efforts
conclude there, U.S. funding for TWVs for these two countries’ security
forces has declined and is not planned to continue. In addition, a smaller
number of TWVs were sold through the FMS program to countries using
their own funds. Figure 5 identifies the countries that purchased the most
U.S. manufactured TWVs with U.S. or their own funds through the FMS
program.




Page 17                                             GAO-12-859 Industrial Base
Figure 5: Comparison of Funding Types for TWV FMS, Fiscal Years 2007 through 2011




                                       Page 18                                      GAO-12-859 Industrial Base
                              U.S. manufacturers of TWVs and foreign government officials we met
U.S. Manufacturers            with identified a number of interrelated factors that they perceive as
and Foreign                   affecting whether a foreign government decides to purchase U.S.
                              manufactured TWVs. These included potential future competition from
Governments                   transfers of excess (used) U.S. military TWVs, competition from foreign
Identified Multiple           manufacturers, and differing foreign requirements for TWVs. In addition,
Interrelated Factors          these U.S. manufacturers and foreign government officials expressed
                              mixed views on the effect the U.S. arms transfer control regimes may
That May Affect TWV           have on foreign governments’ decisions to buy U.S. vehicles. These
Foreign Sales                 officials said that processing delays and end-use restrictions can
                              influence foreign governments’ decisions to buy U.S. TWVs. Despite
                              these issues, foreign government officials said the U.S. arms transfer
                              control regimes would not adversely affect their decisions to purchase a
                              U.S.-manufactured TWV that best meets their governments’
                              requirements.


Potential Transfers of Used   The U.S. manufacturers we met with regard the Army’s intent to reduce
Army TWVs Viewed as           its TWV fleet size as a risk to their future sales of TWVs to foreign
Risk by Manufacturers to      governments. Army officials said it is still assessing its TWV requirements
                              and potential plans to divest over 42,000 vehicles, but they acknowledge
Future Sales of U.S. TWVs     that a number of these TWVs could be transferred through the FMS
to Foreign Governments        program. The four U.S. manufacturers consider these used vehicles to be
                              a risk to their future sales of U.S. TWVs to foreign governments because
                              foreign governments could be less likely to purchase new vehicles from
                              U.S. manufacturers if the U.S. Army transfers these used vehicles
                              through foreign assistance programs. U.S. manufacturers told us they
                              would like more involvement in DOD’s decisions on its plans for these
                              divested vehicles so they may provide input on potential effects on the
                              industrial base. Commerce’s Bureau of Industry and Security reviews
                              proposed FMS of divested items to identify effects on the relevant
                              industry. During this review, Commerce provides industry with the
                              opportunity to identify any impacts of the potential FMS on marketing or
                              ongoing sales to the recipient country. When approving these transfers,
                              State and Defense Security Cooperation Agency officials said the
                              U.S. government must also weigh national security and foreign policy
                              concerns, which could outweigh industrial base concerns with transfers of
                              used DOD TWVs to foreign countries.

                              While concerned about the potential for competition from the FMS of
                              these retired vehicles, U.S. manufacturers also view these planned
                              divestitures as a potential to provide repair or upgrade business that
                              could help sustain their production capabilities during a period of low


                              Page 19                                              GAO-12-859 Industrial Base
                             DOD demand. Some manufacturers we met with stated that they would
                             like to purchase DOD’s used TWVs, before they are made available to
                             foreign governments, so they may repair or upgrade them and then sell
                             them to foreign governments. DOD is currently reviewing its policies to
                             determine which vehicles, if any, could be sold back to manufacturers.
                             Another manufacturer, while not interested in purchasing the vehicles,
                             expressed interest in providing repair or upgrade services on the used
                             TWVs before they are sold to foreign governments. Defense Security
                             Cooperation Agency officials stated that excess defense articles, such as
                             the used TWVs, are generally made available to foreign governments in
                             “as is” condition and recipient countries are responsible for the cost of any
                             repairs or upgrades they may want to make. They added that in such
                             instances, it could be possible for U.S. manufacturers to perform such
                             services, but it would be at the direction of the purchasing country, not the
                             U.S. government.


Foreign Competition,         Foreign government and manufacturer officials that we interviewed
Different Vehicle            identified a number of TWV manufacturers that compete with U.S.
Requirements, and            manufacturers for international sales. Examples of foreign manufacturers
                             are shown in table 4.
Concerns Associated with
U.S. Arms Transfer Control
Regimes Affect Foreign
Governments’ Decisions to
Purchase U.S. TWVs




                             Page 20                                               GAO-12-859 Industrial Base
Table 4: Foreign TWV Manufacturers as Identified by Manufacturers and Foreign
Governments

 Manufacturer                                                        Headquarters location
 Ashok Leyland                                                       India
 DAF Truck                                                           The Netherlands
 General Dynamics European Land Systems                              Spain
 IVECO                                                               Italy
 Krauss-Maffei Wegmann                                               Germany
 Land Rover                                                          The United Kingdom
 Mahindra                                                            India
 Mercedes Benz                                                       Germany
 Nimr                                                                United Arab Emirates
 Patria                                                              Finland
 Renault                                                             France
 Rheinmetall MAN                                                     Germany
 Tata Motors                                                         India
 Tatra                                                               Czech Republic
 Toyota                                                              Japan
 Thales                                                              France
 UROVESA                                                             Spain
Source: Officials from foreign governments and U.S. manufacturers.



Officials from two countries that had not purchased U.S. manufactured
TWVs explained that their countries have a well established automotive
industrial base capable of producing TWVs that meet their governments’
needs. While all of the foreign officials we interviewed reported that their
countries had no policies that favor their domestic manufacturers,
governments that have not purchased U.S. TWVs generally purchased
vehicles from domestic manufacturers. For example, foreign officials from
one country said that all of their government’s TWVs are assembled
within its borders.

While all of the competitors to U.S. TWV manufacturers are not
headquartered in the purchasing countries, foreign officials reported that
many of these companies have established dealer and supplier networks
within their countries. Foreign officials reported that these domestic dealer
and supplier networks make vehicle sustainment less expensive and
more manageable, in part, because it is easier and quicker to obtain
replacement parts or have vehicles repaired. In contrast, foreign officials
said that U.S. TWV manufacturers do not generally have the same dealer


Page 21                                                                            GAO-12-859 Industrial Base
and supplier networks within their countries. They added that this can
make maintenance of the U.S. vehicles more expensive, in part, due to
the added cost of shipping.

In addition to the number of TWV manufacturer competitors, foreign
officials also reported that there is limited foreign demand for TWVs.
Foreign officials reported that their governments purchase relatively few
TWVs compared to the U.S. government, in part, because their fleet size
requirements are much smaller. Foreign officials we interviewed reported
TWV fleets that ranged in size from 2 to 9 percent the size of the U.S.
Army’s fleet. For example, foreign officials from one country stated that
their military was in the process of upgrading its entire fleet of
approximately 7,500 vehicles, which is less than 3 percent of the size of
the U.S. Army’s TWV fleet.

Foreign government officials also explained that U.S. manufacturers can
generally produce TWVs to meet their governments’ requirements, but
the vehicles U.S. TWV manufacturers are producing for DOD do not
necessarily align with these requirements. Foreign government officials
identified the following areas where their governments’ requirements
differ from those of DOD:

•   DOD’s TWVs are generally larger than what their government can
    support. For example, officials from one foreign government reported
    that its military considered purchasing U.S. manufactured MRAP
    vehicles but did not have the cargo planes required to transport a
    vehicle the size and weight of DOD’s MRAP vehicles. Instead,
    according to the official, this country purchased a mine and ambush
    protected vehicle developed by one of its domestic manufacturers that
    is smaller and lighter than the DOD’s MRAP vehicles and better
    aligned with its transportation capabilities.
•   Their governments do not always require the same level of
    capabilities afforded by DOD’s TWVs and, in some cases,
    requirements may be met by commercially available vehicles. For
    example, foreign government officials identified a number of vehicles
    in their governments’ tactical fleets that are based on commercial
    products from automobile companies such as Jeep and Land Rover.
•   Their governments have different automotive or design standards for
    military vehicles that do not always align with those produced for DOD
    by U.S. manufacturers. For example, officials from one country said
    that their military is required to purchase right-side drive vehicles,
    which are not always supported by U.S. manufacturers. While their
    military can obtain a waiver to purchase a left-side drive vehicle, this



Page 22                                              GAO-12-859 Industrial Base
     presents training challenges as the majority of the vehicles in its fleet
     are right-side drive vehicles. Foreign officials said that while U.S.
     manufacturers are capable of meeting these requirements, foreign
     competitors may be more familiar with these requirements.
     Manufacturers that we interviewed said they produce or are
     developing TWVs to better meet foreign customers’ requirements. For
     example, one U.S. manufacturer said it was developing a right-side
     drive variant of one of its vehicles and another manufacturer said that
     it has a line of TWVs for its international customers that better meets
     those requirements.

U.S. manufacturers and foreign officials expressed mixed views on the
effect the U.S. arms transfer control regimes may have on the sale of
U.S.-manufactured TWVs to foreign customers. Officials we met with
reported that, generally, the U.S. arms transfer control regimes do not
inhibit foreign governments from purchasing U.S. manufactured TWVs.
Accordingly, we found that once the FMS and DCS process was initiated,
no eligible foreign sales or licenses for U.S. TWVs were denied. For
example, State officials reported that no countries eligible to participate in
the FMS program were denied requests to purchase TWVs in fiscal years
2007 and 2011. Similarly, State DCS license data indicated that no
licenses for vehicle purchases were denied from fiscal years 2008
through 2011.

While sales of TWVs to foreign governments are generally approved by
the U.S. government once initiated, U.S. manufacturers and foreign
officials said that foreign governments may prefer to purchase vehicle
manufactured outside the United States, in part, due to the amount of
time to process sales and licenses requests and end-use restrictions
associated with the U.S. arms transfer control regimes. Specifically,
manufacturers said the congressional notification process can result in
lengthy delays during the FMS and DCS approval process. The AECA
requires notification to Congress between 15 and 45 days in advance of
its intent to approve certain DCS licenses or FMS agreements. 19
Preceding the submission of this required statutory notification to the U.S.
Congress, State provides Congress with an informal review period that
does not have a fixed time period for action. One manufacturer stated that
this informal review period, in one case, lasted over a year and, after



19
 22 U.S.C. § 2776.




Page 23                                                GAO-12-859 Industrial Base
which, the prospective customer decided to not continue with the
purchase. Another manufacturer said that the informal congressional
notification process is unpredictable because there is no set time limit for
review, making it difficult for the manufacturer to meet delivery
commitments to foreign customers. State officials acknowledged that the
informal congressional notification period can delay the DCS and FMS
process because there is no designated time limit for review. According to
State officials, the department established a new tiered review process in
early 2012 to address this issue by establishing a time bounded informal
review period that is based on the recipient country’s relationship with the
U.S. government. The formal notification period remains unchanged.

Foreign officials said when TWVs that meet their governments’
requirements are available from manufacturers outside the United States,
AECA restrictions on third party transfers and end-use administrative
requirements associated with U.S. manufactured vehicles could affect
their governments purchasing decisions. Foreign officials explained that
there are a number of TWV manufacturers outside the United States that
can meet their requirements and vehicles sold by those manufacturers do
not necessarily come with the same end-use restrictions as U.S. vehicles.
For example, the AECA restricts the transfer of arms, including U.S.
manufactured, TWVs to a third party without consent of the U.S.
government. 20 Some foreign officials said their governments prefer to use
private companies, when possible, to make repairs and maintain its TWV
fleet because it can reduce costs compared to government repair work.
These foreign officials said that U.S. third party transfer restrictions
require that their governments obtain permission from the U.S.
government before transferring a U.S. TWV to a private company for
repairs, which creates an administrative burden. Additionally, foreign
governments are required to maintain information on U.S. TWVs’ end-use
and possession that must be available to U.S. officials when requested to
ensure compliance with U.S. end-use regulations. Foreign officials from
one country said the maintenance of this information is an administrative
burden and will be more difficult to manage as their government tries to
reduce its workforce in a limited budget environment. Foreign officials
said that TWVs purchased from manufacturers outside of the Untied


20
  As required by the ACEA, foreign governments may not transfer title to or possession of
any defense articles or services to anyone not an officer, employee, or agent of that
country unless the country receives prior consent from the U.S. government. 22 U.S.C.
§ 2753.




Page 24                                                       GAO-12-859 Industrial Base
               States are not generally encumbered with these same restrictions and
               administrative burdens, making maintenance of these vehicles easier and
               cheaper, in some cases. State officials acknowledged these concerns
               from foreign governments but said these restrictions play an important
               role in protecting U.S. national security interests.

               Foreign officials reported, however, that the U.S. arms transfer control
               regimes would not adversely affect their decision to purchase a U.S.
               vehicle that best meets their governments’ requirements in terms of
               capabilities and cost. Foreign officials said that U.S. manufacturers make
               vehicles that are reliable and highly capable. When their governments
               have requirements that align with those associated with U.S.
               manufactured vehicles, foreign officials said that the U.S. arms transfer
               control regimes would not be a factor in their governments’ decisions to
               purchase the vehicles. Foreign officials that we interviewed also said their
               governments are experienced buyers of U.S. arms and are able to
               successfully navigate the FMS and DCS processes and U.S. end-use
               restrictions to obtain the military equipment they require.

               The volume of TWVs DOD purchased to meet operational requirements
Concluding     in Iraq and Afghanistan was unique due to specific threats. Many of these
Observations   vehicles are no longer needed and DOD’s need for new TWVs is
               expected to decline in coming years. Further, given the current budgetary
               environment, DOD cannot afford to support the size of its current fleet or
               buy as many vehicles as it once did. Though U.S. manufacturers
               increased their production to meet those past needs, they will be
               challenged in responding to the sharp decline in DOD’s TWV
               requirements in future years. As DOD continues its studies of the U.S.
               TWV industrial base, it may be better positioned to address these
               challenges and how DOD can mitigate any risks to sustaining its TWV
               fleet. It is unlikely that sales to foreign governments will ever offset
               declines in sales to DOD, but foreign sales may be more important to the
               industrial base now more than ever. U.S. manufacturers, however, are
               presented with a number of factors that affect their ability to sell TWVs to
               foreign governments. While no foreign officials indicated that their
               governments would not buy U.S. TWVs, there has been relatively limited
               demand for the vehicles U.S. manufacturers have produced for DOD.
               Further, there are many foreign manufacturers that can supply vehicles
               that meet foreign governments’ requirements. Each of the U.S.
               manufacturers we met with was either selling or developing alternative
               vehicles that better meet foreign governments’ requirements, but the
               extent to which those efforts will stimulate additional sales has yet to be
               seen. Further, U.S. manufacturers raised concerns that their competitors


               Page 25                                              GAO-12-859 Industrial Base
                        could eventually include the U.S. military as it makes plans to divest itself
                        of used TWVs that it could make available to foreign governments at
                        reduced costs or for free. Additionally, while U.S. manufacturers
                        perceived the U.S. arms transfer control regimes to be more burdensome
                        than those of other countries, the regimes are not a determining factor
                        when foreign governments seek to purchase TWVs.


                        We provided a draft of this report to DOD, State, and Commerce, as well
Agency Comments         as the four manufacturers and five foreign governments with whom we
and Third-Party Views   met, for their review and comment. DOD and State provide technical
                        comments and two of the manufacturers provided clarifications, which we
                        incorporated into the report as appropriate. Commerce, two
                        manufacturers, and the five foreign governments informed us that they
                        had no comments.


                        We are sending copies of this report to the Secretary of Defense; the
                        Secretaries of the Army and the Navy; the Secretary of State; Secretary
                        of Commerce; and the four manufacturers and five foreign governments
                        with whom we met. In addition, the report also is available at no charge
                        on the GAO website at http://www.gao.gov.

                        If you or your staff have any questions concerning this report, please
                        contact me at (202) 512-4841 or martinb@gao.gov. Contact points for our
                        Offices of Congressional Relations and Public Affairs may be found on
                        the last page of this report. GAO staff members who made key
                        contributions to this report are listed in appendix I.




                        Belva M. Martin
                        Director
                        Acquisition and Sourcing Management




                        Page 26                                               GAO-12-859 Industrial Base
List of Committees

The Honorable Carl Levin
Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate

The Honorable Daniel Inouye
Chairman
The Honorable Thad Cochran
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Howard P. “Buck” McKeon
Chairman
The Honorable Adam Smith
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable C.W. Bill Young
Chairman
The Honorable Norman Dicks
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives




Page 27                                 GAO-12-859 Industrial Base
Appendix I: GAO Contact and Staff
                  Appendix I: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Belva M. Martin (202) 512-4841 or martinb@gao.gov
GAO Contact
                  In addition to the contact name above, the following staff members made
Acknowledgments   key contributions to this report: Johana R. Ayers, Assistant Director;
                  Patrick Dudley; Dayna Foster; Beth Reed Fritts; Justin Jaynes; Julia
                  Kennon; Roxanna Sun; Robert Swierczek; Bradley Terry; Brian Tittle; and
                  Alyssa Weir.




(121026)
                  Page 28                                           GAO-12-859 Industrial Base
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