_l..-l-“..--__. .--- oc’t.ol)~r 1!J!)O FOREIGN INVESTMENT Japanese-Affiliated Automakers’ 1989 U.S. Production’s Impact on Jobs illl0lIll Ill1 142646 ll I RELEASED RE!STRICTED ---Not to be released outside the 1 General Account@ Office unless specifically approved by the OfKce of Congressional I Relations. I ‘1 .._.._.. ___.. ___ .._._ .- ._ ._. . .._. _ _ _. .I II.. I. _--_” .._-” ..-.-. ^--1.--1__ ~-I .- :: United States GAO General Accounting Office Washington, D.C. 20648 National Security and International Affairs Division B-241694 October 17, 1990 The Honorable Marcy Kaptur House of Representatives The Honorable Carl Levin United States Senate This report responds to your request that we provide estimates of the possible effects on US. employment in 1989 of automobile production by Japanese-affiliated automakers in the United States. These estimates were developed using the methodology that supported similar estimates for 1987 in our report, Foreign Investment: Growing Japanese Presence in the U.S. Auto Industry (GAO/NSIAD-88-111,Mar. 7, 1988), and an esti- mate for 1988 in a June 1989 letter to the Chairman, Senate Committee on Finance. In addition, we developed estimates using four other scena- rios which differ only in the assumption of the extent to which such production displaced other US. automakers’ production. The production of Japanese-affiliated automakers in the United States Results in Brief led to about 11,000 net job losses in 1989 compared to 25,000 in 1988. The 1989 estimate is based on the assumptions that (1) 68 percent of the Japanese-affiliates’ production in the United States displaced other U.S. produced autos and (2) the remaining 32 percent made up the difference between Japan’s voluntary export restraint level and auto imports from Japan. Higher auto displacement assumptions yield larger net job loss esti- mates. For example, at 100 percent displacement the jqb loss would be 46,000; at 80 percent displacement the job loss would be 24,000. At 60 percent displacement the loss estimate would decline to 2,000, and a 40 percent displacement would lead to an estimated net gain of 21,000 jobs. A key factor in the net job loss estimates for 1989 was that the Japa- nese-affiliated automakers bought more parts from U.S. sources. The reported increase in the use of U.S. parts, from 38 percent in 1988 to about 50 percent in 1989, increased the estimate for U.S. parts sup- pliers’ jobs related to Japanese-affiliated automakers’ production. Page1 GAO/NSIAD-91-62 ForeignInvestment In response to business considerations, export restraints, and concerns Background over potential trade barriers, several Japanese-affiliated automakers have built assembly plants in the United States. As noted in a recent Commerce Department report, 168 Japanese companies had invested in auto parts plants in the United States by the end of 1989, and 69 of these are reportedly affiliated with a Japanese vehicle assembler. There has been continuing Congressional interest in understanding the effect on national employment of Japanese-affiliated auto production in the United States. In general, these automakers have greater labor effi- ciency than General Motors, Ford, and Chrysler (the Big Three) and thus provide fewer assembly jobs. Further, they import more parts and com- ponents than do the Big Three and, therefore, support fewer jobs in U.S. auto parts supplier industries. However, whether the Japanese-affiliate operations lead to net job losses or gains is highly dependent on the extent to which their production displaces the production of other U.S. automakers instead of imports, a factor that cannot be empirically pro- jected. Therefore, we explored the range of possible job effects under different displacement assumptions. We estimate that Japanese-affiliated automakers’ production in the 1989 Estimated Net United States in 1989 provided 66,000 jobs but displaced 77,000 other Job Losses jobs. The net effect was an 11,000 net job loss. Direct factory jobs decreased by an estimated 1,000 and upstream’ supplier jobs were reduced by 10,000. Our estimate of 11,000 net job losses in 1989 resulting from Japanese- affiliated automakers’ production in the United States was computed assuming 68 percent of the production displaced Big Three production. The bases for this assumption were that (1) transplant production dis- placed imports to the extent that Japanese auto producers fell below Japan’s voluntary export restraint level and (2) all other production dis- placed the production of General Motors, Ford, and Chrysler on a “one- for-one” basis, except for the estimated exports to Japan of these Japa- nese-affiliated US. automakers. Japanese car exports to the United States in 1989 were 1,940,000, or 360,000 below Japan’s voluntary export restraint level of 2,300,OOO.Japanese-affiliated automakers pro- duced 1,131,OOOcars in the United States in 1989. After subtracting autos assumed to displace imports from total production, there ‘1Jpstream suppliers provide inputs directly or indirectly to the vehicles up to the assembly level. Page2 GAO/NSIAD91-62 ForeignInvestment remained 77 1,000 autos, or 68 percent of production, assumed to dis- place Big Three autos. A major factor influencing the results was the significant increase reported by the Japanese affiliates for 1989 U.S.-bought parts and com- ponents, The average domestic sourcing ratio for the affiliates (on a pro- duction-weighted basis) was 50.5 percent compared to 38 percent in 1988. This led to a significant increase in estimated upstream supplier employment associated with production by the Japanese-affiliated automakers. We recognize that there may be differing views as to which autos com- Job Implications pete against each other and, therefore, which autos are displaced by the Under Different production of Japanese-affiliated automakers in the United States. To Displacement Ratios explore the range of possible effects on U.S. employment, we developed a series of estimates using different displacement assumptions, ranging from 100 percent down to 40 percent. In each displacement scenario, the Japanese-affiliated automakers’ U.S. production of 1,131,OOOcars is estimated to provide 66,000 U.S. jobs, including 16,000 direct factory jobs and 51,000 upstream supplier jobs. When these autos displace autos produced by other U.S. automakers, there will be displacement of the latter’s direct factory jobs as well as jobs of their upstream suppliers. The difference between the jobs pro- vided by Japanese-affiliated automakers’ production and jobs displaced due to displacement of other U.S. automakers’ production is the net employment effect. Under the scenario assuming 100 percent displacement of Big Three autos, 66,000 jobs are provided but 112,000 other jobs are lost, resulting in an estimated net job loss of 46,000. At 80 percent displacement, net job losses fell to 24,000. In the 60 percent displacement scenario, the employment impact was almost neutral, with net job losses of 2,000. When the displacement assumption was reduced to 40 percent, the esti- mated net employment effect was a gain of 21,000 jobs. Details of these estimates are in appendix I, table 1.1. Most of the data in this report was provided by the private sector. Agency Cements Therefore, we did not request comments from any federal agency. Page3 GAO/NSIAD-91-62 ForeignInvestment Computation of the employment estimates was done using the same Scopeand methodology used in our 1987 and 1988 estimates. The formulas and Methodology quantitative factors used to calculate estimated job losses are set forth in appendix I. We would like to emphasize that the employment estimates are based on a number of data elements that we could not independently verify. For example, Japanese-affiliated automakers voluntarily provided us their domestic content ratios from which we developed domestic sourcing ratios. We obtained information on 1989 production from (1) officials of General Motors, Chrysler, Ford, Honda of America, New United Motor Manufacturing Inc., Nissan, Mazda, and Toyota; (2) the 1990 Ward’s Automotive Yearbook; and (3) the Department of Commerce’s Office of Automotive Industry Affairs. Because private industry is not required to provide us such information and because of the automakers’ strong interest in maintaining the confidentiality of their production data, reflecting the intense competition within the industry, we could not verify the information. We could not determine the extent to which parts and components included in the domestic content ratios include foreign source materials, but did note the growing number of Japanese-affiliated auto parts plants in the United States. Our study was conducted during September and October 1990 in accor- dance with generally accepted government auditing standards. Unless you publicly announce its contents earlier, no further distribu- tion of this report will be made until 30 days from its issue date. At that time, we will provide copies to interested congressional committees, executive branch agencies, and other interested parties. Copies will also be made available to others on request. Page4 GAO/NSIAD-91-62 ForeignInvestment B-241694 The major contributors to this report were Curtis F. Turnbow, Assistant Director, George M. Delgado, Evaluator-in-Charge, and Jane-Yu Li, Econ- omist. Should you have any questions, please contact me on (202) 275-4812. Allan I. Mendelowitz, Director International Trade, Energy, and Finance Issues Page5 GAO/NSIAD-91-62 ForeignInvestment , Appendix I Computation of the Effects on U.S. Employme& in 1989 of Japanese-Affiliated Automakers’ Production in the United Staks A. KEY DATA SOURCES 1. Japanese-affiliated automakers’ production of cars in 1989: 1,131,OOO (Data Source: Ward’s 1990 Yearbook) 2. Car production displacement ratio in 1989: 68 percent Car imports from Japan in 1989 were 1.94 million, which was 0.36 mil- lion short of the voluntary export restraint level of 2.30 million. Exports to Japan by Japanese-affiliated automakers were about 5,000. That leads to the following computation: (1.13 - 0.36 - 0.005) / 1.13 = 0.68 3. Domestic sourcing of parts ratios Big Three average: 87.6 percent (private industry estimate) Japanese-affiliated automakers: 50.5 percent (weighted average of data collected from Honda, Mazda, New United Motors Manufacturing, Inc., Nissan, and Toyota) 4. Employment per plant (annual production of 200,000 cars per plant) Big Three: 4,151 Japanese-affiliated automakers: 2,613 (Estimated from data collected for 1987, adjusted with 2 percent annual productivity gain, same annual rate used in our March 1988 report, esti- mated by historical data) 5. .Job multiplier (number of upstream jobs per assembly job): 4.33 (com- puted from the labor requirement table of the Bureau of Labor Statistics). Page6 GAO/NSIAD-91-62 ForeignInvestment AppendixI Computationof the Effectson U.S. EmploymentIn 1989of JapanecwVflUated Automakem’Productioniu the UnitedStates B. COMPUTATION OF JOB IMPACT (Results of job calculations rounded to nearest thousand) 1. US. jobs provided by Japanese-affiliated automakers’ US. production, based on 5.66 plants: (1,131,OOOcars produced/200,000 cars per plant = 5.66 plants) Direct factory jobs 6.66 plants X 2,613 jobs per plant = 15,000 Upstream jobs 5.66 plants X 4.33 upstream multiplier X 4,15 1 jobs per plant X .505 domestic sourcing ratio = 51.000 Total jobs provided 66,000 2. U.S. jobs displaced due to reduced Big Three U.S. production, based on 3.86 plants: (5.66 Japanese-affiliated plants X .68 displacement rate = 3.85 Big Three plants displaced) Direct factory jobs 3.85 plants X 4,151 jobs per plant = 16,000 Upstream jobs 3.85 plants X 4.33 upstream multiplier X 4,151 jobs per plant X .876 domestic sourcing ratio = 61,000 Total jobs displaced 77,000 3. Net job loss Jobs displaced 77,000 *Jobsprovided 66,000 Net job loss 11,000 Page7 GAO/NSIAL&91-62 ForeignInvestment AppendixI Computationof the Effectson U.S. Employmentin 1989of Japanese-Afffited Automakers’Productionin the UnitedStates C. JOB EFFECTS BASED ON VARIOUS DISPLACEMENT ASSUMP- TIONS (Rounded to nearest thousand) .----I_- Table 1.1: 1989 Estimated Job Effects With Varying Displacement Scenarios Assumed displacement of Big Three cars 100 percent 80 percent 60 percent 40.~--- percent Jobs lost to displacement of Big Three cars ____~_. Direct factory jobs 23,000 19,000 14,000 ~.. .- 9,000 Upstream jobs~-_-- 89,000 71,000 54,000 36,000 Total 112,000 90,000 ___--__ 68,000 45,000 Jobs provided by Japanese-affiliated automakers 66,000 66,000 66,000 -- .___-- 66,000 Net job loss (gain) 46,000 24,000 2,000 (21,000) (483673) Page8 GAO/N&D-91-62ForeignInvestment ” . . i --.------ .-._------- ---- _--..-_ .._. .--1 ..___._. ------ /- t IxII-II- - --_~ -..... --...- -.~-
Foreign Investment: Japanese-Affiliated Automakers' 1989 U.S. Production's Impact on Jobs
Published by the Government Accountability Office on 1990-10-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)