Big Six? Big Seven? U-M study says transplants now 'fully integrated'

Transplant automakers, tired of being treated as second-class citizens in the U.S., say they deserve to be considered on a par with the Big Three. And now they have a study to prove it.

The University of Michigan's Office for the Study of Automotive Transportation (OSAT) releases a report that casts favorable light on the economic impact made by foreign automakers with manufacturing plants in the U.S. The study, which also had input from the university's Transportation Research Institute and Institute of Labor and Industrial Relations, was commissioned by the Assn. of International Automobile Manufacturers Inc. (AIAM).

OSAT Director David Cole says the report makes a strong case for finally discarding the second-tier "transplant" label and viewing as equals many of the nine foreign automakers with U.S. assembly operations.

"The reality is, these manufacturers have become fully integrated into the U.S. economy," he says. "They're newer, but that is the only distinction we can make."

Mr. Cole says even he was somewhat surprised by the results of the study.

"The International Auto Sector (IAS) is a more significant factor (in the U.S. economy) than we thought," he says. "The domestic industry said, 'Come and compete where we live.' They've done that. They've done a fabulous job. This is a very important part of the economy, not a flash in the pan."

The study's finding: (1996 data):

The IAS has generated 1,272,300 jobs in the U.S., including 402,700 direct and 869,600 indirect. That's equivalent to 1.0% of the private sector jobs in the U.S. The total contribution to compensation (wages, salaries, fringe benefits) equals $49 billion, equivalent to 1.3% of the private sector payroll. Subtract transfer payments ($4 billion) Social Security contributions ($4 billion) and personal income taxes ($7 billion) and that leaves a $34-billion disposable personal income shot-in-the-arm for the U.S. economy.

Of those totals, 701,500 jobs (55%) and $29 billion in compensation (59%) occur in the 11 states (mostly Midwest) where the IAS has a significant manufacturing and distribution presence. That relatively even split inside and outside the manufacturing states came as a bit of a surprise to the study team. But it doesn't mean states that kicked in huge incentives to land manufacturing operations aren't getting their money's worth, members say.

"States that don't have plants tend to be those that get a bigger kick from the retail side," says Sean McAlinden, a member of the study team. "So putting the plants in states that didn't sell as many cars ended up balancing the economic impact."

IAS investment in manufacturing in the U.S. totaled $11.429 billion as of 1996, with 10 plants boasting annual capacity of 2.270 million cars and 450,000 trucks. If ranked, the IAS would place eighth in world vehicle output, behind Canada and ahead of the U.K. In addition, the IAS boasts capacity for 1.5 million engines - about 14% of total U.S. engine output - and 200,000 transaxles. That doesn't include new plants under construction, such as Toyota Motor Corp.'s engine plant in Buffalo, WV.

Average compensation for manufacturing workers totaled $42,060 in 1996 vs. $34,300 five years earlier. Non-manufacturing (white-collar) compensation went from $76,000 to $93,000 over the same time period.

Average spending per vehicle produced hit $13,377 in 1996, up from $11,105 in 1992. Spending per vehicle sold (including imports) reached $11,353, up from $8,611. Meanwhile, consumer spending per domestic vehicle remained relatively flat - $16,389 in 1992 vs. $16,998 in 1996.

Domestic content (U.S. only, excluding Canada) is calculated to be 69.3%, compared to 77.6% for Big Three vehicles. "Even we were surprised by the (high) content figures," says Philip A. Hutchinson Jr., president of the AIAM. "And with new plants coming, we expect content levels to continue to rise."

The study also points out that the IAS has contributed significantly to the competitive position of the U.S. auto industry. "Knowledge transfer has made the industry go from average to a true leader in the world," says Mr. Cole. "The domestic suppliers received training that wouldn't have happened if the IAS didn't set up manufacturing in this country."

Productivity advantages mean the IAS assembly plants average a scant 2.57 workers per vehicle, compared to 3.23 for the U.S. overall. But the study challenges the notion that this reduces the IAS' contribution to the U.S. economy.

"We wanted to show the IAS may be punished when talking about economic significance, because of fewer jobs being created," says Mr. McAlinden. "(But) the less energy and materials used and lower laborresources needed (by the IAS) is released to other economic sectors. As one industry improves in productivity, it encourages economic potential in other sectors. That's how productivity contributes to (overall economic) growth."

There is one premeditated omission from the report: a measurement of the Big Three's impact on the U.S. economy.

Says Mr. Cole: "We wanted to avoid an 'Us vs. Them' comparison."