Easing regulations might boost auto industry

Timothy Nash and Keith Pretty

For a brief period after World War II, the United States produced roughly 74 percent of global GDP and more than 50 percent of the world’s passenger and commercial motor vehicles.

The U.S. was the undisputed global leader in most areas of commerce with a generally market-based, pro-business environment and competitors in Europe and Asia whose factories and infrastructure were greatly damaged or destroyed by the fact that the bulk of major battles during WWII were fought in Europe and Asia.

By the 1960s the U.S. was losing market share as a percent of a rapidly growing global economy even in the motor vehicle space, a sector once monopolized by the “Big Three” (General Motors, Ford and Chrysler). Research done by Northwood’s McNair Center shows Big Three losses in overall market share globally from 1950 to 2016 were due largely to the following five factors:

The emergence of many European/Asian economies from the devastation of WWII.

Increasing levels of relative labor productivity and product design, especially in manufacturing in economies outside of the U.S.

Growing regulatory competitive advantages realized by many countries outside the U.S.

Population and income growth in many countries in Europe and Asia.

Lower tax rates on corporate income realized by America’s competitors headquartered outside of the U.S. put the Big Three and other U.S. companies at a distinct disadvantage. In addition, many countries other than the U.S. began and continue to provide repatriation advantages to their companies by abandoning a territorial income tax system in favor of a world-wide tax system.

The change in motor vehicle production that took place from 1961 to 2016 is especially troubling for America. The data speaks to a dramatically changing global motor vehicle market in the post-World War II era; a period in which Germany rose from the ashes of Nazism and World War II while Asia emerged from the devastation largely rejecting imperialism and communism to dominate the global automobile industry.

In 1961, the U.S. produced roughly 40 percent of inflation adjusted global GDP, while motor vehicle assembly plants located in the U.S. produced roughly 44 percent of all motor vehicles (passenger and commercial) produced in the world. This does not take into account U.S. companies such as Ford and GM had production plants in Europe, Asia and South America as well. The U.S. produced 44 percent of passenger vehicles and 30 percent of all commercial vehicles manufactured in the world in 1961.

In 2016, the U.S. produced roughly 25 percent of inflation-adjusted global GDP while motor vehicle assembly plants located in the U.S. produced just 13 percent of all motor vehicles. The U.S. produced 36 percent of commercial vehicles and just 6 percent of passenger vehicles in 2016. If this trend continues where will America be by 2030? Or, is there reason to expect better?

Over the past few decades, the U.S. has made strides in general productivity largely due to technology based innovations and wage concessions. In fact, the U.S. has ranked 5th, 8th, and 6th in global productivity since 2015 according to the OECD, and number two in the world for manufacturing productivity based on a 2016 study released by Deloitte. Could promising regulatory reform coupled with corporate income tax reform provide the needed final piece in the puzzle for an economic renaissance? A bridge from the glory days of American manufacturing to a modern surge in which American business and more specifically the American motor vehicle industry begins to regain market share at home and abroad? Only time will tell.

Keith Pretty is president and CEO of Northwood University. Timothy Nash is senior vice president and director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University.