Dropping auto-import quotas may lower car prices, cut US jobs
Car buyers eventually will find a wider selection of Japanese automobiles at lower prices resulting from President Reagan's decision Friday not to seek extension of limits on Japanese auto exports to the United States, analysts say. In a brief written statement the President said he acted ``believing in the wisdom of maintaining the principle of free and fair trade.'' He also cited ``the improved performance of our own automobile manufacturers.''
When the quotas expire March 31, Japanese manufacturers will bring in ``a much greater diversity of cars,'' including the stripped-down smaller models that have been in short supply since the quotas were imposed in 1981, says John Hammond, director of automotive consulting at Data Resources, Inc. (DRI).
While Japanese firms are not likely to lower their prices, ``dealers will have to get rid of the premium'' above list price many have been charging, Mr. Hammond says. Some dealers have charged premiums of up to $2,000 over factory sticker prices for Japanese cars.
Ending Japan's so-called voluntary restraints also will mean that imported cars will take a larger share of the US market, thereby lowering sales for US-based carmakers and their suppliers and dealers, experts say.
The impact on US carmakers will vary with their product mix and financial resources, analysts say. Firms specializing in small cars -- such as American Motors Corporation and Volkswagen of America -- will face the toughest challenge, analysts say.
All domestic automakers will feel pressure to import more completed cars and component parts from Asian countries, where manufacturing costs are lower.
``Outsourcing by domestics will increase,'' said Thomas F. O'Grady, director of the Automotive Division of Chase Econometrics, an economic consulting firm. ``US suppliers will be adversely affected.''
General Motors Corporation has aggressive plans to boost imports from Japanese partners Isuzu Motors Ltd. and Suzuki Motor Company. Last week, Chrysler Corporation said it would triple imports from its partner, Mitsubishi Motors Corporation. Ford Motor Company Chairman Donald E. Petersen said Friday that ``the rules have changed, and we shall have to assess our options.''
An increase in Japanese imports and in US company outsourcing means the US economy as a whole is likely to experience somewhat lower economic growth and higher unemployment than would otherwise be the case. But it also will enjoy slightly lower inflation due to downward pressure on car prices, economists say.
By 1986, the end of quotas could trim US industrial production by one or two tenths of a percent while shaving inflation by a like amount, says Nariman Behravesh of Wharton Econometric Forecasting Associates.
Lower sales for domestic firms probably will increase pressure on Japan to lower trade barriers that have contributed to its $37 billion trade surplus with the US.
Early comments by Japanese government officials indicate they are aware of the danger of a rapid surge in auto exports to the US. ``The government of Japan deems it imperative that the Japanese auto companies, based on sound judgement, exercise prudence in their exportation of automobiles to the United States,'' said Chief Cabinet Secretary Takao Fujinami.
The economic effects of ending the quotas will take several months to appear at dealer showrooms, experts caution. The restraints will not be removed until March 31, and Japanese manufacturers will need several months to rebuild depleted stocks of cars on dealers' lots. So any potential flood of imports would not be visible until the end of 1985, Mr. Hammond says.
There is heated debate on what the Japanese will do without quotas and how that will affect the US. DRI sees Japanese imports climbing to a 2.5 million unit pace by year's end from the current 1.9 million unit rate. United Auto Workers President Owen Bieber says imports could rise by as much as one million units.
Estimates of potential US job losses also vary widely. A Federal Trade Commission study says 4,600 US auto workers could lose their jobs when quotas come off. But Chrsyler Executive Vice President Robert S. Miller Jr. says 750,000 jobs could be lost throughout the economy.
The Japanese government imposed quotas in 1981 under pressure from Congress and the Reagan administration. At the time, the US auto industry was reeling from a sharp run-up in gas prices and the fact that US consumers were holding on to their cars for a longer period.