The U.S. motor vehicle industry experienced major structural changes from 1997 through 2001 as U.S. automaker Chrysler merged with Daimler-Benz of Germany in 1998 to form a new company, DaimlerChrysler, and GM and Ford expanded their tie-ups with foreign partners, reports the U.S. International Trade Commission (ITC) in its publication Industry and Trade Summary: Motor Vehicles.

The ITC, an independent, nonpartisan, factfinding agency, recently released the report as part of an ongoing series of reports on thousands of products imported into and exported from the United States. The report addresses the market, industry, and trade conditions for motor vehicles from 1997 through 2001. Following are highlights of the report:

• The United States is the world's largest single-country producer and consumer of motor vehicles. Automobile production is among the largest manufacturing industries in the United States, and as such it is a critical economic driver, contributing substantially to employment and productivity. Motor vehicle production reportedly accounts for over 5 percent of the U.S. private-sector gross domestic product, and one out of every seven jobs in the United States is in automotive manufacturing or a related industry.

• The U.S. motor vehicle industry has been characterized by constant organizational and technological change, an increasing global presence, extensive international alliances, greater cooperation among domestic rivals, and improved responsiveness to consumers. The industry has made such changes in the presence of new regulatory demands, extreme cycles in the U.S. market, and strong competition from foreign automakers.

• U.S. motor vehicle production decreased during 1997-2001. Production by the Big Three (General Motors, Ford, and the Chrysler division of DaimlerChrysler) registered an average annual percentage decrease of 2 percent, while total U.S. production registered an average annual percentage decrease of 1 percent. During the period, the Big Three share of U.S. production decreased from 80 percent in 1997 to 76 percent in 2001. Japanese and German transplants picked up the slack, accounting for 22 percent and 2 percent, respectively, of U.S. production in 2001, up from 20 percent and less than 1 percent in 1997.

• The low level of U.S. exports relative to production is largely explained by an extensive U.S. manufacturing and market presence in foreign countries. There are several reasons this strong international presence has developed. Many foreign markets have significant trade barriers, including high tariffs as well as nontariff barriers such as domestic content requirements and investment requirements. Lower wage rates in many countries are also an incentive for automakers to produce in foreign markets. Finally, automakers are better able to respond to consumer preferences by establishing local production, engineering, marketing, research, and management operations.

• Trends in motor vehicle sales in the United States are dominated by cyclical macroeconomic trends in the U.S. economy. Passenger vehicle sales are highly representative of the health of the U.S. economy and are considered to be an important leading economic indicator. U.S. sales of motor vehicles increased steadily from 15.5 million units in 1997 to 17.8 million in 2000, before declining slightly in 2001 to 17.5 million. One factor supporting robust sales during the last several years is the high incidence of expired leases; in addition, passenger vehicle purchases today require fewer weeks of the median family income owing to discounts in new vehicle prices as well as soaring household incomes.

• Because the U.S. market is the largest in the world and is generally considered to be among the markets most open to imports, import consumption is high. During 1997-2001, sales of imports as a percentage of total motor vehicle sales increased each year, from 13 percent of retail sales in 1997 to 18 percent in 2001. Although subsidiaries of U.S. automakers, primarily in Canada, are a major source of U.S. imports of passenger vehicles, imports from Japan exert the greatest competitive pressure on U.S. automakers. Other leading sources of motor vehicle imports include Mexico, Germany, and Korea.

• The U.S. automotive industry spends over $18 billion annually in research and development of new advanced technologies aimed largely at four areas: emissions, fuel efficiency, safety, and performance. The automotive industry claims that it devotes more funds to research and development than any other manufacturing industry. Although competition is fierce, automakers recognize the benefits of working together on key areas of precompetitive research; the Big Three have formally collaborated on a number of shared technological and environmental concerns.

The foregoing information is from the ITC report Industry and Trade Summary: Motor Vehicles (USITC Publication 3545, August 2002). This report will be available on the ITC Internet web site at www.usitc.gov. A printed copy may be ordered by calling 202-205-1809, or by writing the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. Requests may be faxed to 202-205-2104.

ITC Industry and Trade Summary reports include information on product uses, U.S. and foreign producers, and customs treatment of the products being studies; they analyze the basic factors affecting trends in consumption, production, and trade of the commodities, as well as the factors bearing on the competitiveness of the U.S. industry in domestic and foreign markets.