Remarks by Franklin L. Lavin
Under Secretary of Commerce for International Trade
Keeping Detroit Competitive in the Global Marketplace
World Trade Center Detroit
January 11, 2006
As Prepared
Introduction
Thanks Martha ( Gabrielse) for that kind introduction and thank you for being here. I’d like to also extend my appreciation to the World Trade Center for hosting this lunch, and to Chase Bank, the Detroit/Wayne County Port Authority, General Motors, the University of Michigan’s Center for International Business Education, and the University of Michigan Dearborn for their sponsorship.
Before we start, I’d like to mention a part of the Department of Commerce that has offices right here in this region: U.S. Export Assistance Centers. These centers are set up to help companies compete through exporting. They have some outstanding programs, and if you aren’t familiar with the great work they do, you should be. I’ll give an example of what they do later, but I wanted to take a moment up front to recognize Sara Coulter who is here in Detroit, Eve Lerman who is in from the Pontiac office and Joe Kramer who is in from Ypsilanti for the great work they do, and to point them out as an important resource for anyone seeking assistance exporting. Thanks!
Also, I would like to thank Robert Perez from U.S. Customs and Border Protection as well as Dan Stamper and Skip McMahon from the Detroit International Bridge Company for my tour of the Customs facilities at the Ambassador Bridge. The Detroit-Windsor crossing is one of the nation’s most important and busiest international crossings and it was very helpful to see the important work that they are doing there.
Architecture
It is also great to visit the auto show and have the opportunity for a discussion about the industry. If you haven’t yet been, I encourage you to go, because it’s a reminder of the considerable strengths of the auto industry. American manufacturers are in the auto business to win. And the only way to win by having the best products, and that takes me to my remarks today.
What I would like to discuss with you is how the American economy, and the auto industry in particular can prosper in a world that is increasingly integrated and intensely competitive. We also have some good news to celebrate today, an export success story that I’ll get into at the end of my remarks.
State of the Industry Today
We all know that the auto industry has been through some tough times in recent years. There are the challenges of changing of consumer preferences, increased competition, legacy costs, phantom workers, and even quality. All of these have an impact on the market share and profitability of the big three.
Yet when we look at the industry as a whole, we see a mixed picture. Much of the modern U.S. auto sector is flourishing, while the older part of the industry is still struggling to improve its competitiveness. But, before we discuss the industry, let’s set the broader context.
Overall, the American economy continues to show substantial strength. Our economy has grown faster than any other industrialized nation over the past four quarters. And the underpinnings of this growth are strong. The American workforce is one of the most productive in the world. Our nation’s infrastructure, including both the physical movement of goods over transportation superhighways, and the movement of data over information superhighways is among the most developed anywhere.
The financial markets, business and consumers reflect this positive outlook. The Dow Jones is at a record high, and inflation is near record lows. More Americans are working today than ever before, with nearly 146 million Americans employed. That’s 7.2 million more than in August 2003. Real wages have increased, and with tax relief, Americans are now keeping more of what they have earned.
Many consumers, both here and abroad feel good about their economic situation, and one of the things they are doing is going out and buying cars. As you may know 2005 saw a record of nearly 17 million new cars and light trucks sold in the U.S., with 2006 sales projected at slightly less than that. The global market is expanding, with over 60 million vehicles produced worldwide in 2005, and new highs are expected in 2006.
Challenges
The good news for the U.S. economy, however, doesn’t always translate into good news for any particular sector or company. It is, however our nation’s overall economic growth that keeps demand for autos up, and gives our companies the breathing space they need as they work through their transition.
How should we respond to this challenge?
The role of the U.S. government is to ensure we have an environment in which it is as easy as possible for businesses to be successful. Our job is to promote a pro-growth environment so that companies can build production, employment, exports, technology, and investment. The ultimate success of each industry depends on its decisions and the response of the marketplace to those actions, but we want to make sure that American companies have every chance to be successful. The most important step the U.S. government can take to help the U.S. auto industry is to keep our country’s economic growth on track.
We know the best way to keep financing costs down and to keep cars rolling off the show-room floor is for the U.S. Government to keep spending in check so that interest rates stay low.
We need to be wary of proposals the new Congress is discussing that would raise taxes, increase the cost of production, or burden those companies who take risks in developing new products. There is not much on a historical basis for concluding that tax hikes help the economy, nor does history show us that wage hikes that outpace productivity gains are viable.
We also need to resist the allure of protectionism. Protectionist sentiments frequently arise when transition are underway, because competition can bring moments of hardship, however the cost of protectionism is far greater than the cost of a transition.
A lot of challenges confronting the auto industry are more broadly faced by the entire manufacturing sector, such as health costs, energy, and immigration reform. The President will be making proposals to address many of the domestic issues that are of great concern to the auto industry.
I’d like to focus my comments, however, specifically on steps that we at the Commerce Department are taking that will directly affect the auto sector:
1) We are working on pro-growth legislation. The President’s Advanced Energy Initiative, to promote alternative ways to power our vehicles is one example. Another is the President’s American Competitiveness Initiative, designed to strengthen education, entrepreneurship and innovation, of which a key element is the extension of the Research and Development Tax Credit.
2) We are securing access to markets around the world, and the best tools for doing that are a successful WTO round and aggressively pursuing Free Trade Agreements. Korea is a case in point because it is currently one of the more protected markets for U.S. autos, and it is the seventh largest economy in the world. One of our most important goals for a Korean FTA is the dismantling of trade barriers such as Korea’s engine displacement tax.
3) We are seeking ways to make the North American market more efficient. Canada and Mexico represent two of the best markets for our products, and important partners in our supply chain. Whatever we can do to reduce cross-border costs helps all of us. As an example, in the assembly process, some car parts might cross the U.S.-Canada border up to seven times. When a competing part arrives from Asia, it might cross our border only once. We need to take the waiting time and the burden out of border crossing. I appreciate the opportunity yesterday to visit the Detroit-Windsor crossing. We also had a productive round table with American industry leadership and our customs officials to get into this issue.
4) We need to coordinate standards with Europe. The U.S. and the European Union are the two largest auto markets in the world. To the extent that our regulatory authorities can agree on common standards in areas such as safety and environment, we can cut costs for our manufacturers and increase the chances that our common standards become global standards. Among the measures currently being discussed are innovations in areas such as electronic stability control, common standards for hybrids, and create joint standards for emerging vehicle emissions technologies. Biofuels is another area for discussion.
5) We will aggressively use our trade tools to ensure fair trade practices. For example, the U.S., joined by the EU and Canada, filed the first formal WTO dispute settlement case against China due to their discriminatory treatment of foreign auto parts. We have pursued more anti-dumping cases against China- 61 in total- than any other country in the world. We’re vigilant against unfair and discriminatory trade practices, but remember, we need the auto industry’s support.
6) Finally, we need to keep input costs low. We are dealing with world wide production and distribution systems, and we want to make sure our manufacturers can source the best material at the lowest prices from anyplace in the world. A good example of this is the recent ITC ruling eliminating duties on corrosion resistant steel, which is good news for the auto industry and the U.S. economy.
Conclusion
The challenge for the U.S. auto industry is to meet the needs of consumers with the right products, pricing, marketing and financing. No government policy can, or should make those choices for private industry, and no amount of government intervention can substitute for the choices consumers make.
No industry has contributed more to America’s prosperity than the auto industry, and no industry captures the American spirit of independence and freedom of the individual better than the automobile. Truly, as it says in the title to James Womack’s book the automobile is “The Machine That Changed the World.” And now, the world has changed the automobile industry. I’m confident that it will emerge stronger than ever. American industry and workers are competitive, resilient and innovative. With great products, outstanding quality and a finely tuned attention to the needs of customers the American auto industry will continue make great wheels to ride.
Export Achievement Award:
Let me now take this opportunity to make a presentation to a company here that is growing through exports because of the auto industry, with the help of your U.S. Export Assistance Center here in Detroit which, as I mentioned at the opening of my remarks helps American companies export.
Veri-Tech, located in Wixom makes machines that test axles used on cars and trucks. With the help of Eve Lerman, the Export Assistance Center’s trade specialist Veri-Tech was able to export equipment to Mexico, a new market for them. They attended a trade show we sponsored, used research we developed and this has resulted in significant sales results for Veri-Tech.
Veri-tech is a small company with 54 employees, but with added export sales and a great product, it is a company poised for growth.
With that, I’d like to present Bob Lytkowski, Business Development Specialist at Veri-Tech with an export achievement certificate. Congratulations!
Thank you. I will now be happy to take your questions.