The Road Ahead for the

U.S. Auto Industry

Office of Automotive Affairs

Basic Industries

International Trade Administration

U.S. Department of Commerce

March 2000
USDOC Office of Automotive Affairs

The Road Ahead for the

U.S. Auto Industry

March 2000

Randall Miller, Office of Automotive Affairs

International Trade Administration

U.S. Department of Commerce

Summary

Sales of cars and light trucks set an unexpected record in 1999 of 16.9 million vehicles – 

nearly one million units higher than the previous all-time high reached in 1986. This year

sales are expected to remain near or even above this level. Industry analysts are predicting

anywhere from a 5 percent gain to a 5 percent loss. 

The continued strength of European product offerings is expected to contribute

significantly, along with those from Korea, to the continued resurgence of import sales. 

Japan will remain by far the major overseas supplier. U.S. production should grow by as

much as 5 percent, augmented by increased output at the local plants of Japanese and

German producers – and by modest export growth. 

The ongoing global consolidation of the auto industry will have little, if any, adverse impact

upon the U.S. operations of vehicle and parts producers or their employees. Nonetheless,

consolidation will be a significant factor in the U.S. market, its imports, and its exports. 

Sales Set New Records

In 1999, record sales of light vehicles (passenger cars, station wagons, vans, sport utilities,

pick-up trucks and “cross-over vehicles”) surprised everyone. Instead of the expected

decline, the market rose by nearly 9 percent to an historical high of 16.9 million units. This

surpassed 1986's previous record of 16.1 million vehicles by almost 5 percent (Chart 1). 

Last year marked the first time in U.S. history that a consecutive 6-year period included five

years with sales above 15 million units annually. (The laggard was 1995, with sales of “just”

14.7 million light vehicles.) 
USDOC Office of Automotive Affairs Page 2

Source: Automotive News 100 Year Almanac, 1996 

& Automotive News Weekly

8081828384858687888990919293949596979899

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Combined

Automobiles

Light Trucks

Millions of Units

U.S. New Light-Vehicle Market

Annual Sales and 20-Year Trend Line

Chart 1

In value terms, consumers and

business purchases jumped

nearly 15 percent in 1999, rising

from $349 billion to an 

estimated $400 billion,

according to the Commerce

Department’s Bureau of

Economic Analysis.

The U.S. industry should

continue to perform well in

2000, infused with the energy of

both a robust domestic market,

as well as renewed demand from

the Asian nations. High levels of

U.S. employment, consumer confidence, and purchasing power are predicted, all

supported by the wealth engine of the U.S. stock market, and by unprecedented advances in

manufacturing and office productivity that will continue to restrain inflation. Followers of

this scenario see another record year on the horizon for the auto industry, with some

forecasts calling for sales reaching as high as 17.7 million units. One well respected industry

newsletter notes that a review of sales cycles over the past 40 years suggests the possibility

of sales totaling 17.8 million cars and light trucks. Other analysts are more subdued,

expecting higher interest rates on consumer loans, as well as increased consumer debts, and

more caution in the stock market. They sense that the market is due to contract, never

having grown so steadily for so long, nor to such heights. These analysts see a market of no

more than 16 million units, which would still be remarkable. Through the two months of

the year, the optimists are winning. Sales are being generated at a rate that would, in fact,

translate to a total market of 20 million units for the full year.

On the corporate front, there remain only two U.S. manufacturers in the high-volume light

vehicle arena – General Motors Corporation, and Ford Motor Company. Through a

friendly acquisition in 1998, Chrysler Corporation was merged into the Mercedes Benz unit

of Daimler-Benz AG, creating DaimlerChrysler AG, a German registered corporation. GM

and Ford are themselves (as was Chrysler Corporation) the product of numerous merges

and acquisitions in the immediate and distant past. They are the two largest producers in

the world, accounting for 25 percent of all vehicles produced around the globe in 1998. 

DaimlerChrysler ranked fifth, while Chrysler alone also would have ranked fifth, because of

its far greater unit volume, compared with Mercedes Benz. 
1 Converted at prevailing annual exchange rates. Because of exchange rate fluctuations, caution must be

exercised in comparing converted values. 

USDOC Office of Automotive Affairs Page 3

Derived from Corporate Annual Reports

94 95 96 97 98

0

25

50

75

100

125

150

175

200

225

250

275

300

325

350

375

400

425

450

0

100

200

300

400

500

600

700

800

900

 Receipts Net Income

 Cash & Equivalents N.I. per Unit

$ Billions

Chart 2

U.S. Big 2 Global Financial Performance

Excludes nonrecurring income

Right = Net Income per Unit $1 X

In revenue terms, DaimlerChrysler ranks third behind

General Motors and Ford.

Between 1994 and 1998 the

combined global net income of

the “Biggest 2" totaled $52

billion on revenues of $1.3

trillion. 1997 was the best

calendar year of the period,

producing income of $13.6

billion on revenues of $277

billion, their highest ever and 5

percent above 1996, itself a

record year (Chart 2). Although

their 1998 net income slipped to $7.7 billion on revenue of $262 billion, the two regained

their momentum in 1999, posting a new record of $13.3 billion net income on revenue of

$339 billion. In contrast, the Japanese Big 4 – Honda, Mazda, Nissan, Toyota – reported

global earnings of $19 billion in the five year fiscal period ending in 1998, on revenue of

$1.1 trillion. Their fiscal 1998 net income was $6.4 billion, up 19 percent on revenue of

$224 billion, up 13 percent1

. 

The Market Evolves

At the last peak in total U.S. light vehicle sales – 1986, 16 million units – light trucks (vans,

pickups and sport utilities) supplied just 29 percent of the market. Their share has risen

every year since (Chart 1), and in the opinion of many analysts will exceed 50 percent this

year. During 1999, light trucks continued their rush towards the head of the class. Overall,

unit sales jumped 11 percent, fueled by a 15 percent increase in purchases of sport utility

vehicles and their derivatives. Although passenger car sales also increased, growing by 7

percent, the result was a slight increase in the light truck overall share, rising from 47.5

percent to 48.4 percent. 

Information developed by the Bureau of Economic Analysis (BEA) bears further witness to

the truck phenomena. Their data indicate that light trucks now account for 54 percent of
USDOC Office of Automotive Affairs Page 4

1995 1996 1997 1998 1999

0

25

50

75

100

125

150

175

200

225

 PCE Cars PCE Lt.Trucks PCE Total .

 PFI Cars PFI Lt.Trucks PFI Total

Consumer (PCE) and Business (PFI) Purchases

of New Cars and Light Trucks

Billions of Current Dollars

Source: USDOC Bureau of Economic Analysis Chart 3

total expenditures by consumers

and businesses, compared with

47 percent in 1995 (Chart 3). 

BEA data also show that business

outlays for light trucks have been

steadily outstripping

expenditures by consumers. 

The differential increased from

$6.2 billion in 1995 to $31.3

billion in 1999.

Before light trucks take over the

U.S. market, the clear

delineation that exists between

passenger cars and consumeroriented trucks most likely will disappear. Demand is growing for more upright, more

versatile, more comfortable ‘cross-over’ vehicles that blend the best attributes of passenger

cars with the carrying capacity and ruggedness of sport utility trucks. Adding momentum to

the trend is the convergence underway between the federal government’s safety standards

for light trucks and passenger cars, as well as a narrowing of the differentiation in fuel

economy requirements and emission standards for these two segments of the market. The

appeal of a 4-door passenger vehicle combined with an open, but shortened cargo box is

developing a following that quickly could return the simple pick-up truck to the minuscule

and relatively unprofitable share of the consumer market from which it sprang.

The first of the new breed of cross-over vehicles, built upon car platforms and ‘disguised’ to

appeal as civilized and luxury sport utility vehicles, appeared in the offerings of the foreign

affiliated manufacturers in 1997-98. Honda’s CRV, Mercedes’ M-Class, Subaru’s Forester,

and Toyota’s RAV4 are all examples. New offerings are on the way, including the Ford

Escape, Pontiac Aztek, DaimlerChrysler PT Cruiser, and Volkswagen’s AAC. 

In fact, all of the producers are working feverishly to develop new “segment busting”

products. Each is seeking to create a magical mix of never-before-seen features that will

offer greater practicality, price, performance and styling than anything yet offered. 

They recognize that to turn a profit in a slow-growth market means they must find a way to

take market share from their competitors. In fact, the 20-year trend line for the U.S.

suggests that growth will average no more than 1 percent annually for the next several

years. Thus the imperative to fracture the market into new segments.
2 Generally, vehicles priced above $22,000 in 1993, and above $24,000 in 1999.

3 Ward’s Automotive Reports, the source of most of our sales data, does not report sales for very limited

volume producers, including Aston-Martin, Lotus, Morgan, Rolls Royce, and TVR. Ford owns Aston-Martin. VW and

BMW “share” Rolls Royce.

USDOC Office of Automotive Affairs Page 5

86 87 88 89 90 91 92 93 94 95 96 97 98 99

0

5

10

15

20

25

30

35

40

45

50

55

60

65

0

5

10

15

20

25

30

 UK Swedish German Japanese American Luxury Share

The U.S. Luxury Vehicle Market

Source: Derived from Ward's Automotive Reports

% Left = Nameplate Shares (Bars) Luxury Share of Lt. Vehicle Mkt = Right %

Chart 4

Chart 4 indicates another trend,

the significant increase in the

sale of all cars and light trucks

categorized as luxury vehicles by

Ward’s Automotive Reports2. 

This segment of the market is

growing larger, increasing its

consumption of luxury vehicles

from 10 percent of total sales in

1986 to nearly 18 percent in

1999, a total of almost 3 million

units. Within the highly

profitable luxury category,

traditional American brands have

slipped from a 65 percent share

in 1996 to 52 percent in 1999. The Japanese share peaked at 29 percent in 1994, fell to 16

percent the following year, and now stands at 26 percent. German brands, which supplied

18 percent of the 1986 market, slipped to 11 percent in 1991. They now account for 15

percent overall. There are, as yet, no Korean brands competing in the luxury category. 

Chart 4 is based on old-line brand affiliations as recognized by the public, and is useful for

showing the progression of market shares over the past several years. However, the

industry’s ongoing global consolidation (see the following section) is rendering such

comparisons based on geography less meaningful. For example, adding Chrysler’s luxury

sales to that of German, because it is now a unit of DaimlerChrysler, would reduce the

1999 American share to 37 percent. It would more than double the German share to 30

percent. But, adding all of Sweden’s Volvo and Saab brands to the American share, since

Ford and GM now own these two companies, would increase the American share to 42

percent. Adjustments also could be made for Britain’s share, which – like Sweden’s –

would completely disappear. VW owns Rover, Ford owns Jaguar. Distributing these

brands produces a final “American” share of 43 percent, and for Germany, 31 percent3

.
USDOC Office of Automotive Affairs Page 6

Technology Changes Everything

The most important phenomenon to emerge in 1999 was the impact that high technology is

beginning to have on vehicle manufacturers. New processes, procedures, and products are

beginning to rapidly permeate every facet of the industry, resulting in changes so extensive

that it is clear that the industry soon will be irrevocably redefined and restructured. 

The first indicator of the new order is the emergence of ‘eco-cars’ that significantly lower

the adverse impact of the motor vehicle upon the environment. Both the public’s and the

industry’s interest in these vehicles was accelerated by the 1990 amendments to the U.S.

Clean Air Act that mandated greatly reduced levels of environmental emissions by all motor

vehicles, beginning in 1994. Additional stimulus came from the California Air Research

Board, which requires that 10 percent of all new vehicles sold in California in 2003 and

beyond produce no air pollution. The public’s response to the first industry offerings –

typified by GM’ first-to-market all-battery EV-1 and Honda’s similarly powered EV Plus –

was best described as underwhelming. Even so, it is clear that a strategically significant

market is developing both within and beyond California’s borders for eco-vehicles that

effectively combine low environmental impact with outstanding operating economy,

excellent comfort and performance, adequate range, and an acceptable price. 

Consequently, the industry is pouring huge sums of money into the effort.

Hybrid power systems, which combine small gasoline or diesel engines with battery packs

and electric motors, appear to be the next best step in the evolution of the eco-car. Honda

was the first to market with it’s hybrid, Insight, in late 1999. A small two passenger vehicle

reminiscent of Honda’s mid-1980s CRX coupe, Insight generates impressive acceleration

and 70 mile per gallon fuel economy. Toyota soon will market its hybrid, Prius, a 4-door

5-passenger compact that returns 55 miles per gallon of fuel. In January, GM showed its

Precept prototype, an 80 mile per gallon, mid-sized, 5-passenger diesel-engine hybrid. GM

also displayed an even more advanced version that will use an on-board hydrogen generator

‘fuel cell’ to power the vehicle’s electric motors to the equivalent of 108 miles per gallon –

while emitting no harmful emissions at all. Ford and DaimlerChrysler also are preparing to

launch their own hybrids. All three are offspring of the government-industry Partnership

for a New Generation of Vehicles, PNGV, administered by the U.S. Commerce

Department’s Technology Administration. The three companies have stated that they

intend to have their hybrid vehicles on the market by no later than 2005.

The next technology innovation on the automotive horizon is “telematics,” the convergence

of the automobile, not with trucks, but with electrons. As exemplified by Ford’s
USDOC Office of Automotive Affairs Page 7

experimental, boxy-shaped 24-7 show car displayed this January, automakers are rushing to

incorporate into their vehicles everything the electronic information age has to offer,

including global positioning devices, wireless internet web connections, remote emergency

assistance, remote engine diagnostics, and ultra-sophisticated on-demand entertainment

systems. Producers, claiming that vehicles aren’t just about transportation anymore, are

attempting to create not only a living room on wheels, but the home office as well. This

trend probably will not end until it has merged with the decades-old ‘smart highway’

development project, creating self-guided mobile entertainment lounges and porta-offices –

the internet portal become the portable internet.

Not only is the auto industry moving rapidly to include the internet in its products, it is

moving even more rapidly to include itself in the internet. This February, General Motors

and Ford synergized the creation of a virtual global-marketplace. At the urging of their

suppliers, the two agreed to merge their internet-based purchasing hubs to create what

could prove to be the most revolutionary development in the auto industry since Henry

Ford pioneered mass production. DaimlerChrysler has also joined, as may Nissan, Renault,

Toyota, and others. 

Originally, mass production was hailed as the most effective way to lower manufacturing

costs, generating great efficiency through the repetitive production of vehicles using

components that were exactly interchangeable. Today, the internet’s ability to establish a

simultaneous communications link between all involved parties – customer, dealer, vehicle

assembler and parts supplier – promises eventually to deliver even greater efficiency. On its

simplest level, the virtual marketplace will enable auto makers to more efficiently and

effectively solicit bids from existing and potential suppliers around the world. Cost savings

just for GM, Ford, and DaimlerChrysler are estimated at $50 billion a year from annual

purchases that tally about $250 billion. But even more savings are possible. 

Mass production virtually guarantees that some unwanted products will be produced, often

in great quantities, irrespective of how efficiently those products were produced. In

essence, the mass production = efficiency equation is incomplete, as it can neither

accurately quantify, nor guarantee, consumption of a product. The internet offers a way to

perfect the equation. It will enable massive groups of individual customers to individually

specify and to make a down payment for the exact product they wish to purchase, before

even the smallest component is ordered by the vehicle assembler. Parts suppliers,

assemblers, and dealers will no longer have to stockpile products. There will be no need to

entice buyers to purchase vehicles that they may really not want. 
USDOC Office of Automotive Affairs Page 8

Ironically, the internet provides a methodology for moving the industry forward by moving

it backward – back from the mass production of pre-configured vehicles, and toward the

custom assembly of vehicles one-at-a-time, in the “bespoke” fashion upon which the industry

was originally established more than 100 years ago. The efficiencies inherent in this new,

old approach already have been demonstrated clearly by the computer assembly industry. 

Savings in the auto industry will be nothing short of astounding, perhaps enabling a 25

percent reduction in the price of finished vehicles. We are about to enter a new age, one

that is, perhaps, best described by DaimlerChrysler’s chief designer, Tom Gale, who labeled

it “mass customization.” 

The Industry’s Global Structure Also Evolves

Driven by an excess of existing and expensive worldwide capacity for the production of

motor vehicles (as much as 20 million units by some estimates – the equivalent of 80

assembly plants overall – nearly 50 percent of which are located in the Asia/Pacific region),

and by slowing growth in the developed markets, the global auto industry has entered a

period of swift and far-reaching consolidation. Left standing probably will be no more than

ten producers, from a field that now numbers more than 200 major and minor firms. 

 

Daimler-Benz and Chrysler triggered the current flurry of activity in November 1998. 

They stunned the automotive community by crafting a $90 billion transaction that was the

largest acquisition-merger ever undertaken in the industrial world. Chrysler, ranked

seventh worldwide on the basis of production volume in 1997, and Daimler’s Mercedes

Benz, ranked fifteenth, created DaimlerChrysler A.G., a German registered corporation

that is the world’s fifth largest volume assembler. It trails GM, Ford, Toyota and

Volkswagen, while displacing Fiat and Nissan. 

Ford was the first to respond, acquiring Volvo’s automobile operations in March 1999 for

$6 billion. GM responded by increasing its position in Suzuki, a Japanese producer of small

and mini-cars, to 10 percent, and followed that by raising its share of Japanese truck

producer, Isuzu, to 49 percent. In December 1999, GM announced it would acquire 20

percent of Subaru for $1.4 billion. Curiously, GM stated that although it was not taking

control of Subaru, by terms of the investment agreement it would claim all of Subaru’s 2.3

percent Asian market share as its own. This raises GM’s ‘own’ share of Asian sales to over 6

percent, putting it more than half way to its goal of 10 percent. In 1989, GM bought one

half of Sweden’s Saab Automobile for $700 million. Earlier this year, it exercised its right

to acquire the remaining half for a reported $125 million. GM now is actively pursuing

Daewoo Motors (which has an estimated $16 billion in debt), in competition with Ford,
USDOC Office of Automotive Affairs Page 9

Fiat, Hyundai, and possibly, DaimlerChrysler. The Korean government has scheduled an

auction of the firm for April of this year. 

The Korean manufacturer, Hyundai, successfully outbid Ford in late 1998 for ownership of

Korea’s second largest producer, Kia, and also has expressed interest in acquiring Samsung

Motors. Samsung has installed capacity for 180,000 cars, but is estimated to have

assembled just 28,000 in 1999. It carries some $5 billion in debt. In early January of this

year, Renault stated that it is engaged in exclusive talks with Samsung’s parent to acquire

the firm. This follows Renault’s March 1999 $5.4 billion expenditure to acquire 37 percent

of Nissan Motor’s stock and management control. Nissan Motors had placed itself on the

auction block in late 1998, seeking a partner to help it eliminate debt and restructure its

operations. Renault also purchased 22 percent of Nissan Diesel, the equally troubled heavy

truck affiliate of Nissan. Recent press reports suggest that once it returns to profitability,

Nissan Diesel will be sold to a third party.

Toyota increased its already controlling position in mini-car producer, Daihatsu, to 51

percent in 1998. Although Toyota announced this January that it was not interested in

pursuing other acquisitions, in March it upped its stake in the heavy truck maker, Hino, to a

controlling 33 percent. Toyota has expressed interest in arranging more non-equity

technology development tie-ups with worthy partners, similar to its 1999 partnering with

GM to research and develop fuel cells and gas-electric hybrid propulsion systems. 

For its part, Honda stated in 1999 its unequivocal intention of growing only the oldfashioned way – by internal expansion. Nonetheless it, too, has sought to develop

cooperative relationships. Earlier this year Honda announced that it has already undertaken

one – a venture to supply GM with a new generation of six-cylinder gasoline engines and

transmissions, in exchange for small diesel engines from GM’s Isuzu affiliate. They will be

used in Honda’s European products. 

Despite the consolidation that has already taken place, the industry’s restructuring is still

not over. Firms continue looking actively for acquisitions, mergers, and non-equity

ventures that will help them both to share and to reduce development costs, production

expenses, and marketing overhead. When the consolidation is finally done, it is unlikely

that there will have been any measurable negative impact upon the U.S. economy, or upon

the existing operations of U.S. vehicle producers, or upon their U.S. employees. For

others, the prospects are not so sanguine. In particular, local vehicle assemblers in the

emerging markets are not likely to remain economically viable, except with the protection
4

 Toyota’s Avalon, although similar in size, is cataloged as a luxury vehicle by Ward’s.

USDOC Office of Automotive Affairs Page 10

Source: Derived from Ward's Automotive Reports

86 87 88 89 90 91 92 93 94 95 96 97 98 99

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

American

Japanese

German Korean

Chart 5

National Nameplate Shares of the

U.S. Light Vehicle Market

% Left = American / Japanese German / Korean = Right %

Note: American includes Chrysler, German includes Mercedes

of their host countries; and that portends clashes with other governments seeking to further

expand international trade.

U.S. Market Shares Continue to Shift

While the U.S. market has been expanding since 1986, sales volume for the traditional Big 3

American brands traveled in the opposite direction. They sold 11.8 million units in 1986,

but only 11.5 million vehicles in 1999, a decline of 21⁄2 percent. (Even so, their 1999

volume was 6 percent higher than in 1998). The Big 3's combined overall share fell from

73.3 percent in 1986 to 68.3

percent in 1999 (Chart 5). 

Since 1995, they have lost share

in every year. Given current

trends, the Big 3 may continue

to lose share in 2000 in both cars

and light trucks. 

Within the passenger car

segment, Big 3 American brands

(GM, Ford, Chrysler) have lost

share in almost every year since

1986, and in every major subsegment – except large cars. In

1986, their overall share of all

new car sales was 71.5 percent. 

It dropped from that peak to 56.1 percent in 1999. Their share of small car sales dropped

from 66.2 percent to 53.7 percent. Their mid-size share went from 72.4 percent to 57

percent, while their share of luxury car sales fell from 57.3 percent to 34.6 percent. The

Big 3 continue as sole supplier of the large car segment4

. Unfortunately, that sector

declined from 11.4 percent of the passenger car market in 1986 to 8.2 percent in 1999. 

The Big 3 had been able to take comfort (and most of their profits) from their dominance of

the light truck market, where they have more than held their own against Japanese and

European producers for years. The Big 3 increased their share of this segment from 78.1

percent in `86 to a high of 86.2 percent in 1996. In 1998, their competitors revamped their

products and began offering more attractive products. Big 3 shares started to slip. By
USDOC Office of Automotive Affairs Page 11

1999, their overall share was 81.4 percent, having lost ground in all three major subsegments. Their share of the van market dropped 4.5 points in 1999 from the previous

year, falling to 86.3 percent. Their share of the 1999 pickup market slipped three-tenths of

a point from the previous year’s high water mark of 89.6 percent. Their share of the sport

utility market also fell, dropping 2.4 points to 70.8 percent.

GM’s American brands’ share of the overall light vehicle market – which once exceeded 50

percent – has been in steady decline since 1991, falling from 35 percent to an all-time low

of 29.1 percent in 1998. However in 1999, their share ticked up slightly, gaining one-tenth

of a point. Volume rose 9 percent to 4.9 million units. Ford’s American brands have lost

share every year since peaking at 25.7 percent in 1995. By year-end 1999, their share was

23.5 percent, down 1.2 points from last year. Sales volume gained 3.3 percent to 4 million

units. Chrysler’s American brands share peaked in 1996 at 16.3 percent. Their 1999 share

fell to 15.6 percent, down six-tenths of one point from 1998, on a 5 percent gain in volume

to 2.6 million units. (Combined with Mercedes 1.1 percent share, Chrysler’s 1999 share

would be 16.7 percent. This would still have been a decline of six-tenths of a point, as

Mercedes’ share was the same in both years. However, volume would have risen by an

additional six-tenths to 5.6 percent, growing from 2.68 million to 2.83 million vehicles.) 

Sales in 1999 of Japanese brands (including vehicles produced in the United States) totaled 4

million units, up 9 percent. Their share edged up slightly, reaching 24 percent of the

overall market, compared with a peak share of 25.8 percent in 1991. Mitsubishi was the

surprise winner in volume growth, jumping 37 percent in 1999 to 261,000 units. Their

share increased to 1.6 percent of the overall market. Suzuki also had a significant growth

spurt, increasing volume by 32 percent to 50,000 vehicles and their overall share to 0.3

percent. Nissan appears to have regained its balance and sales are growing, putting a halt to

its 4-year slide. Volume was up 9 percent for the year, reaching 677,000 units. Nissan’s 4

percent market share was unchanged. 

Honda first moved ahead of Nissan in U.S. sales volume in 1988 – and in Japan, in 1999. 

Honda’s 1999 U.S. volume nearly reached 1.1 million units, up 6.7 percent. Its share,

however, slipped one-tenth to 6.4 percent. Honda sells nearly as many passenger vehicles

in the United States as in Japan, where it recorded sales of 1.14 million units in 1999. 

Toyota’s 1999 share of the U.S. market was virtually unchanged from last year’s all time

high of 8.8 percent. Volume grew 8.4 percent to 1.5 million units, Toyota’s highest. 

Sales of German brands (including U.S. production, but excluding Chrysler) jumped over

27 percent in 1999, reaching a volume of 747,000 units. This produced a 4.4 percent
5 There is a significant distinction between industry reported “import sales” and “vehicle imports” reported by

the U.S. government. The industry treats sales of vehicles made in Canada and Mexico as domestic, while

government trade data reports them as imports. Moreover, there is a difference in timing a reported transaction. 

A vehicle that passes through U.S. Customs in December may not be reported as a retail sale until the following

January, or even the year after that. Also, some imports may not be sold in the U.S. retail market. Finally, the

international Harmonized Tariff System used to classify imports of passenger vehicles and light trucks does not

match precisely the definition used in industry sales statistics. A discussion of U.S. trade will be provided in a

separate paper, “Road Motor Vehicles, A Decade of Trade,” to be released in the spring of 2000. 

USDOC Office of Automotive Affairs Page 12

overall share, exceeding last year’s high water mark by 7-tenths of a point. The German

brand share has risen steadily since reaching a low of 1.5 percent in 1993. Volume for all

German brands advanced last year, led by VW’s 43 percent increase to 382,000 units,

which netted the firm a 2.3 percent market share, its highest. Mercedes regained second

place among German firms, overtaking BMW in 1998. Its 1999 volume grew 11 percent to

189,000 units, 1.1 percent of the total market. BMW’s 1999 volume jumped 18 percent to

155,000 units, yielding a 0.9 percent share. Porsche’s volume gained 21 percent, to a total

of nearly 21,000 units. Its share remained virtually unchanged at 0.1 percent. 

One of the biggest surprises to some analysts last year, was the growth in sales of Korean

vehicles. Volume for the three Korean brands surged by 88 percent, reaching 330,000

units. This raised their market share from 1.1 percent to 2 percent, their highest level ever. 

Daewoo, despite its tentative situation in Korea, increased its 1999 U.S. sales by 1,200

percent over its introductory year. Sales totaled 31,000 vehicles, 0.2 percent of the

market. Kia, now a Hyundai subsidiary, recorded sales of 135,000 units, up 62 percent. Its

share rose by 3-tenths to 0.8 percent. Hyundai’s sales increased 82 percent to 164,000

units, their highest since reaching 264,000 in 1998. Its 1999 volume increased the firm’s

U.S. market share by 4-tenths of a point to 1 percent.

Sales of Imports Expected to Increase

U.S. sales of light vehicles imported from overseas (i.e., vehicles assembled in plants outside

of the United States, Canada, or Mexico) peaked in 1986 at 4.2 million vehicles, 26.2 

percent of the total market. Nearly 80 percent of these vehicles, 3.3 million units, came

from Japan. This equaled 20.7 percent of the market. (The U.S. Big 3 accounted for

379,000 units of the Japanese sourced total in 1986.) German imports supplied 429,000

units of the market in 1986, a 2.7 percent share. Korean import sales supplied 169,000

vehicles, 1 percent of the total5

. 

In the 10 years since 1986, import sales from all sources declined steadily until reaching 1.7

million units in 1996, when they accounted for 11.3 percent of the total market . In 1997,
6 All sales of vehicles produced in Korea are now accounted for by the Korean manufacturers. At one time,

Ford, GM, and Mitsubishi also sold vehicles imported from Korea. The last GM sales occurred in 1993, Mitsubishi’s

in 1994, Ford’s in 1998. Thus, Korean import sales and shares are as reported in the previous section on brand

market shares.

USDOC Office of Automotive Affairs Page 13

Source: Derived from Ward's Automotive Reports

94 95 96 97 98 99

0

125

250

375

500

625

750

875

1000

1125

1250

1375

1500

1625

1750

1875

2000

 UK Sweden Korea Germany Japan

Units X 1,000

Chart 6

U.S. Retail Sales of Vehicles

Produced Outside of NAFTA

import sales grew by 224,000

units. Their share increased to

12.8 percent (Chart 6). By

1999, import sales reached 2.5

million units, 14.7 percent of

the market. 

Imports from Japan, now sold

only by Japanese manufacturers,

grew by 12 percent in 1999 over

1998. Sales totaled 1.5 million

units, 8.6 percent of the market. 

Sales of German imports

increased by 28 percent to

470,000 units, equal to 2.8

percent of the 1999 market. The German gain is the result of a shift in marketing

philosophy that has produced vehicles that now are designed to appeal to American buyers,

and that are more attractively priced. Also affecting the apparent rise in German import

sales was VW’s decision to shift production of its Golf model to Germany. Because it was

previously assembled in Mexico, it was not counted as an import in U.S. sales statistics. 

In addition to Korea6

, there are only two other “country brands” supplying significant

quantities of imports to the United States: Great Britain and Sweden. Sales of British

imports peaked in 1987 at 40,000 units, 0.26 percent of the market. Sales declined

steadily, falling to 13,000 units in 1992. They then began to rise steadily, reaching 44,000

units in 1998. Last year they jumped to 64,000 – a 0.4 percent market share. Swedish

imports declined from their 1986 level of 189,000 until bottoming at 92,000 in 1993. 

They have risen steadily since, gaining 18 percent in 1999 to total 156,000 units, a 0.34

percent share.

It appears likely that sales of imports will not trend downward again during the next several

years. In part this is because many of the imports are directed to newly emerging niche

market segments that are too small to sustain local production; partially because many

imports are greatly improved and are being offered at very competitive prices; and because
USDOC Office of Automotive Affairs Page 14

92 93 94 95 96 97 98 99

0

2.5

5

7.5

10

12.5

15

17.5

20

22.5

25

27.5

30

32.5

35

 U.S. Produced Produced Abroad Overall

Source: USDOC Bureau of Economic Analysis

Average New Car Expenditures in the U.S. Market

Thousands of Dollars

Chart 7

there will always be significant demand in the United States for something new from

somewhere else, especially in times of prosperity. 

Indeed, the perceived cachet that derives from being imported does not apply only to wine

and cheeses. Chart 7, based on

BEA data, points out that what

American consumers are willing

to pay for imported vehicles

greatly exceeds that of vehicles

produced in the United States. 

Moreover, the gap has been

widening rapidly. The average

transaction for new imported

cars rose steadily from $19,600

(current dollars) in 1992 to

almost $30,400 in 1999. 

Expenditures for locally

assembled cars averaged

$16,400 in 1992 and reached

$18,700 in 1999. Thus a gap of

20 percent in 1992 more than tripled by 1999, rising to 63 percent. (It would be even

wider, had not low-priced Korean imports surged last year.)

 

Even though they now have substantial excess capacity at home, Japanese firms remain

committed to localizing production to serve their largest foreign markets. They will

undoubtedly continue to add to their U.S. capacity. However, low volume, high value

sport utilities and luxury passenger cars probably will be shifted to the United States only in

limited instances. Isuzu, Mazda, and Subaru all lack either the resources, or the U.S. sales

volume, or both, that would enable them to add significantly to their U.S. capacity, except

at the margins. Nissan and Mitsubishi, on the other hand, are struggling to expand their

U.S. production volume. Both have announced plans to produce new sport utility vehicles

in their existing U.S. plants, joining similar efforts begun in 1999 by Honda and Toyota. 

Imports from Germany also will continue to grow. BMW’s imports, including the 3 Series,

continue to be highly attractive to U.S. buyers. Except for adding capacity for the X5 new

sport utility vehicle to its South Carolina plant, however, the firm has no announced plans

for expanding production in North America. DaimlerChrysler has not indicated any nearterm plans to utilize Chrysler’s U.S. facilities to produce Mercedes-branded vehicles. Thus
USDOC Office of Automotive Affairs Page 15

1993 1994 1995 1996 1997 1998

0

10

20

30

40

50

60

70

80

90

100

110

 Big 3 Cars JPN Cars GRM Cars

 Big 3 Lt.Trucks JPN Lt.Trucks GRM Lt.Trucks

Plant Capacity Utilization Rates in the United States

Percent

Source: AutoFacts; Automotive News Market Data Book

Chart 8

their imports will continue to register healthy gains. Porsche sales, which have been on the

rebound since their near collapse in 1993, are growing strongly on the strength of a pared

down, but improved product line. Its two sports cars soon will be joined in the United

States by Porsche’s first ever sport utility, produced in cooperation with VW. VW has also

recently shown its own ‘crossover’ vehicle that may soon cross over to the United States. 

The “newly” imported Golf also shows no sign of losing popularity. 

Sales of imported British and Swedish brands probably will continue to rise significantly in

the near-term. Jaguar, Volvo, and SAAB, are all experiencing competitive advantages

resulting from their absorption by Ford and General Motors. BMW has indicated that it

will supplement the offerings of its struggling British subsidiary, Rover, bringing a modern

rendition of the Austin Mini to the United States by 2001. It likely will be well received,

albeit in limited quantities. 

It is difficult to evaluate the trend for Korean imports. Both Hyundai and Daewoo carry

heavy debt that is complicating their product plans. In addition, Hyundai is still working to

absorb Kia, while Daewoo will be acquired soon by somebody. Quality is improving

rapidly, but none of the three manufacturers are yet able to compete effectively in the

United States on any aspect other than price.

Capacity Utilization and Output Jump 

Between 1993 and 1998, plant capacity utilization in the United States (a ratio expressing

the volume of vehicles actually produced in a year, relative to a plant’s designed capability

to produce them) exceeded the

80 percent rate that many

consider to be optimal. The

industry generated an overall

rate of 84 percent in 1993 and

92 percent in 1998. Data for

1999 will probably be even

higher, and may have equaled

1994's 99 percent overall rate. 

Industry data show that during

1998, rates averaged 86 percent

for all passenger car plants and

99 percent for all light truck

plants. Chart 8 provides details
USDOC Office of Automotive Affairs Page 16

on the variances between manufacturers, and between car and light truck plants. 

 

The Big 3 collectively averaged between 86 and 101 percent utilization between 1993 and

1998. In 1998, DaimlerChrysler’s Chrysler group averaged 98 percent overall for its nine

U.S. plants. Ford’s 16 plants ran at an average of 100 percent, while General Motors,

suffering the effects of a major strike, produced at an 84 percent overall rate in its 25 plants. 

Between 1995 and 1998, the two plants operated by BMW and Mercedes ranged between

20 percent – in a start-up year – and 79 percent. BMW’s 1998 rate was 66 percent,

Mercedes’ was 95 percent. 

The Japanese-affiliated plants averaged 90 to 94 percent capacity utilization between 1993-

98. Honda’s two U.S. assembly plants ran at 115 percent of rated capacity in 1998. 

Nissan’s single U.S. plant builds cars and trucks on separate lines. They ran at a combined

rate of 69 percent. For most of 1998, Toyota operated two plants, each with two lines for

cars and light trucks. Their combined utilization rate was 97 percent. Mitsubishi’s single

plant ran at 66 percent of capacity producing cars. (The firm will soon add production of a

sport utility to its mix.) Mazda’s joint venture with Ford ran at 94 percent. Subaru and

Isuzu share one plant. One line produces cars; the other, sport utility vehicles. The plant

ran at 103 percent of rated capacity. 

In 1998, total U.S. light vehicle production slipped 1 percent to 11.6 million units, mostly

the result of lost production at GM’s striking assembly plants. Production bounced back in

1999, gaining nearly 9 percent to reach a record 12.6 million units. Although U.S.

passenger car sales have not yet been outstripped by light truck sales, light truck production

jumped ahead of car production in 1998, accounting for 52 percent of the total. In 1999,

their share went to 55 percent, on volume that gained 15 percent to a total of 6.9 million

units. Car volume was up just 1.5 percent, totaling 5.6 million vehicles. This year could

produce another record, with a volume of 13 million cars and light trucks possible.

Chart 9 shows that the Big 3's total output jumped 10 percent in 1999, reaching 10 million

units, nearly the same level recorded in 1986. Their light truck output gained 14 percent,

totaling 6.3 million units. Car production increased by 5 percent to 3.8 million vehicles. 

The Big 3 produced 3 million light trucks and 7.2 million cars in 1986. 

GM’s 1999 production totaled 4.4 million units, up nearly 16 percent. Light trucks

gained22 percent (totaling 2.3 million). Cars were up 9 percent (2.1 million). Ford’s 1999

output grew by 6 percent to 3.6 million units. Light trucks were up 8 percent (2.4 million
USDOC Office of Automotive Affairs Page 17

 Light Vehicle Production in the USA

Source: Derived from Ward's Automotive Reports

86 87 88 89 90 91 92 93 94 95 96 97 98 99

0

1

2

3

4

5

6

7

8

9

10

11

12

13

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

0.11

0.12

0.13

Big Three

Japanese Affiliates

Left = Big 3 & Japanese,

Millions of Vehicles

German Affiliates

Right = German,

Millions of Vehicles

Chart 9 Big Three = GM, Ford, Chrysler plants of DaimlerChrysler

units). Cars gained 1 percent

(1.2 million units). 

DainlerChrysler’s Chrysler

group output in 1999 grew by 8

percent for the year to 2 million

units. Light trucks advanced 11

percent to 1.5 million units. 

Cars declined 0.4 percent to

432,000 units. Chrysler has

gone the farthest in turning to

light trucks. Its car volume

declined by 67 percent from

1986, while light truck volume

(minivans, sport utility vehicles

and pickup trucks) was 10 times larger.

GM has struggled for several years with an imbalance in capacity. It not only has had too

much for its market share, it also has had the wrong kind – cars. In January, GM announced

plans for a new $558 million assembly plant that it is building in Lansing, Mi. This is GM’s

first new vehicle plant since opening its Saturn facility in 1986. It also is GM’s first plant

capable of building either cars or light trucks. Lansing Grand River will represent a large –

but probably not final – step by the company toward incorporating modular assembly

techniques into the production of vehicles. 

For several years, Japanese firms have been displacing their own imports into the USA by

transferring production to the NAFTA region – primarily the United States. In 1986,

Japanese affiliated plants in North America supplied 12 percent of their total U.S. sales. By

1998, their share was 63 percent. Local production by the seven Japanese companies with

U.S. manufacturing operations grew 2 percent in 1999, reaching a total of 2.4 million units. 

However, imports grew so rapidly that the locally produced share of total Japanese sales

slipped to 62 percent.

Honda’s U.S. production – until now, all cars – fell 1 percent to 686,000 units in 1999. 

Honda announced in mid-year 1999 that it has committed $400 million to build a light

truck and engine plant in Alabama. Annual capacity for each product is 120,000 units. 

Job 1 is scheduled for 2002. In late 1998 Toyota opened a new light-truck plant in Indiana

with an annual straight-time capacity of 150,000 units. Capacity will be doubled by the
USDOC Office of Automotive Affairs Page 18

time additional construction is finished next year. This follows a 1997 expansion of their

Kentucy plant capacity by 50,000 cars and 50,000 vans. Toyota’s three U.S. plants (the

third is a joint venture in California with GM) increased production by 6 percent overall in

1999, reaching a total of 838,000 units. 

Last year, total production in Nissan’s Tennessee plant, rated the most efficient of all plants

in the United States by Harbour & Associates, plummeted 23 percent to 309,000 units. 

Nissan began shifting production of its slow-selling Sentra from its U.S. plant to Mexico in

1997, completing the transition in early 1999. Nissan’s total U.S. production recovered in

1999, gaining 5 percent to 325,000 units. While car production dropped by 25 percent to

168,000 units, truck volume jumped 82 percent to 157,000 units.

 

German firms increased their U.S. production by 3 percent in 1999 to 127,000 units. Both

BMW and Mercedes Benz have taken advantage of the market opening provisions of

NAFTA by building plants in the United States to serve all three markets. They are also

exporting from the United States to other countries, including Germany and Japan. In

1998, Mercedes increased capacity at its Alabama SUV plant, adding 15,000 units to the

original 65,000 unit capability. Mercedes 1999 production gained 10 percent, reaching

76,000 units. Production at BMW’s 80,000 unit South Carolina plant fell 12 percent in

1999 to 48,000 units, the second decline since the plant opened in 1995. In 1999, BMW

completed a $650 million expansion. The investment created a separate line that will have

60,000 units of capacity for its new X5 sport utility truck. Like the Z3 sports car now being

produced, the X5 will be built exclusively in the United States for all markets. 

Exports May Drift Upward

Over the past 10 years, exports of new passenger vehicles and light trucks from the United

States has averaged close to11 percent of total light vehicle production each year. U.S.

exports slipped 1 percent in 1999 to a total of 1.3 million vehicles, dropping the export

share to 10.5 percent (Chart 10). More than a million units of the 1999 export total went

to our NAFTA partners, Mexico and Canada. If these units are excluded from the total,

then exports as a share of U.S. production drops to an even more modest 2.5 percent share

in 1999, compared with 3.5 percent last year. 

The top 20 markets for U.S. built passenger vehicles and light trucks accounted for 97

percent of the $19.7 billion total that was exported last year. The top 20 list has changed

little since 1992. It includes nine emerging markets – few of which are expected to exhibit
7

 In descending order: Canada, Mexico, Germany, Japan, Belgium, UK, Saudi Arabia, Australia, Spain,

Kuwait, Taiwan, France, Italy, United Arab Emirates, Sweden, Switzerland, Dominican Republic, Chile, Venezuela

USDOC Office of Automotive Affairs Page 19

Source: Production Derived from Ward's; Exports by OAA

92 93 94 95 96 97 98 99

0

1

2

3

4

5

6

7

8

9

10

11

12

13

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Millions of Units Percent 

Chart 10

U.S. Light Vehicle Production and Exports

Exports as Percent of Production 

Total Units Produced 

Total Units Exported

strong demand for imported

motor vehicles7

. Consequently,

even though economic recovery

is now building in many of the

world’s emerging markets, the

potential for significant U.S.

motor vehicle export growth in

the near term is probably no

more than “modest.” Shipments

might reach $20 billion in 2000,

an increase of 2 percent.

Three factors contribute to this

prognosis. First, most of the

growth in the global vehicle

market will occur in the emerging markets of Asia and Latin America. U.S. manufacturing

capacity, however, is dedicated to vehicles designed first and foremost to appeal to the

uniquely American market. Only Canadian, Mexican, and Saudi Arabian buyers share a

similar taste in motor vehicles. In most other markets, U.S.-designed cars and light trucks

generally are perceived as unsuitable, unappealing, or unaffordable. A notable exception

are sport cars, sport utilities, and cross-over vehicles. They have excellent prospects in

many countries as niche (i.e., low volume, but high margin) products.

Secondly, virtually all vehicle manufacturers have reached the conclusion that to be

competitive in the emerging markets, they must invest directly in them, rather than relying

upon shipments from their existing factories. Finally, there is the reality that most

governments in most of the emerging markets are intent upon fostering local vehicle

assembly. Typically, these governments try to require foreign manufacturers to undertake

joint-ventures with local partners as the price of market entry. They often demand a high

level of local content, and offer investors high tariff walls and strict quotas to protect them

from third-party imports. Compounding the problem of limited market access, some

manufacturers actively seek such arrangements, the better to limit entrance to the market by

their late-arriving competitors.
USDOC Office of Automotive Affairs Page 20

Source: USDOL , Bureau of Labor Statistics

92 93 94 95 96 97 98 99

100

125

150

175

200

225

250

275

300

325

350

375

400

1

1.5

2

2.5

3

3.5

4

Thousands Percent

Chart 11

U.S. Employment in the Vehicle Assembly Industry

All SIC 3711 Employees

SIC 3711 Production Workers

All SIC 3711 as % of Durable Goods Employees

SIC 3711 Production Workers as Percent of

Durable Prod. Workers

1999 is estimated

Employment Will Moderate 

Production worker employment in the U.S. motor vehicle assembly industry (SIC 3711,

Motor Vehicles and Passenger Car Bodies) peaked most recently in 1995 at a monthly

average of 268,000 employees. In 1999, the industry employed an average of 242,000, a

decline of almost 3 percent from 1998 (Chart 11). 1998's monthly average dropped by 7

percent, in large part because of the almost two-month long strike that stopped production

at all but one of GM’s 25 U.S. plants. 

Because of the industry’s

emphasis on increasing

productivity, employment levels

for both hourly and salaried

workers probably will continue

to decline over the long term. 

This trend could be accelerated

by the vehicle industry’s

ongoing efforts to redefine itself,

moving further away from the

concept of in-house, do-ityourself manufacturing and

closer to the computer

industry’s approach of

coordinating the assembly of

components supplied by contract vendors. This is evident in the modular assembly

techniques now being used in Brazil by VW, GM, Ford, and DaimlerChrysler. 

Modular production passes both engineering and subassembly responsibilities to a limited

number of primary, ‘Tier 1’ vendors. The vendors provide fully built-up component

modules which their own employees then bolt onto the vehicle as it passes their station on

the manufacturer’s assembly line. Contrast this with the traditional approach of a multitude

of individual vendors supplying boxes of individual bits and pieces to the vehicle

manufacturer’s factory gate. Those parts, plus the parts designed and fabricated by the auto

producer itself, are combined in the factory by the vehicle manufacturer’s employees into

units that subsequently are bolted to each vehicle. The modular technique enables vehicle

producers to reduce their employment rolls (perhaps, by as much as 30 percent), and may

also help vendors reduce theirs, if they subsequently can rationalize their own operations.
USDOC Office of Automotive Affairs Page 21

Source: Derived from Corporate Annual Reports 

91 92 93 94 95 96 97 98

10

12

14

16

18

20

22

24

26

28

30

 U.S. Big 2 JPN Big 4 *

Factory Sales per Employee

Chart 12

Worldwide Productivity of the

U.S. Big 2 & the Japanese Big 4

* Honda, Mazda, Nissan, Toyota

The Japanese-owned vehicle producers have long been recognized as the most efficient

among all the global vehicle manufacturers. Compared with the Japanese Big 4's worldwide

operations, the global operations of the American Big 2 continue to be less efficient. 

However, a look at the companies’ annual reports reveals that the gap is closing in the ratio

of total vehicle output (as measured by factory sales) to total corporate employment. In

1991, the Big 2 generated just

14 factory sales for each

employee on the corporate

payroll (Chart 12). The Big 4

sold an average of 29 vehicles

per employee, more than twice

as many as the Big 2. 

By 1998, because their

employment rose steeply while

factory sales declined slightly,

the Big 4's ratio dropped to 23

units per employee. The Big 2's

ratio grew to 17 units per

employee. Their total

employment dropped sharply,

while factory sales grew strongly. Thus, the differential in favor of the Japanese producers

has been reduced to 35 percent. Because American firms are pioneering techniques to

improve productivity and have greater flexibility to reduce their payrolls, the gap probably

will continue to narrow – provided, of course, that demand for their products continues to

grow. And that, of course, is the greatest challenge of all.

In the very near future, the auto industry as we know it today will have been completely

transformed by the relentless adoption and application of technology, most of it bred of the

electron. Fewer competitors, but increased competition; lower manufacturing and

distribution costs; reduced employment and greatly increased productivity; different and

more efficient propulsion systems; enhanced vehicle capabilities and new styling packages;

all are on the horizon. Through it all, and as it has been for over a century, the automobile

industry will remain the source of much of the nation’s economic wealth.