NHTSA Report Number DOT HS 809 208 January 2001

Evaluation of the American Automobile Labeling Act

Juanita S. Kavalauskas and Charles J. Kahane, Ph.D.

Abstract

Congress passed the American Automobile Labeling Act (AALA) to help consumers in the selection of new vehicles by providing information about the country of origin of vehicles and their parts. Passenger vehicles manufactured after October 1, 1994 must have labels specifying their percentage value of U.S./Canadian parts content, the country of assembly, and countries of origin of the engine and transmission.

The evaluation is based on a consumer survey to see if new-vehicle purchasers know about the labels, understand them, and/or use them to help select a vehicle; manufacturer and dealer surveys to learn about their response to the labels; and statistical analyses of the actual trends in U.S./Canadian parts content in new motor vehicles after 1994.

Over 75 percent of consumer survey participants, even those that care deeply about "buying American," were unaware of the existence of the AALA labels. Many participants who did read the label said they used the country-of-assembly information, but none said they used the numerical U.S./Canadian parts content score or the engine/transmission information. Overall U.S./Canadian parts content in new cars and light trucks dropped from 70 percent in model year 1995 to 67.6 percent in 1998; however, it increased from 47 to 59 percent in transplants while dropping from 89 to 84 percent in Big 3 vehicles. The trends in parts content are undoubtedly influenced by the 1995 U.S.-Japan Agreement on Autos and Auto Parts and the North American Free Trade Agreement (NAFTA).

Executive Summary

The American Automobile Labeling Act (AALA) was enacted in October 1992 in order to aid potential purchasers in the selection of new passenger motor vehicles by providing them with information about the country of origin of vehicles and their parts. The AALA provides that new passenger cars, pickup trucks, vans and sport utility vehicles manufactured on or after October 1, 1994 have labels specifying the percentage value of the U.S./Canadian parts content of each vehicle, the country where the vehicle was assembled, and the countries of origin of its engine and transmission. On July 21, 1994, the National Highway Traffic Safety Administration (NHTSA) published a new regulation to implement the AALA (Part 583 of Title 49 of the Code of Federal Regulations).

The Government Performance and Results Act of 1993 and Executive Order 12866 require agencies to evaluate their existing regulations to see if they are achieving their objectives and to assess their impacts. This report evaluates the AALA from two aspects.

First, since AALA is an information program, NHTSA surveyed 646 consumers in 1998 who had bought or leased a new vehicle during the past six months or were planning to buy or lease within the next three months to find out what percentage had heard of the labels, read them, understood them, and/or used them to help select a vehicle. Because if nobody reads, or nobody understands, or nobody uses the labels, they are not achieving their objective of providing information to potential purchasers. The survey investigated how many consumers think the country of origin of vehicles/parts is critically important information and if these consumers in particular are reading and using the labels to assist their purchasing decisions. NHTSA also surveyed manufacturers and dealers to learn about their activities and costs to produce and disseminate the labels.

The principal finding was a disconnect between consumers' ignorance of the labels and their belief in the importance of buying a U.S./Canadian product. The great majority of consumers were unaware of the existence of the labels, only 7 percent had read the label at a dealership, and not a single person explicitly stated they had used the numerical parts-content score on the AALA label to comparison-shop among make-models according to their percentages of U.S./Canadian parts content. In fact, the only data on the label that a substantial number of consumers called influential was the country of final assembly. (Actually, country-of-assembly information was available to consumers before the AALA, but not necessarily in a standardized and conveniently accessible form like the AALA labels.)

Yet, one-sixth of the survey participants, a proportion that would extrapolate to 2,500,000 new-vehicle sales per year in the United States, rate it critically important that vehicles be made in the U.S. or Canada and, more generally, always try to "buy American" when they go to a store. But even this group is no more cognizant of the labels than the average consumer. They mostly "buy American" simply by acquiring any Big 3 vehicle assembled in North America. They are not using the numerical parts-content scores to comparison-shop for models with the highest U.S./Canadian parts content.

Second, the report statistically analyzes sales data to track the share of U.S./Canadian parts and assemblies in new vehicles during 1994-98. Did it rise or fall? How do trends in motor vehicles compare to other consumer products such as radios or refrigerators? Did make-models that increased U.S./Canadian parts content experience, on the average, higher or lower sales?

In this context, however, it is important to recognize that well before the AALA, in fact since the 1960's, a series of laws, regulations, international agreements, incentives and economic conditions have motivated foreign-based manufacturers to transplant some of their assembly and parts facilities to North America. Above all, a 1995 U.S.-Japan Agreement on Autos and Auto Parts explicitly aimed to increase U.S. parts content in the transplant vehicles of Japanese-based companies. These market analyses just tell us what actually happened to vehicle sales in 1995-98. They will not tell us to what extent, if any, AALA labels influenced the observed trends.

The introduction of AALA labels in model year 1995 was not followed by a resurgence of U.S./Canadian parts content in the overall new-vehicle fleet, but rather a modest decline from an average of 70 percent in model year 1995 to 67.6 percent in model year 1998. The net effect, however, conceals two trends working in opposite directions.

Transplant vehicles (assembled in North America by foreign-based manufacturers) increased their proportion of U.S./Canadian parts from 47 to 59 percent and reduced their content of overseas parts. At first glance, that could be a response to the labels. But the strong, explicit terms of the 1995 U.S.-Japan Agreement and the current dearth of consumer interest in AALA's numerical parts-content scores intuitively suggest that the Agreement and earlier actions have had more influence than the AALA labels. (However, the parts-content scores on the AALA labels have helped Federal agencies monitor progress under the U.S.-Japan Agreement.)

The Big 3 reduced U.S./Canadian parts content from 89 to 84 percent in 1995-98, apparently by sourcing or purchasing more parts in Mexico. The net shift, in essence, is largely from overseas countries to Mexico, a plausible development given the North American Free Trade Act (NAFTA).

In 1992-98, unprecedented prosperity and a strong dollar in the United States were associated with increases in net imports for most consumer goods, such as refrigerators, carpets, or furniture. The automotive industry, with programs such as AALA, the U.S.-Japan Agreement, etc. did not massively differ from the economy-wide pattern, but the growth in import dependence for motor vehicles and parts was just a bit smaller than the average for other consumer goods.

Here are the principal findings of the evaluation, followed by a list of conclusions, a synopsis of the impact of AALA to date, and possible future strategies to enhance consumer awareness and use of AALA information - or to reduce the burden of AALA.

CONSUMERS' AWARENESS AND INFLUENCE BY THE AALA LABELS

In a survey of 646 people who had bought or leased new vehicles during the past 6 months or were planning to do so within 3 months:

*The percentages in this table are based on the full set of 646 participants and they are not additive. Each group is a subset of all the preceding groups. For example, 5 percent of the 646 participants said they were influenced by the label to any degree whatsoever, and all of these had also read the label at a dealership, seen it, and knew of its existence (i.e., belonged to all three preceding groups).

Dealers concurred that the country-of-assembly is the information on the AALA label most important to consumers.

CONSUMERS' UNDERSTANDING OF THE AALA LABELS

Among the 41 people who had read the label at a dealership:

However, only

CONSUMERS' KNOWLEDGE OF WHERE THEIR OWN VEHICLE WAS ASSEMBLED

IMPORTANCE OF U.S./CANADIAN ASSEMBLY AND CONTENT TO CONSUMERS

THE STAUNCH "BUY AMERICAN" MARKET SEGMENT

POTENTIAL INFLUENCE OF THE LABELS

DISSEMINATION OF THE LABELS

COST OF AALA TO THE MANUFACTURERS

PERCENTAGE OF U.S./CANADIAN PARTS CONTENT IN NEW VEHICLES



1995 1998

All new vehicles 70 67.6

Big 3 89 84

Transplants 47 59

Imports from overseas 4 4

PERCENT OF NEW VEHICLES ASSEMBLED IN THE UNITED STATES OR CANADA



1994 1998

United States or Canada 84.8 83.2

Mexico 2.2 4.1

Overseas 13.0 12.7



1994 1998

Big 3


Assembled in U.S./Canada 71.0 67.0


Assembled in Mexico 1.8 2.8


Imports from overseas    .5    .2



73.3 70.0

Foreign-based companies


Assembled in U.S./Canada 13.8 16.2


Assembled in Mexico .4 1.3


Imports from overseas 12.5 12.5



26.7 30.0

CARS VS. TRUCKS



1995 1998
Passenger cars 64 60

Pickup trucks 83.3 83.1

Vans 85.5 80.5

Sport utility vehicles 70 69


1994 1998

Passenger cars 58.3 53.4

Pickup trucks 20.2 17.9

Vans 10.7 11.0

Sport utility vehicles 10.8 17.7



1994 1998

Passenger cars


U.S./Canada 75.5 73.9


Mexico 2.6 3.6


Overseas 21.9 22.5

Pickup trucks


U.S./Canada 95.6 92.3


Mexico 1.0 7.3


Overseas 3.5 .4

Vans


U.S./Canada 96.6 97.7


Mexico - -


Overseas 3.4 2.3

Sport utility vehicles


U.S./Canada 84.6 78.5


Mexico - 2.4


Overseas 15.4 19.1

IMPORT DEPENDENCE IN MOTOR VEHICLES COMPARED TO OTHER INDUSTRIES

The Department of Commerce publishes annual statistics on U.S. production, consumption, exports and imports in various industries. Their statistics are not directly comparable to the numerical scores on the AALA labels (which include Canada, for example). They indicate that:

RELATIONSHIP BETWEEN U.S./CANADIAN PARTS CONTENT AND SALES

CONCLUSIONS

SYNOPSIS: IMPACT OF THE AALA IN 1995-98

The evaluation suggests that the AALA has had two definite and one doubtful impact. First, many of the consumers who read the AALA labels at the dealership find them convenient and influential for identifying in what country a vehicle was assembled. Second, Federal agencies use the parts content scores to monitor progress under the U.S.-Japan Agreement on Autos and Auto Parts. The doubtful impact is that the labels may have contributed to the increase of U.S./Canadian content in transplants during 1995-98: while this increase certainly took place, the role of the labels is doubtful - given that the U.S.-Japan Agreement on Autos and Auto Parts, and earlier measures, seem to have been quite a bit more influential. However, two current shortcomings of the AALA are: (1) Most consumers don't know the AALA labels exist. (2) Even those who know of the labels rarely use the numerical parts-content scores or the information about engines and transmissions.

POSSIBLE FUTURE ALTERNATIVES

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