Last Friday, President Obama signed into law a $2 billion extension to the “Cash for Clunkers” program, after the initial $1 billion in funding was consumed in the program’s first week. The Consumer Assistance to Recycle and Save (CARS) program, the official name of this legislation, offers consumers up to $4,500 to trade in gas guzzlers for new cars or trucks with better fuel efficiency.
There are valid reasons to both support and oppose this measure. What I want to do today is knock down what I consider is one invalid reason for opposing this stimulus program.
The Christian Science Monitor reports that these “vouchers in Week 1 helped consumers buy 184,304 new vehicles, more than half of which were foreign makes, mainly Toyota, Honda, Nissan, and Hyundai, according to the US Department of Transportation.” Based on these statistics, the article goes on to ask if “cash for clunkers” is really a U.S. stimulus package. This has also been a hot topic of conversation on talk radio. In listening to some of the commentary, it is clear that many Americans do not realize that our global free trade agreements prevent the government from offering incentives only to U.S. companies.
Let’s take a quick look, at a high level, at Honda’s supply chain network in the United States. The company has manufacturing plants, providing high paying jobs, in the following locations:
- Anna, OH: This is an engine plant, Honda’s largest in the world.
- East Liberty, OH: A factory that uses flexible manufacturing to produce cars and light trucks on the same assembly line.
- Marysville, OH: A motorcycle and car factory. Again, this is one of the most integrated and flexible auto plants in North America. It houses stamping, welding, paint, plastic injection molding and assembly, all under one roof.
- Swepsonville, NC: A power equipment plant. This factory has an annual production capacity of 1.5 million multi-purpose power equipment engines.
- Five other plants, including factories for transmissions, all-terrain vehicles, engines, and cars.
Honda believes in localization—i.e., in making cars in the region it sells to, and in sourcing (whenever possible) from local suppliers too. For example, because 90 percent of the steel Honda uses in North America is sourced domestically, its cars have a higher proportion of local content than many cars made by U.S. manufacturers. This is not just good politics. In normal economic times, localization is also a good risk management strategy. Hedging, by having factories across the world, can protect a company against currency fluctuations, regional downturns, and localized political turmoil. By keeping your eggs in many baskets, hedging strategies are simultaneously successful and unsuccessful by design—negative developments in one area are offset by positives in another. Obviously, however, these are not normal economic times.
Further, Honda has long focused on making “green” fuel efficient cars, while U.S. car makers have not. I don’t think Honda should be penalized for this.
Finally, the managers that work at Honda’s flexible manufacturing plants can move to other companies and factories in the U.S., teaching their new employers this valuable skill set. American manufacturing is improved by having foreign manufacturers produce on our shores.
In short, I’m one American who does not see red just because Honda, a foreign car company, is raking in the green.