So, we’ve recently talked about how competition keeps the automotive industry alive. Now let’s talk about how government intervention in competition also keeps the industry alive, but at a cost to the consumer. I’m talking about the infamous “chicken-tax”, the 25% import duty the US government charges on every imported light truck (including commercial van or pick-up trucks) that reaches American shores.
It is called the chicken-tax, because it was introduced in 1963 by President Lyndon B. Johnson as a childish response to tariffs placed by France and Western Germany on imported US poultry. So it has been around for more than 50 years and during those decades it has brought North American manufacturers of pick-up trucks a windfall of profits, all at the expense of the American consumer. Because the biggest victim of these tariffs aren’t the foreign automakers, but the domestic truck buyers.
This import duty has caused the American pick-up market to become an isolated market, controlled for 85% by just three automakers: General Motors, Ford and Fiat-Chrysler Automobiles, with pick-ups that are barely exported to other parts of the world, but which deliver huge margins of more than $10.000,- per truck sold (or, as the Automotive News reporter calculates: roughly the median household income in Greece). Compare that to the compact and midsized sedan market, where the Japanese have been kicking the domestic manufacturer’s butts for decades and the Koreans have joined the party a few years ago. Especially the midsized sedan segment, where the Toyota Camry is king, followed by the Honda Accord and Nissan Altima, is a fiercely competitive segment, where few automakers actually turn a profit. [Read more…]