Ever wonder why the biggest market for pick-up trucks (that’s us, the U.S.) has so few trucks available?
Yes, yes, there are the big ones – mostly made by the Big Three. But how come the others – smaller brands, smaller trucks – have been so reticent about cashing in on this most lucrative (highest profit margin per vehicle) segment?
Could it be the “chicken tax”?
Never heard of it?
It’s the tax – the tariff – that makes it much more expensive to bring a truck to market in the U.S. that was not made in the U.S.
It was signed into law back in 1963 by Lyndon Johnson as a retaliatory measure directed at France and West Germany, which had imposed tariffs of their own on the importation of U.S. chicken. Hence the name. The measure hit back with tariffs on potato starch, brandy and light trucks imported to the United States, with the object of making all of them more expensive to import.
How much more expensive? How about 25 percent more expensive. Which makes them less profitable to sell here.
Which explains why – in general – they’re not sold here.
Including, ironically, some “domestic” models like the Ford Ranger. Which is a Ford, but no longer made in the USA – and so subject to the tariff. So Ford sells the Ranger pretty much everywhere except here.
But mostly, the tariff affects foreign-brand (as well as foreign-made) medium and compact-sized models like the Toyota HiLux, which is smaller than the Tundra Toyota sells here (and which is made here; now you know why) and also the Mitsubishi Triton, the Mazda B-Series and the new VW Amarok.
Those are just a few of the models most Americans have never heard of – let alone ever test driven.
And it’s not just that American buyers are denied these choices. The cloistered market is less competitive as a result – which means, less innovative. It’s no accident that none of the “majors” – especially GM, Ford and Chrysler (now Fiat-Chrysler) sell a compact truck here. Why should they? There’s no competitive pressure to offer them. Despite the huge demand for these vehicles world-wide (and – formerly – here, too).
Toyota, for instance, has sold more than 16 million HiLuxes.
That’s a lot of trucks.
A lot of potential profit, too.
But when Uncle takes the profit out of the sale, the incentive to sell tends to wilt.
Some manufacturers have taken the radical step of moving operations here. Opening assembly lines in the United States. Which end-runs the tariff because the truck is now considered a “domestic” rather than an import – regardless of the brand on the fender.
This is the real reason why Honda built a plant in Alabama to build the Ridgeline – the company’s first U.S.-available pick-up. And why Toyota built a plant in Texas (truck central) to build the full-size Tundra. Nissan’s Titan pick-up is built in Canton, Mississippi – not Hiroshima, Japan. (Nissan was the first foreign automaker to unbox operations here – in Smyrna, TN, back in 1983 )
And so on.
If you check into it, you’ll find that all of the currently available “import” brand pick-ups are actually made in the USA.
Which is why there are so few – relatively speaking – “import” brand pick-ups available for sale in the USA.
Currently, there are just two medium-sized ones (the Nissan Frontier and the Toyota Tacoma) and two large (1500 series) models (the Nissan Titan and the Toyota Tundra).
That’s it. The smaller outfits can’t afford to build a whole new plant just to sell a new truck. Especially when they already have a plant. But it’s located outside the U.S.
Enter the tariff. Or build a second plant (here) and double their capital costs.
Models that almost certainly would receive a warm welcome – in particular, VW’s Amarok – are denied us because the economics are untenable. The automaker can invest massive sums (it takes about $2-$3 billion to build a new plant from scratch) so as to earn the “made in the USA” badge – and dodge the tariff. But the automaker now faces the prospect of amortizing its capital investment, which may take decades.
How many Amaroks would VW have to sell to make back $2-$3 billion?
Shareholders tend not to be enthusiastic about such out-on-a-limb measures.
Or, the automaker can import the vehicle – with the tariff folded into the MSRP. Which renders it more expensive than its home-built rivals and thus a harder sell.
Either way, the automaker loses money on the truck – and that’s not a good way to make it.
That goes for Ford’s Ranger, too.
The popular compact – the last compact truck sold in the United States – is now made in Thailand. Which means it’s no longer economic for Ford to “import” it here, because it’s subject to the tariff.
Thus, American truck buyers get the limited choice of a full-size truck or a mid-sized truck. Either way, they pay more up front for the truck (bigger trucks costing more than smaller trucks) and down the road (bigger trucks using more fuel than smaller trucks). The latter is particularly ironic given all the braying about gas mileage emanating from Washington.
Courtesy of a “protective” tariff that was enacted – so we were told – to help Americans by keeping competitors out of the market.
In fact, the tariff helps the larger automakers at the expense of the smaller – and serves as a way to shield them from competition.The big manufacturers – this includes “foreign” ones like Toyota and Nissan – are generally the only ones that can afford to spend billions to build new plants here and thus are the only ones that do.
Not surprisingly, they – along with Detroit’s Big Three – want to protect their investment.
By denying U.S.consumers the choices they would otherwise have available.
Imagine what the market for small cars would be if a similar tariff existed on not-made-here small cars from Japan and elsewhere. Do you suppose there would more – or fewer choices – available? Would the quality and desirability of the choices available be higher – or lower?
What if Apple Computers’ Chinese-made Macs were slapped with a 25 percent tariff? Would that help American consumers? Make PCs more or less expensive?
It does not – as the saying goes – take a rocket scientist.
The good news is the “chicken tax” may finally be on its way out. Part of the Trans-Pacific Partnership (TPP) trade deal that’s winding its way through Congress would roll back the tariff over a period of years and eventually, eliminate it.
TPP itself is a typical product of the Beltway sausage-making process – and god only knows what else is in the thing. But putting the chicken tax on the chopping block is hard to argue against. It’ll mean more options, truck-wise, and lower costs both to buy and drive ’em.
If only it hadn’t taken 50-plus years to do it.