New U.S. Car Labeling Law Criticized as Being Confusing : Autos: Canada is counted as part of domestic market. U.S. auto makers insist disclosure is full and fair.

Looking for a new car and you want to buy American?

Good luck.

Buyers have long been confused about what actually constitutes an “American” car. Is a Pontiac Firebird made in Canada with a U.S.-built engine more American than a Nissan Altima made in Tennessee with an engine from Japan?

Such questions have only gotten harder to answer as the auto industry becomes more global, foreign auto makers move more production to the United States and trade tensions periodically erupt.

And now, the confusion is about to get even worse.

Beginning Saturday, the federal government will require auto makers to state the total domestic content--defined as U.S. and Canadian--of a vehicle’s parts and to identify foreign countries that supply significant amounts of those parts.

The new law, known as the American Automobile Labeling Act, also requires car makers to reveal where the transmission and engine parts came from and the vehicle’s point of final assembly.

Sounds simple enough. But critics--foreign auto makers, dealers, some suppliers and consumer groups--say the law is poorly crafted and deliberately skewed to favor Detroit. The content labels appearing on new vehicles this fall will be confusing, misleading and in some cases inaccurate, they say.

“It is going to give a lot of misinformation to consumers,” said Joan Claybrook, president of Public Citizen, a Washington-based consumer group.

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For example, Canadian parts are counted the same as U.S. parts, and identical cars made on the same line but badged differently--such as General Motors’ Geo Prizm and the Toyota Corolla--could be credited with widely varying domestic content.

The new law takes effect as trade tensions between Japan and the United States are entering a sensitive phase. The Clinton Administration has threatened to impose trade sanctions on Japan by Friday0 unless it lowers trade barriers in key industries, including autos and auto parts.

It also comes as Japanese and European auto makers are moving more production to the United States and stepping up their purchase of U.S. auto parts. Still, Detroit argues that the vehicles made at so-called transplant factories are foreign, because many of their parts come from abroad.

“This is a way to have a bit more truth in advertising,” said Andrew Card, president of the American Automobile Manufacturers Assn., the Big Three’s lobbying group.

But Jim Olson, vice president of Toyota Motor Sales, said the law discriminates against Japanese manufacturers by discounting their U.S. manufacturing operations and U.S. parts-buying efforts.

“It’s a lemon,” he said of the labeling law. “It ought to be recalled.”

While that is unlikely, the American International Automobile Dealers Assn. petitioned the government to rewrite the regulation and is threatening to challenge the law in court as “unconstitutionally vague and discriminatory.”

The new law means auto makers must make three different domestic content calculations: one for the U.S. Environmental Protection Agency to comply with corporate average fuel economy (CAFE) standards; one for the U.S. Customs Service, used to set tariffs under the North America Free Trade Agreement, and one for National Highway Traffic Safety Administration (NHTSA), which oversees the labeling law.

“This is government regulation run amok,” said Barbara Nocera, Honda’s manager of government relations.

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The labeling law was born during the Buy American push in 1992, which began after President Bush and a delegation of the Big Three auto makers were rudely rebuffed in efforts to gain major trade concessions from Japan.

The measure, pushed by the United Auto Workers union and reluctantly supported by the Big Three, passed as part of a highway appropriations bill without any committee hearings.

“We think it gives consumers important information,” said Alan Reuther, UAW legislative director and nephew of the late Walter Reuther, the legendary UAW president. “The Japanese dislike it because it doesn’t allow them to hide the fact that a large part of their parts still come from abroad.”

Japanese auto makers, however, say the new law does not provide a true picture of the U.S. content of vehicles, and is designed to give the Big Three a competitive leg up by portraying them as having higher domestic content than their foreign competitors.

“The very title of the act is a misnomer,” said Philip Hutchinson, president of the Assn. of International Automobile Manufacturers. “You will never know what the American content of a vehicle is from the law.”

He points out that the label lumps parts made in the United States and Canada together. This was done to placate GM, Ford and Chrysler, all of whom have large parts operations in Canada, Hutchinson said.

“Canada is now the 51st state,” he said.

Card said that CAFE already treats U.S.-Canadian operations equally and the U.S. and Canadian auto industries have been highly integrated since 1965, when the two countries forged a trade pact.

(The labeling law preceded the passage of NAFTA, so Mexico--unlike Canada--is treated as a foreign country in determining domestic content, though that may change as the Mexican auto and parts market becomes more integrated with the U.S. industry.)

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M ore distressing to the Japa nese is the disparate treatment the labeling law applies to in-house and outside suppliers.

Under the law, if a manufacturer purchases a part from a wholly owned supplier, then the exact domestic content of the part counts toward the total domestic content of the vehicle. So if GM acquires a part from its AC Delco subsidiary with 85% U.S.-Canadian content, it is credited with that amount.

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But if the part is purchased from an outside supplier, the domestic content is treated differently. If the content is 70% or more U.S.-Canadian, then it is considered to be 100% domestic. If it is less than 70%, it is given no value.

“This is misleading information,” said Nocera of Honda. “We think we should be able to count actual value regardless of who supplies the part.”

The government noted that this so-called “roll-up and roll-down” provision could result in widely varying domestic content for identical vehicles made on the same line. In one hypothetical case, it said the domestic content of vehicles could vary from 53% to 11% depending on the relationship of the manufacturer to the supplier.

Toyota officials said that the Corolla will have a lower domestic content than its twin, the GM-made Prizm, even though both are made by the same workers on the same line using the same parts at a joint-venture plant in Fremont, Calif.

The AAMA said the reason for the different treatment of suppliers is that it is easier to get accurate information from in-house suppliers. Card said it is much more difficult to trace origin when dealing with outside suppliers, who are often reluctant to share pricing information.

Another criticism of the label is that it may not reflect a vehicle’s real domestic content, because the law requires the data to be averaged for car lines. The domestic content of a model made in the United States is combined with an imported model, even if the two use different parts sources.

As a result, a Honda Accord made in Ohio will display a lower domestic content than it really has, and one imported from Japan will be have a higher content than it actually has.

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The government will, however, allow manufacturers to add a footnote at the bottom of the label stating the actual domestic content for U.S.-built vehicles.

The label also will carry a note that says: “Parts content does not include final assembly, distribution, or other non-parts costs.” This is in response to Japanese criticism that domestic content improperly excludes the value of assembly labor as well as some key operations done in final assembly operations.

The Japanese said that the exclusion is designed to reduce the domestic content of their vehicles, many of which are assembled at U.S. plants, typically with non-union work forces.

The Big Three counter that the law is designed to identify the origin of parts, not the whole car. “When I buy a can of soup, the label tells me the ingredients that went into it--not where the can came from,” Card said.

Besides, he said, the label requires the manufacturers to state the city, state and country where the vehicle was assembled.

Jack Gillis, spokesman for the Consumer Federation of America, said the labeling law is so complex that is likely to confuse and mislead most car shoppers.

“The effort, though laudable, falls short of giving consumers the accurate information they need to make informed decisions,” he said.

It also may cost consumers a little as auto makers pass along the costs of administering the program. The government estimates auto makers will spend about $13 million to gather label information in the first year.

Although the law was passed in 1992, the final rules were not published until July. As a result, NHTSA said it will accept “good faith” estimates of domestic content by the auto makers on labels until June 1, 1995.

While Detroit’s auto makers have pushed the label law, much of the onus for compliance falls on their suppliers, who must trace the value and origin of parts from a myriad of vendors and sub-assemblers.

“There is a lot of consternation among suppliers,” said Richard Fournier, a representative with the Automobile Industry Action Group, which works with suppliers and manufacturers to reduce regulatory costs.

Jim Lounsbery, vice president of Motor Wheel Corp., a Lansing, Mich.-based wheel and brake supplier, said his company views the labeling regulations as a cost of doing business. “But my personal opinion is I’m not sure it helps the consumer,” he said. Dealers also are skeptical, fearing the labels will increase the cynicism of consumers about car sales practices. “This will only add confusion,” said Fred Miller, a Van Nuys car dealer who sells both Japanese and domestic-brand vehicles.

Some industry officials believe the labeling law could backfire on the Big Three, revealing to the public how many of their vehicles are built outside the United States and equipped with foreign parts.

“GM is so big and diverse that some of the objections the importers have will affect us the same way,” said one GM official, who asked not to be identified.

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In a short article on the labeling law in the September issue of Solidarity magazine, the UAW warned its members that looks can be deceiving in the auto business.

The union notes that the Ford Aspire is made in South Korea by Kia Motors while the Toyota Corolla is built by UAW members in California. It also notes that foreign auto makers make cars with UAW workers in four U.S. locations, while GM, Ford and Chrysler all import cars.

The UAW, however, also notes that, in general, the domestic content of Big Three vehicles is “significantly greater” than that of transplants. And union officials are hoping that the labeling law will put pressure on the Japanese to increase American buying.

“I think the labeling law will force them to buy more U.S. parts,” said Reuther.

A number of Japanese auto makers are doing just that. Recently, for instance, Toyota said it would expand its U.S. production and plans to increase procurement of U.S. parts from $4.65 billion in 1993 to $6.45 billion in 1996.

Toyota’s Olson said even without this initiative, his company did not oppose the idea of a labeling law. “We are for these kinds of labels if that is what the market wants,” he said. “But make them fair, honest and direct.”

American Automobile Labeling Act

On Oct. 1, the federal government will require auto makers to disclose the domestic content--defined as U.S. and Canadian--of the parts of vehicles sold in the United States. Here is a sample of how the new label will look and read.

Parts Content Information

For vehicles in the carline:

U.S./Canadian parts content: 50%

Major source of foreign parts content:

Japan 25%

Mexico 15%

For this vehicle:

Final assembly point: Detroit, Mich., U.S.A.

Country of Origin:

Engine: United States

Transmission: Japan

Note: Parts content does not include final assmebly, distribution, or other non-parts costs.

This car line is assembled in the U.S. and Japan. The U.S./Canadian parts content for the portion of the carline assembled in the United States is 75%. The U.S./Canadian parts content for the portion of the carline assembled in Japan is 25%.

* PARTS CONTENT INFORMATION

Legislation is supposed to provide information about the domestic content of parts in vehicles. Label is to be displayed on window of vehicle when offered for sale.

* FOR VEHICLES IN THIS CARLINE

Carline is defined as models of the same vehicle regardless of where manufactured. Domestic content is averaged for all vehicles is a carline.

* U.S./CANADIAN PARTS CONTENT

Includes the percentage of a vehicle’s parts including all material and labor costs that original in U.S. or Canada.

* MAJOR SOURCE OF FOREIGN PARTS CONTENT

Lists the top two countries outside the United States and Canada that provide a vehicles parts that exceed 15%. Must include percentage of content from those countries.

* FINAL ASSEMBLY POINT

Identifies the city, state and country where a vehicle was assembled.

* ENGINE and TRANSMISSION

Country of origin for the engine and transmission must be disclosed. The United States and Canada are considered separately here.

* NOTE

Explains that the value of assemble labor, some final assembly operations, sales and marketing operations not included in calculations of domestic content for parts.

* VEHICLES ASSEMBLED IN MORE THAN ONE COUNTRY

If a carline is manufactured in more than one country, the manufacturer has the option of including information at the bottom of the label that discloses U.S./Canadian parts content for models made in each country. If used, the U.S./Canadian parts content must be disclosed for models made in every country.

Sources: National Highway Traffic Safety Administration, American Automobile Manufacturers Association, Association of International Automobile Manufacturers.