California Has a Lot Riding on Auto Dispute : Trade: Japan-backed alliance claims tariffs could cost state thousands of jobs. Others argue sanctions could be a boon.

The struggle for California’s loyalties in the U.S.-Japan auto trade war escalated last week when a group backed by Japanese auto makers launched a media blitz declaring that up to 250,000 jobs in the state are threatened by $6 billion worth of proposed tariffs on Japanese luxury cars.

To a state still reeling from defense cutbacks, natural disasters and municipal bankruptcy, the notion of losing a quarter of a million jobs is sobering indeed. California is home to the U.S. sales subsidiaries of the five leading Japanese auto companies, consumes 20% of the Japanese luxury cars sold in this country and is the major gateway for Japanese automobiles entering the U.S. market.

But even the hastily formed Alliance to Save California Jobs, whose 75 members include U.S. subsidiaries of Japanese companies, auto dealers and companies involved in Japan trade, acknowledges that the 250,000 figure is based on a far-fetched scenario that has the auto flap exploding into a full-scale war closing all trade routes between California and Japan.

And although the threat of economic harm is real for the 13,656 Californians directly involved in the sales of Japanese automobiles, others argue the Clinton Administration’s tough trade stance is the only way to further pry open Japan’s markets to U.S. exports--including California produce, computers and Hollywood entertainment.

“California has an enormous amount to gain,” said Anne Luzzatto, a spokeswoman for the Office of the U.S. Trade Representative.

With talks scheduled next week in Geneva, U.S. officials and others hope the trade brinksmanship being played out in Washington and Tokyo will lead to a last-minute resolution. If an agreement is not reached by June 28, the Clinton Administration plans to impose 100% tariffs on Japanese luxury car imports retroactive to May 20.

But even if the sanctions are imposed, they are not expected to last more than a few months and would not suck thousands of jobs out of the California economy, according to industry analysts.

“The only way we’re going to see significant job losses is if this thing goes on for a long, long time,” said Christopher Cedergren, president of AutoPacific Inc., a Santa Ana auto consulting company.

Still, though the job loss figures are debatable, the full-page advertisements and radio spots vividly illustrate the large stake California has in the outcome of these trade talks, given the state’s importance as a gateway for Pacific Rim trade and investment.

U.S. subsidiaries of Japanese auto firms have invested $2.6 billion in 125 facilities in California, pay $18.9 million in payroll taxes and purchase $2.8 billion worth of advertising, office supplies and other services a year, according to the Alliance to Save California Jobs.

Overall, this Japanese automobile presence supports at least 150,000 statewide jobs in advertising, shipping, ports and other trade-related segments of the economy, the alliance claims.

Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County and the author of the alliance’s job impact report, acknowledged that a much smaller number of California jobs--2,500 to 5,000--is directly threatened by the auto sanctions.

*

Indeed, although luxury cars are the most profitable segment of Japanese auto sales, they only represented about 12%, or 200,000, of the 1.6 million cars exported from Japan to the United States last year.

But Kyser and others defended the use of the larger job loss figures on the grounds that the Clinton Administration’s tough trade stance has placed all of California’s Japan trade at risk at a time when the state is still recovering from defense cuts, budgetary shortfalls and the Northridge earthquake.

“After what we’ve been through, I get very defensive about even losing one job,” Kyser said.

Robert Alaniz, a spokesman for the alliance, said the U.S. companies involved in the campaign are not promoting a Japanese viewpoint, even though the alliance is largely funded by Japanese auto makers.

“These are American employees, and that’s the point that’s getting lost in this trade rhetoric,” he said. “You keep hearing U.S. versus Japan and one visualizes Washington, D.C., versus Tokyo. But we’re the front line. American jobs are at stake.”

He said the alliance believes the United States should take its complaints to the World Trade Organization, the newly formed international trade body, rather than risk a high-profile confrontation that could hurt U.S. auto dealers or employees of Japanese firms in the United States.

But David Friedman, a Los Angeles lawyer and Japanese-trade specialist, said California has been a major beneficiary of previous “knock-down, drag-out market opening” battles in the 1970s and ‘80s that enabled California orange and rice growers and semiconductor manufacturers to gain access to previously closed markets in Japan.

He said the United States has no choice but to sacrifice the special interests of a small segment of American workers with the hope of further opening the Japanese market and creating expanded job opportunities elsewhere.

“If you view the interests of America from a national perspective, do you want to create 100 new jobs by opening up new markets or protect one job and lose those 100 jobs?” he said.

Even if the talks fail and the sanctions are imposed, it is unclear how much damage will be felt on this side of the Pacific. A U.S. trade official, who asked not to be named, said the government considered other options but decided to limit the tariffs to luxury cars, which are not manufactured in the United States, precisely because it would inflict the least harm on the U.S. economy.

*

David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan, said most U.S. auto dealers selling Japanese luxury cars also operate other franchises, giving them a cushion to fall back on should their supply of Infinitis or Lexuses be cut off for a few months.

“There will be some impact, but it will be a whole lot less than the thousands of jobs they are suggesting,” he said.

Cedergren, the auto consultant, is convinced that the Japanese auto makers will subsidize their U.S. dealers to protect their distribution networks. He said the Japanese can’t afford to let their dealers go under and rebuild a sales force when the sanctions are lifted.

These predictions are of little consolation to those Californians who feel they are caught in a trade dispute inflamed by domestic political problems in Japan and rising frustrations over this country’s $60-billion trade deficit with Japan.

Fred Miller, the owner of eight Southern California automobile franchises, including an Infiniti dealership, said many dealers have borrowed heavily against their other automobile franchises to establish luxury car dealerships that cost anywhere from $2 million to $6 million each.

“My Pontiac dealership could be closed down [if the sanctions are imposed],” he said. “I’m not going to be able to carry the mortgage.”

*

Other Californians are also feeling the heat. Japanese auto makers spent $1.3 billion last year on advertising, the bulk of which went to California firms such as Chiat/Day Inc., Ketchum Advertising and Team One, which was spun off from Saatchi & Saatchi to handle the Lexus account.

Dave Meffert, president of Meffert Advertising Design in Torrance, depends on Japanese auto firms for 80% of his design and advertising work. He doesn’t have to worry about covering a payroll since he works with a free-lance staff. But he is worried about paying his own family’s bills.

Meffert hopes President Clinton, who got his vote in the presidential race, is just using this sanctions threat to bring the Japanese to the negotiating table.

“Like most people, I live at the end of my means, and it would be pretty tough to survive [if the sanctions were imposed],” he said.

Fritz Hutcheson, the president of Hasco Autoport Services, said he has already warned his 45 permanent employees that they may face shorter hours or even layoffs if the auto sanctions are imposed.

His company handles 50,000 to 60,000 Mazda vehicles a year that are shipped through the U.S. Navy base at Port Hueneme in Ventura County. Thirty percent of the cars are luxury models.

“I’m almost 80 years old and it won’t hurt me,” he said. “But it would hurt my employees. . . . It’s just not fair to pick on one industry.”