Foreign-Flag Auto Factories: Iacocca Got His Wish, Sort Of

Last Updated May 12, 2010 2:10 PM EDT

There's a saying that that more tears are shed over prayers that are answered than prayers that are denied, and former Chrysler Chairman Lee Iacocca provides a classic example.

Iacocca once famously complained that if Japanese auto manufacturers wanted to sell cars in America, they should build cars in America. What Iacocca probably had in mind was that the Japanese would hire assembly line workers from the United Auto Workers. The costs of building plants and hiring union workers would represent more of a level playing field.

The UAW part of the concept never happened, except for New United Motor Manufacturers Inc., a joint venture among the UAW, General Motors and Toyota (TM). NUMMI is now folding, but Toyota's non-union plants are going strong. Other than NUMMI, foreign-based companies have studiously avoided unionization.

Back in Iacocca's day, Volkswagen (VLKPY.PK) in Pennsylvania and Nissan (NSANF.PK) in Tennessee were the first pioneers of what today are more than a dozen foreign nameplates building cars in the United States. Together, they now represent more than 30 percent of North American auto sales (see chart, in red).

Incidentally, the first VW plant in the United States failed miserably, but the Nissan plant is several times bigger than it was back then, and VW is taking another run at it, with a new plant now under construction in Chattanooga, Tenn. Today, Toyota, Honda (HMA), Hyundai (HYMLF.PK), Kia and others are a major presence in North American manufacturing.

In other words, Iacocca got his wish -- and how. The unintended consequence is that market share for the so-called "New Domestics" -- the term "transplants" is politically incorrect -- has come straight out of the hide of the domestic manufacturers, Chrysler, Ford (F) and GM. Nor did the Japanese quit importing cars, even as they built more and more here.

William Strauss, senior economist for the Federal Reserve Bank of Chicago, neatly illustrated this with a slide as part of a speech prepared for today at a conference in St. Louis hosted by the Motor & Equipment Manufacturers Association. (See above; blue represents the Detroit Three, red the "new domestics" and yellow, imports.)

Here's another quick Iacocca anecdote, for those of us who must remember how to spell it: his last name is an acronym for, "I Am Chairman of Chrysler Corp. of America."

Chart: Federal Reserve Bank of Chicago