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FRANKFURT -- An auto industry without borders.
That is the dream in C-suites from Detroit to Munich to Tokyo, now that the political stars appear aligned for free-trade treaties that could knock down some of the walls dividing the three capitals of the global auto market.
Top trade negotiators from the United States, Europe and Japan have circled the globe this year to talk about rewriting their trade laws. Seeing a once-in-a-generation chance to lower costs and ease regulatory headaches, automakers have rushed to the table, asking to scrap tariffs, market barriers and conflicting standards that affect the basic economic calculus of which cars get sold and where.
Their effort could bear fruit soon. The White House has promised a 12-country Pacific Rim trade deal by the end of 2013. Europe will be next, with talks over the "coming months or year, or a year and a half or however long it takes to get to a good deal," U.S. Trade Representative Michael Froman said last week on CNN.
The negotiations are in their early stages, and many points of contention remain, including doubts about the wisdom of aligning regulations and whether Japan's market is truly open to foreign automakers.
But the auto industry's top executives are already imagining ways the deals could cross-pollinate their showrooms -- making it cost effective to sell European wagons and minicars in the United States, for example, or to send U.S.-built SUVs and muscle cars to Europe.
Ultimately, the impact could ripple around the world, creating a new auto production base in a country such as Malaysia, while undercutting the advantage that existing hubs such as South Korea and Mexico have gained from their own free-trade deals.
Even as automakers call for a market without borders, one of their principal aims is to jointly erect a firewall against competitors from South Korea -- and, soon, China and India. The cost savings from reducing tariffs and streamlining regulations, they say, are a matter of national economic interest.
"Our cost is high, and their cost is low," said Wolfgang Schneider, European vice president for governmental affairs at Ford Motor Co. "How do we get our cost down? What is the way we can regain cost-competitiveness on the international market? This is about combining."
Cost vs. benefit
Final treaties likely would phase out U.S. and European Union tariffs on imported cars, trucks and parts, saving automakers billions of dollars. Automakers want more. Their Holy Grail is a regulatory blessing called "mutual recognition" -- the ability to certify a vehicle by one market's safety and environmental standards and sell it anywhere in the world.
"If the regulator forces us into differences, that is just costly," Schneider said. "It is just cost that is not actually benefiting the consumer because we do fundamentally believe the vehicles are equally safe and equally green."
Regulators, for their part, worry that trying to align two or three sets of standards could mean watering down one of them. In the United States, for instance, vehicles get crash-tested an extra time to see how well they protect passengers who aren't wearing seat belts. Automakers want the test gone, but U.S. auto safety regulators say it makes American vehicles safer.
Defusing such concerns probably will require a push from top officials at the White House and the European Commission, said Ivan Hodac, head of the European Automobile Manufacturers Association.
"I think that we should be able to be there, together," Hodac said of the United States and Europe. "But without high political pressure and without the will from the agencies and the industry -- it ain't going to happen."
The allure of a trade deal has grown in recent years as the Detroit automakers have sought greater integration with their European operations as a way to trim development costs and feed their product pipelines. The Detroit 3 also are tempted by the opportunity to pitch more quintessentially American vehicles to enthusiasts in Europe, even at low volumes.
A free-trade agreement along the lines automakers seek would erase more than $2,000 in EU tariffs on a car such as the Ford Mustang, plus the added cost of re-engineering for the European market, which can be even higher.
Similar benefits await General Motors, which wants to dip into the lineup of its Opel subsidiary to flesh out the Buick brand in the United States. For now, though, it's too expensive to duplicate engineering and testing for U.S. rules on low-volume vehicles, said Thomas Sedran, a former Opel board member who now runs Chevrolet Europe.
That's one reason Audi stopped selling conventional wagons in the United States, said Scott Keogh, president of Audi of America, rather than try to satisfy the small but passionate U.S. market for such vehicles.
"We get screaming e-mails each and every day, saying: 'Where is the RS6 Avant?'" Keogh said, referring to a high-powered wagon launched in Europe this year.
Trade talks on 3 fronts
Free-trade talks under way involve the United States, European Union and Japan, home to 13 of the 15 largest automakers. Here's a look at 3 sets of talks as they affect automakers and where the negotiations stand.
Transatlantic Trade and Investment Partnership
• Parties: United States, European Union
• Status: Talks began in July in Washington and continue next month in Brussels; goal is to finalize a pact in 2014.
• Agenda: A phaseout of U.S. tariffs (2.5% on cars, 25% on trucks) and EU tariffs (10% on cars, 22% on trucks); alignment of auto safety rules and other standards
• Key sticking points: Regulators are wary of foreign regulations; talks are being slowed by matters unrelated to autos, such as France's concern that Hollywood will overpower its film industry.
Trans-Pacific Partnership
• Parties: United States, Canada, Mexico, Chile, Peru, Japan, Australia, New Zealand, Brunei, Malaysia, Singapore, Vietnam
• Status: Talks resumed in August in Brunei and will continue next month in Indonesia; goal is to finish a pact by year end.
• Agenda: A phaseout of U.S. tariffs (2.5%
on cars, 25% on trucks) and tax advantages for 0.66-liter kei minicars in Japan; alignment of auto safety rules and other standards
• Key sticking point: Detroit automakers fought to keep Japan out of the talks, arguing that the Japanese market shuts out imported vehicles despite its lack of tariffs. They will likely protest a phaseout of U.S. tariffs unless they get something in return.
EU-Japan Free Trade Agreement
• Parties: EU, Japan
• Status: Negotiations started in April in Brussels, but Europe says it could pull the plug after a year if Japan does not show it is removing "non-tariff barriers."
• Agenda: A phaseout of EU tariffs (10% on cars, 22% on trucks) and tax advantages for kei minicars in Japan; alignment of auto safety rules and other standards
• Key sticking point: Luxury brands such as Mercedes-Benz and BMW are growing in Japan, but EU automakers still have just a 4% market share there. They like the idea of aligned regulations but see little to gain from giving up Europe's tariffs.
Japanese executives are as enthusiastic about free-trade deals as their American and European counterparts, and they support aligned regulations. But the Detroit 3 and Europeans say they would need to see progress against other impediments in Japan's automotive market -- where roughly 5 percent of sales come from import brands -- before they give up tariffs on Japanese vehicles.
"It has to be a two-way street," Hodac of the European automakers group said of a trade deal with Japan.
Critics of free-trade deals often argue that they encourage manufacturers to move production wherever labor costs are lowest. But executives from Japanese automakers say trade deals wouldn't disrupt their trend toward producing locally -- that is, close to the intended buyers -- even if a few niche models cross the ocean.
Duty-bound
Border tariffs on vehicles vary by market and vehicle category. Automakers all say they want trade deals to yield a level playing field, but when it comes to Japan, they disagree on what is level.
• United States: Imposes a 2.5% tariff on imported cars, 25% on imported trucks
• European Union: Imposes a 10% tariff on imported cars, 22% on imported trucks
• Japan: Has no tariffs, but U.S. and EU automakers say Japan blocks imports through taxes, government standards and distribution structures
Trevor Mann, an executive vice president at Nissan, said a free-trade deal might give Nissan the opportunity to export the U.S.-made Nissan Pathfinder and Infiniti QX60 SUVs to Europe. But the volume models would likely stay put, providing a buffer against currency fluctuations.
"We can't control exchange rates," Infiniti President Johan de Nysschen said in an interview. We want to basically set ourselves up to have a natural currency hedge."
EU officials have set a goal of finishing a treaty with the United States in 2014. Hodac said the key will be showing slow, steady progress, so the talks do not peter out, as an attempt in the 1990s did.
By year end, Hodac said, car companies should aim to have some sort of agreement on how to bridge differences between U.S. and European law.
That could be a way of proving that even differing standards -- such as auto safety and tailpipe emissions rules -- can be equivalent from country to country.
"If we don't have progress by December," Hodac said, "we will be in trouble."
FRANKFURT -- An auto industry without borders.
That is the dream in C-suites from Detroit to Munich to Tokyo, now that the political stars appear aligned for free-trade treaties that could knock down some of the walls dividing the three capitals of the global auto market.
Top trade negotiators from the United States, Europe and Japan have circled the globe this year to talk about rewriting their trade laws. Seeing a once-in-a-generation chance to lower costs and ease regulatory headaches, automakers have rushed to the table, asking to scrap tariffs, market barriers and conflicting standards that affect the basic economic calculus of which cars get sold and where.
Their effort could bear fruit soon. The White House has promised a 12-country Pacific Rim trade deal by the end of 2013. Europe will be next, with talks over the "coming months or year, or a year and a half or however long it takes to get to a good deal," U.S. Trade Representative Michael Froman said last week on CNN.
The negotiations are in their early stages, and many points of contention remain, including doubts about the wisdom of aligning regulations and whether Japan's market is truly open to foreign automakers.
But the auto industry's top executives are already imagining ways the deals could cross-pollinate their showrooms -- making it cost effective to sell European wagons and minicars in the United States, for example, or to send U.S.-built SUVs and muscle cars to Europe.
Ultimately, the impact could ripple around the world, creating a new auto production base in a country such as Malaysia, while undercutting the advantage that existing hubs such as South Korea and Mexico have gained from their own free-trade deals.
Even as automakers call for a market without borders, one of their principal aims is to jointly erect a firewall against competitors from South Korea -- and, soon, China and India. The cost savings from reducing tariffs and streamlining regulations, they say, are a matter of national economic interest.
"Our cost is high, and their cost is low," said Wolfgang Schneider, European vice president for governmental affairs at Ford Motor Co. "How do we get our cost down? What is the way we can regain cost-competitiveness on the international market? This is about combining."
Cost vs. benefit
Final treaties likely would phase out U.S. and European Union tariffs on imported cars, trucks and parts, saving automakers billions of dollars. Automakers want more. Their Holy Grail is a regulatory blessing called "mutual recognition" -- the ability to certify a vehicle by one market's safety and environmental standards and sell it anywhere in the world.
"If the regulator forces us into differences, that is just costly," Schneider said. "It is just cost that is not actually benefiting the consumer because we do fundamentally believe the vehicles are equally safe and equally green."
Regulators, for their part, worry that trying to align two or three sets of standards could mean watering down one of them. In the United States, for instance, vehicles get crash-tested an extra time to see how well they protect passengers who aren't wearing seat belts. Automakers want the test gone, but U.S. auto safety regulators say it makes American vehicles safer.
Defusing such concerns probably will require a push from top officials at the White House and the European Commission, said Ivan Hodac, head of the European Automobile Manufacturers Association.
"I think that we should be able to be there, together," Hodac said of the United States and Europe. "But without high political pressure and without the will from the agencies and the industry -- it ain't going to happen."
The allure of a trade deal has grown in recent years as the Detroit automakers have sought greater integration with their European operations as a way to trim development costs and feed their product pipelines. The Detroit 3 also are tempted by the opportunity to pitch more quintessentially American vehicles to enthusiasts in Europe, even at low volumes.
A free-trade agreement along the lines automakers seek would erase more than $2,000 in EU tariffs on a car such as the Ford Mustang, plus the added cost of re-engineering for the European market, which can be even higher.
Similar benefits await General Motors, which wants to dip into the lineup of its Opel subsidiary to flesh out the Buick brand in the United States. For now, though, it's too expensive to duplicate engineering and testing for U.S. rules on low-volume vehicles, said Thomas Sedran, a former Opel board member who now runs Chevrolet Europe.
That's one reason Audi stopped selling conventional wagons in the United States, said Scott Keogh, president of Audi of America, rather than try to satisfy the small but passionate U.S. market for such vehicles.
"We get screaming e-mails each and every day, saying: 'Where is the RS6 Avant?'" Keogh said, referring to a high-powered wagon launched in Europe this year.
Trade talks on 3 fronts
Free-trade talks under way involve the United States, European Union and Japan, home to 13 of the 15 largest automakers. Here's a look at 3 sets of talks as they affect automakers and where the negotiations stand.
Transatlantic Trade and Investment Partnership
• Parties: United States, European Union
• Status: Talks began in July in Washington and continue next month in Brussels; goal is to finalize a pact in 2014.
• Agenda: A phaseout of U.S. tariffs (2.5% on cars, 25% on trucks) and EU tariffs (10% on cars, 22% on trucks); alignment of auto safety rules and other standards
• Key sticking points: Regulators are wary of foreign regulations; talks are being slowed by matters unrelated to autos, such as France's concern that Hollywood will overpower its film industry.
Trans-Pacific Partnership
• Parties: United States, Canada, Mexico, Chile, Peru, Japan, Australia, New Zealand, Brunei, Malaysia, Singapore, Vietnam
• Status: Talks resumed in August in Brunei and will continue next month in Indonesia; goal is to finish a pact by year end.
• Agenda: A phaseout of U.S. tariffs (2.5%
on cars, 25% on trucks) and tax advantages for 0.66-liter kei minicars in Japan; alignment of auto safety rules and other standards
• Key sticking point: Detroit automakers fought to keep Japan out of the talks, arguing that the Japanese market shuts out imported vehicles despite its lack of tariffs. They will likely protest a phaseout of U.S. tariffs unless they get something in return.
EU-Japan Free Trade Agreement
• Parties: EU, Japan
• Status: Negotiations started in April in Brussels, but Europe says it could pull the plug after a year if Japan does not show it is removing "non-tariff barriers."
• Agenda: A phaseout of EU tariffs (10% on cars, 22% on trucks) and tax advantages for kei minicars in Japan; alignment of auto safety rules and other standards
• Key sticking point: Luxury brands such as Mercedes-Benz and BMW are growing in Japan, but EU automakers still have just a 4% market share there. They like the idea of aligned regulations but see little to gain from giving up Europe's tariffs.
Japanese executives are as enthusiastic about free-trade deals as their American and European counterparts, and they support aligned regulations. But the Detroit 3 and Europeans say they would need to see progress against other impediments in Japan's automotive market -- where roughly 5 percent of sales come from import brands -- before they give up tariffs on Japanese vehicles.
"It has to be a two-way street," Hodac of the European automakers group said of a trade deal with Japan.
Critics of free-trade deals often argue that they encourage manufacturers to move production wherever labor costs are lowest. But executives from Japanese automakers say trade deals wouldn't disrupt their trend toward producing locally -- that is, close to the intended buyers -- even if a few niche models cross the ocean.
Duty-bound
Border tariffs on vehicles vary by market and vehicle category. Automakers all say they want trade deals to yield a level playing field, but when it comes to Japan, they disagree on what is level.
• United States: Imposes a 2.5% tariff on imported cars, 25% on imported trucks
• European Union: Imposes a 10% tariff on imported cars, 22% on imported trucks
• Japan: Has no tariffs, but U.S. and EU automakers say Japan blocks imports through taxes, government standards and distribution structures
Trevor Mann, an executive vice president at Nissan, said a free-trade deal might give Nissan the opportunity to export the U.S.-made Nissan Pathfinder and Infiniti QX60 SUVs to Europe. But the volume models would likely stay put, providing a buffer against currency fluctuations.
"We can't control exchange rates," Infiniti President Johan de Nysschen said in an interview. We want to basically set ourselves up to have a natural currency hedge."
EU officials have set a goal of finishing a treaty with the United States in 2014. Hodac said the key will be showing slow, steady progress, so the talks do not peter out, as an attempt in the 1990s did.
By year end, Hodac said, car companies should aim to have some sort of agreement on how to bridge differences between U.S. and European law.
That could be a way of proving that even differing standards -- such as auto safety and tailpipe emissions rules -- can be equivalent from country to country.
"If we don't have progress by December," Hodac said, "we will be in trouble."
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