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As hybrid and advanced diesel vehicles gain sales,
jobs could be lost

Environmentally friendly cars may be good for the Earth, but bad for manufacturing jobs in the U.S., a U-M report says.

Vehicles with gas-electric hybrid or advanced diesel powertrains could capture nearly 11 percent of the U.S. light vehicle market by 2009. But since most of these new drive trains are being built overseas, a consumer shift to hybrids could cost jobs, the report says.

The report projects that more than 200,000 U.S. jobs could be lost by 2009; nearly one-third would be in Michigan, Indiana and Ohio. It's in those three states that 45 percent of all vehicles are assembled and 88 percent of transmissions and diesel engines are manufactured.

"These scenarios are just that—pictures of what might happen," says Patrick Hammett, a researcher at the Transportation Research Institute's Office for the Study of Automotive Transportation (OSAT). "But the farther out you go, say to 2012 or beyond, the more likely they become. So the real question is probably less whether they will happen than it is when they will happen."

A new report issued in January by OSAT and the Michigan Manufacturing Technology Center (MMTC) outlines the possible impact these two alternative powertrains could have on the U.S. auto industry. They also estimate production costs and forecast the likely job consequences of a shifting market share.

The report was funded by the National Commission on Energy Policy and the Michigan Environmental Council.

"Japan has a substantial lead in hybrid technology and production and Europe leads in advanced diesels, so most of the supplier and assembly work for these new vehicles will probably take place outside the United States, and that could cost over 200,000 U.S. jobs," says Hammett, who directed the study. "Fortunately, there are ways to limit these losses, if not entirely avoid them."

The study projects that in 2009 hybrid and advanced diesel vehicles may account for as many as 1.8 million of the 16.6 million automobiles sold in a reasonably robust market.

The study, "Fuel Saving Technologies and Facility Conversion: Costs, Benefits and Incentives," also examines the impact of a tax credit to encourage powertrain component and vehicle producers to locate some production and assembly work in the United States.

The report considers three different market-growth scenarios in 2009 for vehicles with gas-electric hybrid and advanced diesel powertrains. A normal growth scenario of about
3 percent would result in job losses of 38,000 nationwide; a growth rate of roughly 7 percent would mean a loss of 131,000 jobs nationwide; and growth of nearly 11 percent would result in 207,000 job losses in
the U.S.

"These losses include current jobs making vehicles with traditional powertrains that would be displaced by these new vehicles, as well as the failure to secure new jobs making those new vehicles with these alternative powertrains," Hammett says.

One way to limit job losses is to provide an incentive to component and vehicle manufacturers to invest in U.S. production. A tooling and equipment investment tax credit for suppliers that convert capacity to components for these new powertrains, and for manufacturers that convert capacity to assemble these vehicles, could indeed yield powerful results, Hammett says.

If even partially effective, a tax credit can lower job losses substantially in each market scenario, he says. Moreover, depending on the scenario, additional government revenues associated with U.S. production during a 10-year period will reach five-to-eight times the cost of the credit.

"This tax credit is not only revenue-neutral or even better, but it could save one of every four U.S. jobs put at risk from imports of these newer powertrains and vehicles," says Daniel Luria, vice president of strategy and measurement at MMTC.

According to Hammett, gas electric hybrid and advanced diesel powertrains present a bit of an "ecology vs. economy" dilemma.

"Their enhanced fuel economy and reduced emissions are important positives, but absent any effort, they will probably have adverse economic consequences on the United States," Hammet says.

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