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Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
producers TEXT REDACTED. As a result, the COGS-to-revenue ratio per vehicle TEXT REDACTED.127 That the average unit COGS for automobile producers in the United States TEXT
REDACTED makes clear that Americanowned producers of automobiles TEXT
REDACTED in costs to their U.S.
customers, TEXT REDACTED.
Foreign-owned automobile producers operating in the U.S. market, where a significant volume of automobile parts are sourced abroad TEXT REDACTED, have not experienced TEXT
REDACTED.128 From 2013 to 2017, foreign-owned producers average pervehicle COGS TEXT REDACTED, while their TEXT REDACTED.129 This led to an overall average COGS-torevenue ratio TEXT REDACTED, which means that foreign-owned producers TEXT REDACTED.130
Further, during the 2013 to 2017 period, foreign-owned automobile producers TEXT REDACTED.131 Import prices, moreover, were TEXT REDACTED, as noted above.
In short, TEXT REDACTED given that low-priced imports have prevented U.S. producers from increasing their automobile prices by a sufficient margin to offset increases in costs. Additionally, as noted, U.S. automobile producers often used their purchasing power to limit price increases or compel price decreases by their parts suppliers.132
Consequently, automobile parts are now being increasingly produced in foreign countries. As previously shown in Figures 20 through 25, automobile producers have become increasingly reliant on automobile parts imported from foreign suppliers. Furthermore, the number of automobile parts manufacturing establishments in the United States have fallen, decreasing from 5,624 in 2005 to 4,948 in 2016.133
TEXT REDACTED.134 Domestic demand for automobile parts clearly exists, but the contraction of the automotive parts manufacturing base in the United States has impeded the growth of related R&D investments by American-owned firms in technological advancements that are essential for U.S.
defense capabilities.135
127 Id.
128 Id.
129 Id.
130 Id.

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131 Id..
132 See McKinsey & Company, The Future of the North American Automotive Supplier Industry, supra.
133 U.S. Census Bureau, Business Patterns, NAICS
code 3363.
134 U.S. Producers Survey Responses, Questions 46.
135 John Moavenzadeh, Offshoring Automotive Engineering: Globalization and Footprint Strategy
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C. Domestic Manufacturing and Domestic R&D in Technologies for Engines, Transmissions, and Electrical Components Are Necessary for National Security As previously noted, the automotive industry is a key driver of innovation for the U.S. military and develops state-ofthe-art technologies, from autonomous vehicles equipped with navigation systems that enable them to maneuver over dangerous terrain to lighter and more powerful fuel-efficient vehicles.
Given that many of the technological advancements in military vehicle connectivity, electrification, lightweighting, and autonomous driving are first developed through R&D in the commercial automotive sector in the United States, it is imperative that related R&D remain within the United States, be conducted by Americanowned firms, and that the United States Government take measures to secure the long-term viability of domestic R&D in the automotive sector.
As a general matter, it is well understood that globalization of the automobile sector has decentralized production such that decoupling R&D
from manufacturing has become possible, allowing producers to seek manufacturing investments in areas where production costs are lowest and in the Motor Vehicle Industry, Dec. 1, 2006, https
www.nae.edu/File.aspx?id=10284&v=79e01bce. The erosion of the U.S. automobile parts supplier base has been a decades-long trend. In 1998 the New York Times reported that from 19781998 GMs Delphi division had built over 50 manufacturing plants in Mexico. A major factor listed for the shift of parts assembly was lower costs derived from lower labor costs, with some U.S. workers earning $22 an hour in 1998 being replaced by Mexican workers earning $1 to $2 an hour. Sam Dillon, A
20-Year G.M. Parts Migration To Mexico, New York Times, Jun. 24, 1998, https www.nytimes.com/
1998/06/24/business/international-business-a-20year-gm-parts-migration-to-mexico.html. In 2006, Delphi announced the closing or sale of 21 out of 29 of its U.S. automobile parts plants, with new operations being announced in Mexico and China.
Kate Lithicum, A tale of two cities: What happened when factory jobs moved from Warren, Ohio, to Juarez, Mexico, Los Angeles Times, Feb. 17, 2017, http www.latimes.com/world/mexico-americas/lafg-mexico-us-factories-20170217-htmlstory.html. In 2007, TRWs Chief Operations Officer discussed in an interview the firms ongoing plans to shift production to low-cost countries. At that time 37
38 percent of the firms operations were in low cost countries, but TRW had a five-year plan to move to 50 percent sourcing from those countries.
Douglas Bolduc, TRW Plan: Buy More Parts from Low-Cost Countries, Automotive News, May 21, 2007, http www.autonews.com/article/20070521/
SUB/70516021/trw-plan%3A-buy-more-parts-fromlow-cost-countries. By 2013, Automotive News reported seven of the largest North American automobile parts suppliers were expanding their operations in Mexico. China was also listed by the large supplier companies as a key destination for new operations. David Sedgewick, Global Industry Craves Megasuppliers, Automotive News, Jun. 17, 2013, https www.autonews.com/assets/PDF/
CA89220617.PDF.

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to focus R&D investments in locations where specific technological progress is being made.136 To the extent R&D is removed from manufacturing, it occurs in areas where technology has matured, the value of integrating product design with manufacturing is low, and the product has little bearing on national security. On the other hand, manufacturers tend to locate R&D in close proximity to manufacturing facilities when the technology is emerging or product-specific.137
Further, where technology is important to product innovation and R&D directly impacts national security capabilities, it is essential that R&D
remain in each producers home country, so as to minimize knowledge and innovation outflows that could undermine a nations competitive advantage.138 In the automotive sector, co-locating the manufacture of automobiles and automobile parts with related R&D increases the rate of efficiency in the adoption of technological gains. Advancements in vehicle lightweighting, connectivity, electrification and autonomous driving require highly specialized and innovative manufacturing processes, such that R&D is optimized when located in close proximity to manufacturing facilities.139 As complexities in product design increase and the market demands faster innovation, R&D proximity facilitates the rapid development of product life cycles and gives manufacturers sufficient flexibility to capture R&D
breakthroughs.140 For technologically advanced products, even minor changes in the manufacturing process can have a huge impact on the product, the value of closely integrating manufacturing and R&D is high, and the 136 Global Location Strategy for Automotive Suppliers, KPMG International, Feb. 21, 2009, https www.kpmg.de/docs/Global_Location.pdf.
137 See Gary P. Pisano and Willy C. Shih, Does America Really Need Manufacturing, Harvard Business Review, March 2012, https hbr.org/2012/
03/does-america-really-need-manufacturing; The Proximity of Manufacturing Increases the Rate of R&D Efficiencies, Aalto University, Mar. 15, 2017, https phys.org/news/2017-03-proximityefficiencies.html.
138 Id.; Juan Alcacer and Minyuan Zhao, Local R&D Strategies and Multi-Location Firms: The Role of Internal Linkages, Harvard Business School Working Paper, 2010, https www.hbs.edu/faculty/
Publication%20Files/10-064.pdf.
139 Supra n. 137.
140 European Commission, Study on the Relationship Between the Localisation of production, R&D and Innovation Activities, Final Report ENTR/90/PP/2011/FC, Sep. 2014, http
ec.europa.eu/DocsRoom/documents/6958/
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