NEW YORK/WASHINGTON — Japanese and European automakers have cried foul over Washington’s plans to subsidize electric vehicles made by union labor, declaring that the treatment would amount to a two-tiered system favoring a select group of manufacturers.
The Biden administration and Democratic lawmakers look to finalize a scheme that would grant a $4,500 tax credit for EVs assembled in union plants. It will be part of the proposed $1.75 trillion Build Back Better spending bill.
Toyota Motor aired its grievances in ads carried Tuesday in American newspapers.
The incentive plan “says that if [consumers] want to buy an electric vehicle not made by Ford, General Motors or Chrysler, they will have to pay an extra $4,500,” the ad reads.
Toyota calls for legislation that will treat all autoworkers equally. “This isn’t fair. This isn’t right,” it says in the ad.
Toyota Motor took out an ad in the Wall Street Journal on Nov. 2 taking exception to a proposed $4,500 tax incentive for union-made electric vehicles. (Photo by Shuji Nakayama) Under the proposal, people who purchase a union-made electric vehicle would receive the $4,500 income tax break on top of an existing $7,500 subsidy. Rep. Dan Kildee, a Democrat from Michigan, first put forward the provision.
Michigan is home to major American automakers — GM, Ford and Chrysler — whose plant workers are represented by the United Auto Workers union, which counts over 400,000 active members.
However, those working for Japanese automakers in the U.S. are not part of UAW. This is also true for South Korean auto manufacturers, Tesla and European carmakers, with Dutch-domiciled Chrysler-owner Stellantis as the exception.
The subsidies could go into effect as early as in January. Lawmakers are also deliberating a proposition that would make EVs assembled outside the U.S. ineligible for subsidies starting in 2026 or 2027.
Honda Motor has issued a statement calling for the “unfair” tax incentive plan to be removed from the larger spending bill. Scott Keogh, CEO of Volkswagen Group of America, has been vocal against the provision as well.
Twenty-five diplomats to the U.S., including from the European Union, Japan, Canada and Mexico, sent a letter to Senate and House leaders last week to show their opposition to the tax credits.
“Our governments support workers’ right to organize,” reads the letter. “It is a fundamental right and should not be used in the framework of tax incentives, setting aside the opportunities for nearly half of America autoworkers.”
UAW President Ray Curry, meanwhile, has welcomed the tax breaks.
“I commend Representative Kildee for crafting legislation to protect and create more good-paying union jobs for years to come,” said Curry, calling for bipartisan support.
A prototype of an all-electric F-150 Lightning truck is being assembled at Ford’s Rouge Electric Vehicle Center in Dearborn, Michigan. © Reuters Hourly wages at factories with UAW representation are an estimated 20% higher than at nonunion plants. Japanese and European automakers seeking to keep costs down have tended to steer clear of the U.S. Midwest, where the union’s presence is strongest, in favor of Southern states like Kentucky and Mississippi.
The pro-union tax incentives in the spending bill could make the U.S. a less attractive destination for these manufacturers, potentially discouraging investment.
“For sure, these subsidies violate WTO rules. As well, they contradict the US campaign against ‘foreign’ subsidies, especially by China, and the clamor for minimum corporate taxes,” said Gary Hufbauer at the Peterson Institute for International Economics. “The subsidies are essentially negative taxes. At the moment, discipline against subsidies has essentially broken down,” he said.
The contents of the bill could still change. The U.S. President Joe Biden and Democrats in Congress are still trying to agree on the details, and Sen. Joe Manchin of West Virginia — home to a Toyota engine factory — has yet to support it. The legislation essentially requires the support of all Senate Democrats to pass.