I Learn Something New Every Day

I say “I learn something new every day” all the time. Because I do.

With skyrocketing fuel costs, I have begun to do research on more fuel efficient ways to deliver product to my customers. I live in a rural area, so we are forced to reach out and get the business. I work about a sixty mile radius.

I came upon the Ford Transit Connect. This is an interesting vehicle because of the relatively low initial cost and the 27 mpg on the highway. I did a bit of cocktail napkin math and this vehicle would pay for itself in fuel savings alone in about two years when comparing it against some of my gas guzzling diesel trucks.

While doing research on this vehicle, I discovered what the Chicken Tax was. I read about it on wiki.

To circumvent the 25% tariff on imported light trucks, Ford imports all Transit Connects as passenger vehicles with rear windows, rear seats and rear seatbelts.[9] The vehicles are exported from Turkey on cargo ships owned by Wallenius Wilhelmsen Logistics, arrive in Baltimore, and are converted into commercial vehicles at WWL Vehicle Services Americas Inc. facility: rear windows are replaced with metal panels and rear seats removed (except on wagons).[9] The removed parts are then recycled.[9] The process exploits a loophole in the customs definition of a commercial vehicle. As cargo does not need seats with seat belts or rear windows, presence of those items exempts the vehicle from commercial vehicle status. The conversion process costs Ford hundreds of dollars per van, but saves thousands over having to pay the chicken tax.[9] Partly because of this, only the long-wheelbase, high roof configuration is exported to North America. In most places, the high-roof Transit Connect, like most Ford Econoline vans, is unable to access multi-story parking because of its height (6′-6″).

I understand what was written, but was baffled as to why on earth a tariff on light trucks would be called a Chicken Tax.

I got curious, so I ran the wiki on the Chicken Tax.

The Chicken tax was a 25% tariff on potato starch, dextrin, brandy, and light trucks imposed in 1963 by the United States under President Lyndon B. Johnson as a response to tariffs placed by France and West Germany on importation of U.S. chicken.[1] The period from 1961–1964[2] of tensions and negotiations surrounding the issue, which took place at the height of Cold War politics, was known as the “Chicken War”.[3]
Eventually, the tariffs on potato starch, dextrin, and brandy were lifted,[4] but over the next 48 years the light truck tax ossified, remaining in place to protect U.S. domestic automakers from foreign light truck production (e.g., from Japan and Thailand).[5] Though concern remains about its repeal,[6][7] a 2003 Cato Institute study called the tariff “a policy in search of a rationale.”[4]
As an unintended consequence, several importers of light trucks have circumvented the tariff via loopholes—including Ford (ostensibly a company the tax was designed to protect), which currently imports the Transit Connect light trucks as “passenger vehicles” to the U.S. from Turkey and immediately shreds portions of their interiors in a warehouse outside Baltimore.[1]

I guess there is no real point of this post, other than to point out that yesterday’s thing that I learned was an interesting one. I now know what the Chicken War is, and also know what the Chicken Tax is.

12 thoughts on “I Learn Something New Every Day”

  1. Toyota was doing a similar thing with thier light pickups (until they started making them here) – they would come over without the rear bed and it was installed here – don’t know how that circumvented the tax but it did. You see those transit vans out here (CA) a lot – I thought it looked European – so many really interesting Fords we never see….

    Lots of Mercedes-Benz Sprinter vans out here too – have a friend – a plumber – who has one and loved it – he hauls 1000s of lbs of work tools and supplies – still gets 20+ mpg Old truck – an old U Haul van – got 8


  2. What’s remarkable to me is that it’s apparently more cost-effective to van parts in an industrial shredder in Baltimore than it is to ship them back to Turkey to be bolted into another van.

    I wonder if Turkish tariffs have anything to do with that.

    Or perhaps installing “used parts” would run afoul of something in our own tariff laws.

  3. Dan – they come in various wheelbases and rear end gear ratios – study a bit what you might want and don’t let the salesmen steer you to what they have at the moment – my friend had to wait a bit to get the rear end ratio he felt he needed (given the amt he hauls) but it was well worth it – that diesel is amazing.

    Also don’t forget Freightliner dealers – owned by Daimler – they are sold under the Freightliner badge as well.

    Used to be sold under the Dodge badge too.

  4. Disclosure: My father retired from Ford, and I purchased Ford stock back when it was $2.50/share and everyone thought that all the U.S. auto companies were going into receivership.

    We talk about the U.S. auto companies and the burden of UAW wage rates and pensions or of union wages and pensions in general. As an Engineeering Mechanics PhD research engineer who had developed the pioneering Versatran robot at AMF in the early ’60’s and worked on robotic linkages and robotic motion control at Ford in the 70’s and 80’s, Poppa too was part of the “auto industry legacy cost problem” in receiving a defined-benefit pension and retirement health benefits. He was non-union, but his benefits were related to the deal negotiated by the union — as my Momma told me, you had better believe your salaried-employee compensation and benefits are tied to the union — how can you get a person to sweat through umpteen years of Engineering graduate school if a dude on the assembly line with a high school credential has better benefits?

    I told my sibs to “keep their eyes on that Alan Mulally fellow” to which they replied, “Alan, who?” But Mr. Mulally has done a lot of things.

    One thing he did was uncermoniously dump Poppa off the generous Medicare Supplement insurance he was on and hint very strongly that Ford retirees should advantage of Medicare Advantage. Let me tell you, smart move President Mulally because Medicare Advantage was a sweet deal for Poppa, and a sweet deal for Ford shareholders, or at least it was a sweet deal until Mr. Obama pretty much ended it by raiding Medicare for Health Care Reform.

    The other thing Mr. Mulally does (an a whole cast of people helping him — the auto industry has a tradition of the guy-in-charge-getting-all-the-credit) is that Transit Connect. Toyota and Honda build cars with non-UAW labor here in the good-old U.S.A.. Ford builds cars with non-UAW labor in Mexico and Turkey, and to the credit of whatever management boojum this requires — keeping peace with the UAW stateside, getting good quality cars out of the foreign plants, which was not the case with the 1970’s and early ’80’s Ford imports. Think of it, a Honda is a Japanese care built in Ohio, a Ford Fusion is a U.S. car build in Mexico, a Transit Connect is a U.S. truck built in Turkey. If it weren’t for legacy costs like my Poppa, Ford would be swimming in money right now.

    The other thing, though, is that over at Hot Air they are calling attention to one of those Ford, Drive One ads with the surprise press conference, where the Ford F-150 truck owner is saying how he would not purchase the Brand-X pickup tied to the “government bail-out.” You know, I share the sentiment — I think that GM has some neat high gas mileage vehicles (the Cruze people, the Cruze — don’t think I am stupid enough to buy a Volt), but I don’t have good vibes about buying a GM product in the current state of affairs.

    But Ford being a non-bailout auto company? I remember that Mr. Mulally, besides relying on Medicare Advantage to save the company, was part of the Gang of Four (three auto execs plus Ron Gettlefinger) petitioning Congress for the bailout. Ford only got by without the bailout by the skin of their teeth — the stock was priced below $2 at one point for a reason. Alan Mulally was there hat in hand, expressing the view that whereas he thought Ford could get by without a bailout, Ford was toast if their suppliers melted down on account of what happened to GM and Chrysler.

    Again, I can say “Oh, I am buying a Ford because they didn’t get a bailout”, but this may not be a properly political and diplomatic move for Ford to say this.

    As to the Chicken Tax, do you suppose it is still in place, not because of bureaucratic inertia, but because that was part of an implicit social bargain with the UAW, both at the automaker level and at the Michigan Congressional Delegation level? Maybe the Chicken Tax and the hoops Ford has to go through to get you your Transit Connect panel truck is something that maintains the peace with the UAW?

    Yeah, yeah, unions and especially the UAW are Evil and are getting everything they deserve, blah, blah, and so on. But what I am saying is that “everything is an interconnected system of social trust” — someone on a Right Blogosphere used the example of a U.S. Navy aircraft carrier flight deck, something that other cultures on this planet don’t quite have the wherewithal to pull off. The network of social trust — that everyone will stay at their post and honor their promises is what keeps sailors from being blown off the carrier deck into the sea, and this was used as a criticism of Mr. Obama for blowing off bondholders in the Chrysler bailout deal (wasn’t it a teacher’s pension fund in Indiana who took it on the chin to satisfy Mr. Obama’s vanity)?

    No, unions aren’t some kind of inalienable human right, but unions and union contracts and the Chicken Tax are part of the network of social trust and social trading of “you can have this if I can keep that.” Just as Mr. Obama’s stiffing the Chrysler bondholders cut into that social trust, the union busting of some mid-state Governors, however right-minded and necessary it may be, has a similar effect. It doesn’t affect just union people, it affects a senior research librarian at a public university whose efforts supports more serious scholarship than I have space to describe here, it affects a Pakistani immigrant who publishes 10 research a year in the area of wireless communication so vital to U.S. competitiveness and pulls in millions of dollars in research funding to support an army of STEM graduate students, it affects a whole bunch of things.

    I heard good things about the Transit Connect, but whatever truck you select, I wish your business prosperity.

  5. Anon – thanks very much for that tip.

    Paul Milenkovic – I will leave your comment this time, but in the future, boil it down. Alternately, get off the keyboard and get some exercise. I sincerely believe you have a lot to offer here, but focus, please.

  6. I get a vision of some DC bureaucrat emerging from his office like an Imperial Japanese Marine coming out of a cave in 1954 except the DC bureaucrat still hasn’t surrendered in the Chicken War. We are not as rich as we could be because we destroy value. In this case, we make car parts, assemble them in Turkey, and dispose of them once they’ve gotten the vehicle past the customs man, recovering only scrap value. And we wonder why we can’t afford certain things without going into debt.

  7. Robert – they are also marketed under Freightliner. When Daimler owned Chrysler, they were marketed under the Dodge name – and Freightliner (also owned by Daimler). When they sold Chrysler, no more Sprinters marketed under the Dodge badge.

    Funny thing – on a related subject – Mercedes dealers will now offer the Smart Car – I think Penske divested himself of this brand – but the Smart was designed by Daimler as well.

  8. “I get a vision of some DC bureaucrat emerging from his office like an Imperial Japanese Marine coming out of a cave in 1954 except the DC bureaucrat still hasn’t surrendered in the Chicken War.” – very funny!

  9. I had forgotten this. While traveling to CA for grandparent stuff in December 2010, we stopped in AZ early in the evening to water the dog and so on. When we went back to the car, parked alongside was a van & trailer, both painted to match{dark blue}, with all emblems, badges, and markings either blacked out or taped over.
    I looked and determined it was a FoMoCo vehicle based upon the oval blackout on the grill and interior ‘style’.
    If you can imagine a Transit fed growth hormone while in gestation, complete with tapering body panels, a smaller cross-section at the cab expanding to a larger cargo-van body, you will have a picture of what I think is the next Econoline. Maybe.
    The vehicle seemed to be designed to carry the loads of the E350 series, with a much smaller and lower to the ground design.
    Maybe even on the market already… I haven’t been keeping close track of models of late.

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