Spending Downturn Has Devastated Military Land Vehicle Industrial Base

Photo: Defense Dept.

The U.S. military land vehicle industrial base suffered a “catastrophic” decline after the era of big defense budgets ended in 2008, a report released Jan. 22 said.

The Center for Strategic and International Studies report, “Measuring the Impact of Sequestration and the Drawdown on the Defense Industrial Base” took a look at eight major defense sector categories. None had suffered as much as ground vehicles, the report’s authors said at a panel discussion.

“We are actually de-obligating faster than we are obligating for development of new ground systems,” CSIS Senior Fellow and report co-author Andrew Hunter said. “So the ground vehicle sector is doing terrible. Even on an adjusted basis.”

The report divided up the downturn into two eras. One was predictable cuts that occurred after the end of the Iraq War from 2009 to 2010. The second was influenced by the Budget Control Act of 2011, sequestration and the budget unpredictability manifested by this week’s government shutdown. The authors sought to find out how many vendors have ceased doing business with the defense sector by looking at contract obligations.

“Land vehicles saw the greatest decline of all the ... platform portfolios — experiencing a 46 percent decline at the start of the drawdown and then falling an additional 56 percent during the BCA decline period,” said CSIS Associate Fellow and report co-author Rhys McCormick. The report called this decline “catastrophic.” It has lost almost one-third of its vendors since the beginning of sequestration.

Breaking it down, the land vehicle sector in total contract obligations declined by 76 percent for products, 53 percent for services and 93 percent for research-and-development contracts. Land vehicle R&D contracts with the top five defense contractors went from $2.4 billion pre-drawdown to $100 million in the Budget Control Act years, an 87 percent decline.

Hunter acknowledged that the ground vehicle sector was coming off “a tremendous high” during the Iraq War years. He called going from boom to bust the whiplash effect. “To my mind that just makes it worse: to come off the highest high you have ever had to the lowest low you have ever had. That’s hard.”

Budgeting isn’t the only factor in the land vehicle industrial base as the Army canceled the Future Combat Systems, its follow-on the ground combat vehicle, and chose to fund readiness and force structure over modernization, the report said.

“This sector is the most vulnerable of the major sectors in the industrial base and will remain so until funding for modernization recovers,” McCormick said.

The other sectors examined were: aircraft; ships and submarines; air and missile defense; space systems; electronics, communications and sensors; ordnance and missiles; and facilities construction.

Overall during the two periods of decline, prime vendors doing business with the Defense Department declined by 20 percent, the report found. There are 17,000 fewer small, medium and large vendors now than there were at the beginning of the decline, McCormick said. That is a net number, Hunter added, as some vendors have joined the base since then. The think tank would like to delve deeper into the data to find out how many overall have left and what happened to them after they quit.

Some sectors have done better than others, Hunter noted. “One of the takeaways is that the shipbuilding sector did reasonably well. They came out OK and when you look at where they have been historically, they are doing better now than they were in the late 1990s when we were doing four ships a year,” Hunter said.

The report came as the Trump administration is conducting a Defense Industrial Base review.

Eric Chewning, deputy assistant secretary of defense for manufacturing and industrial base policy, said that report is on track to be released in April. The National Defense Industrial Association, Aerospace Industries Association and Professional Services Council have been doing outreach on the administration’s behalf, he said.

“I expect this won’t be a one-time exercise,” he said. There will be a set of recommendations that the administration will have to see through.

AIA’s John Luddy, vice president for national security policy, said the upcoming report should create a dialogue. “It hangs an issue out here for all of us to focus on and talk about that will go well past April.”

The panelists were heartened by the National Defense Strategy released on Jan. 19, which had quite a lot to say about the defense industrial base. Normally, these kinds of reviews have only a sentence or two about the issue, they said.

Topics: Land Forces, Budget