Building cars in USA: where does the money go?

Many (especially here in Michigan) lament the downfall of the US auto industry and the export of dollars to foreign car companies. For their part, foreign car companies have attempted to improve their image by having their cars assembled here in the United States; they make it a point to publicize this fact, both in commercials and in news releases.

But I recently heard something that calls into question the true impact of this practice: that the assembly of cars in the US still results in most of the purchase price of the vehicle being sent overseas. The revenue from the sale of a car gets distributed toward a number of broad expense categories, such as:

-R&D
-part fabrication (casting engine blocks, forging pistons, cutting gears, etc.)
-component subassembly (building a transmission, engine, or instrument cluster)
-final assembly (bolting subassemblies together to make a car)

What I’ve been told is that for foreign cars assembled in the US, typically it’s only the final assembly that takes place here, with the rest being done in other/cheaper countries. More to the point, the final assembly typically is the lowest cost item on that list. The upshot is that final assembly of foreign cars in the US is a feel-good public-relations measure that does relatively little to limit the export of dollars and jobs.

Can anyone confirm whether that last paragraph is true?

Every new car sticker has a section that tells where the main parts were made. For some Japanese cars the engine or transmission was made in Japan, for others it says US or Canada. If you want to know about a specific car head to a dealer and check the sticker.

Basically it’s true. If you consider that I’m from Michigan, and where I’m currently working (look in my location field), you’d think I’m betraying my state and my country. The fact is, the final assembly of European, Asian, Mexican, Canadian, and US components is small potatoes. You’re talking about a thousand or so local jobs, plus a multiplier for the local associated industries. The bulk of the work associated with the program (and the money involved) continues to stay in the USA.

The same goes in the USA for the non-American companies. Sure, they provide some thousands of okay-paying jobs for the locals, but the majority of the expense and profits is spent back in the home country.

If you’re worried about supporting American jobs, it really is better to buy a Mexican Ford than an Ohio Honda.

Note: drive what you like and what makes sense for you. I hate all of the silly protectionism, even though I acknowledge that it could save my job one day.

Is there any where to see the Domestic Content Labels online? I’ve been looking, but I’m not having any luck.

I don’t agree with this at all. Honda has a design center in LA and a huge R&D center in Ohio, plus when they came over from Japan, they pulled a bunch of their major suppliers with them. For example, the company that makes the exhaust systems in Japan established a plant here to supply Honda in Ohio. (The exhaust system plant happens to be in Mansfield). They did the same with transmissions and engines (made by Honda in plants they built in Ohio), fuel tanks, and a bunch of other major components.

The reason for moving all that production to the US may have started as public relations, but it became as large as it did mainly due to the strong yen of the late 1980s-90s. When the yen was 80 to the dollar, a car built in Japan whose production cost was in yen had to be priced very high in dollars in order to make a profit. Moving production to the U.S. was a hedge against the exchange rate.

The “country of origin” percentages on the window sticker don’t include the cost of raw materials or final assembly labor, only parts purchased from suppliers. Plus, they lump parts supplied from Canada in with domestically supplied parts. So the percentage on the sticker is often a grossly misleading indication of the actual domestic content of the vehicle. A car assembled in Canada, using parts totally sourced from Canada, would be labeled as 100% domestic, but a Honda built in Marysville, Ohio from U.S. steel, with 50% of its purchased parts supplied from the US, would only be labeled as 50% domestic. The rules for how the domestic content is calculated were rigged so as to favor the Big Three.

Yes, but how big are these organizations compared to the same in Japan? We have product development centers in Mexico and R&D centers in other parts of the world, but they collectively pale in comparison to what we have in Michigan.

“Domestic content” isn’t really a good indicator of where the money goes. Those are purchased parts. A Leer seat made in Guatemala still contributes more to the economy than an in-sourced Honda seat made in Ohio, because of the huge organization that Leer has in the United states. Pretty much imported suppliers are the same as the imported car manufacturer; it all goes back to the host country.

Note that I’m not trying to make a pitch that people should buy American; as I said protectionism disgusts me. But there’s nothing wrong in acknowledging the economic realities.

Hi,

So when you buy a car in america it goes to the place of origin. So lets say you buy a Toyota Camry, which is built in Georgetown Kentucky; that money will go to Toyota Motor Sales USA North America. Toyota motors US and Toyota Japan are two separate companies. But lets say you buy a Prius. That money will go to Toyota US, to then pay for it from Toyota Japan. And to answer your other question, lets compare the Ford F-150 and The Toyota Tundra. The Ford is built in Michigan and Kentucky and is only 60% US parts, while the tundra is built in Texas and has 80 % US parts, that is the difference im talking about, because in the bigger picture more parts come from the US which means more US jobs and Money. Hpe this answered your question.

Um… what?