Auto Manufacturing: What Does 'Buy American' Even Mean?

A common refrain within the discussion of what to do about Detroit is: "Buy American" or "This wouldn't have happened if everyone bought American." Aside from being a bit simplistic if not communist in terms of not allowing people freedom of choice with respect to their buying decisions, it begs another question: "What does buy American even mean in a global economy that is becoming more interconnected on a daily basis?."

After all many foreign cars are not only built in the U.S. but they come with significant domestic parts content, while many so called American cars contain significant foreign parts as well. The Toyota Tundra and Toyota Sienna both made the top ten list of Cars.com list of vehicles with the most domestic content (to qualify a car must contain at least 75% domestic content), whilst popular Japanese cars such as the Accord, Camry and Civic are 60-70% domestic. Technically speaking a Dodge Ram is no more American than a Camry or a Civic if you go by the % of parts sourced domestically, and Explorers, Rams and Chevy Silverados are all actually less American than a Toyota Tundra.

Find below a listing of various cars by % of domestic content; you can read more about Cars.com ratings here, and find the top list here.

(From Cars.com):

Ford F-150: 80% domestic content, down from 90% for '07

Chevrolet Silverado 1500: 85% for '08, down from 90% for '07

Toyota Camry/Solara: 68% for '08, down from 78% for '07

Honda Accord: 60% for '08, down from 65% for '07

Toyota Corolla: 50% for '09, down from 65% for '08

Toyota Matrix: 65% for '09, down from 75% for '08

Dodge Ram: 68% for '08, down from 72% for '07

Honda Pilot: 70% for '09, same as '08

Honda Civic: 70% for '08, up from 55% for '07

Furthermore even if a car that's built outside of the U.S. are still sold at American owned dealers and service centers, my car may be Bavarian but I bought it from an AutoNation dealer and get it serviced at a locally owned business that specializes in BMWs. I also spent money on various after-market upgrades, and all of those parts came from American manufacturers and retailers. The car may be German but I still buy my tires from Sears.

While the buy American only crowd may get irritated if they see someone driving a Toyota Tundra, the fact remains that it's the 5th most American car on the market, and it's built in San Antonio, Texas. Between the parts suppliers, factory workers, U.S. owned dealerships, etc, the overwhelming majority of the money generated by a Tundra sale goes into American hands.

So buy American in this case really means buy from the Americans who work for Detroit as opposed to buy American in general, because millions of American jobs depend on foreign auto makers.

Something else to consider is that competition from the Japanese pushed Detroit to improve quality, design better cars, etc, what would the domestic auto industry be producing if it weren't for that competition? What would the business model look like if we were all subsidizing the bloated, inefficient model of old by all of us deciding to buy American?

Mind you I'm not saying that there isn't any value in supporting American companies, I'm just saying that it's not as simple as buying domestic supports American jobs and buying imports destroys them. Furthermore foreign competition is healthy as far as spurring innovations that benefit all consumers.

At the end of the day it's more productive to push Detroit to develop a viable business model and work on their efficiency issues, than it is to attempt to solve the problem by removing consumer choice. Considering that Honda could out earn GM (even when they were profitable) despite having a fraction of their market share, perhaps the real problem isn't total cars sold as it is an efficiency problem within the domestic automakers.

Detroit already sells more than enough cars to turn a profit, so perhaps the focus should be on their efficiency problem as opposed to the cars our neighbors are driving.

Sources:

Cars.com: "The Cars.com American-Made Index" -- Kelsey Mays, July 1, 2008.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[hotrodzombie:]

Personally I dont think there is anything anyone can do to save GM. It seems like everyone running companies nowadays is out for one thing only and that is to line their pockets with all they can and run like hell!

Feb 26 08:44 AM

[Enlightened...:]

Opinions are just that, while the facts are truth. You can all stay ignorant and continue to appear stupid, or you can learn the truth about General Motors:

seekingalpha.com/artic...

Feb 26 08:56 AM

[hotrodzombie:]

Your right. I dont believe these facts posted are correct at all. The F-150 probably doesnt even have that much american made content in it. The entire time I worked at the Ford Dealership as a mechanic I have never seen a F-150 that didnt have a "Made in Canada" sticker in the door jamb.

Feb 26 09:00 AM

[User 364714:]

Are you kidding me? I expected to learn something from this article. They compared 3 TRUCKS to a bunch of transplant autos and added a title??? Are they kidding? What the hell has become of journalism? And all y'all posters who think you know everything there is to know about the auto industry, bug off. When you come up with some new facts let us know. But if all you can do is cite crap from the 1980's, you're about as intelligent as the author of this article. Dumber than a box of rocks I tell you. You can buy what you want for the reasons you want, but don't lie about some ridiculous problem from 1987 on your cousin's friend's car. You don't have to justify your purchase of a foreign car, noone cares, except maybe your concious. Just keep in mind how GM's overseas (where they actually buy GM cars) operations are helping keep the US operations afloat, then ask yourself why Japan's Economy is freefalling - maybe because it's overseas operations are not supporting Japan so much right now!

Feb 26 09:02 AM

[hotrodzombie:]

Tell us the real facts. How much of american made cars are made here then? I do believe that the newer "American Made" cars are way better than the 80's cars. I also believe that the 35 miles per gallon out of the newer malibu's and monte carlo's are way better than what almost all of the foreign cars are getting. There is one thing that bothers me though and that is the fact that I want my children to be able to have a job in this country at some point. So if that means supporting Toyota because they want to put people to work in this country then that is what it means.

Feb 26 09:16 AM

[User 364714:]

Oh yeah, read this: www.detnews.com/apps/p..., and then blame sales for the mess the domestics are in. One word "HEALTHCARE." Slash it and watch the health care industry come to its knees. You might also see a profit at the auto companies if they just do away with it.

Feb 26 09:16 AM

[User 364714:]

Very intelligent hotrod-nimrod.... You think Toyota invests in the U.S. to give Americans jobs? Are you crazy?

Feb 26 09:22 AM

[hotrodzombie:]

Almost every company out there depends somewhat on selling products in the US where the people had the money to buy stuff. The reason they had the money was because they were paid a decent wage. Then companies such as GM decided to move the jobs to other countries that do not have to pay workers as well. Now since noone has a job here that means there is no more money to buy stuff with. So who is going to buy everything to keep the companies alive? The chinese worker making pistons for 20 cents a week? I dont know about you people but I care a little more about making sure that me and my family has jobs than anybody in china or japan. Call it selfish if you want but I call it self preservation. I will support the company that puts the most amount of americans to work no matter where the company originated from. How about you?

Feb 26 09:36 AM

[hotrodzombie:]

They are investing in the US if they are putting american workers to work. If everyone here is unemployed then who pays taxes? You think that sending jobs elsewhere is helping the US "nimrod"?

Feb 26 09:40 AM

[fairtradenow:]

I had a hunch that Buy American was confusing many. Some more downward spiraling of the economy might help unconfuse.

For those who want to make car parts for Euro and Asian Engineers and Executives, while pretending they are middle class - keep going, your home values (the one you own 10% of) is just starting to reflect your buy global mentality.

FAIR TRADE not FREE TRADE

Feb 26 09:43 AM

[User 364714:]

Great, we can all aspire to become Japan's third world country,...errr I mean labor force.

Feb 26 11:41 AM

[leapingcat:]

Remember that the auto industry is more than just assembly, the engineering side and the development of new models is equally important. Here in the UK, the three largest car companies are Honda, Toyota, and Nissan, but they are merely plants for the assembly of Japanese designed cars. Vauxhalls, the British part of the GM empire, are merely badge-engineered Opels, and nearly all UK market Fords are even assembled outside of the UK. In fact Jaguar Land Rover are the only UK auto company with any engineering capability.
Don't make the same mistakes that we have made; make sure that you keep the engineering base in the US, once those skills have been lost it will be almost impossible to recover them and maintain a viable industry by developing the models that will meet tomorrow's needs.

Feb 26 12:41 PM

[Tundra Head...:]

We've blogged about this very topic, not once, but *twice*, with a very similar format. Don't get me wrong - I'm not accusing anyone of stealing content, but we've got a very good list of comments going and quite a few well-articulated arguments for and against "buying American." Where's the link love? The conversation we've got going is highly relevant to this topic - did you research our blog posts when you wrote this?

www.tundraheadquarters.../

Feb 27 11:10 AM

[Thadeus Tho...:]

And. . . blah. . . blah. . . . blah......

Sorry. All this guy does is accumulate news stories and repost them using "here". This guy drives a "certain brand of German " car and is no friend of GM.

Buying an American BRAND car is simple. Buy one from a company that was created here, has been successful here producing American CAR history. NO trnasplants, no crappy manipulating. The ONLY reason GM , Ford, and Chrysler started getting parts and even some cars produced overseas is because of unfair competition and and needed to do so to try and remain competitive. If our government had quit being the World's protector and benefactor instead of kowtowing to Japan, Germany, and Korea since WWII; we might be in better shape.

Feb 27 04:59 PM

[Markham Lee_:]

Tundra Headquarters: any similarities are coincidental as I've never heard of your blog before. It's just a matter of different people thinking the same way about a particular topic.

On Ross Perot: he joined the board in the early 90s and began going to dealerships, talking to customers, dealers, etc, buying cars, all to gather intelligence on the marketplace and the car buying process. He was ignored by the board and quite out of frustration.

Pricing & Competition: generally speaking Toyotas and Hondas cost more than their Detroit counterparts, especially when you consider that the former don't use anywhere near as many incentives, discounts, etc.

Let's not forget that Detroit was selling many cars for a loss for most of this decade just to get them off the lot.

Perhaps that's the reason they sought out foreign parts, it wasn't so much to remain competitive as it was maintain their business model.

I.e. it's fairly easy to pay $25-$30k for a Camry or an Accord, while it's fairly easy to get a loaded competing model from Detroit for much less.

The idea that Japanese cars are cheaper is based on how the market operated in the 80s, but it hasn't been true for quite some time.

Thanks for reading

-Markham

Feb 27 05:31 PM

[Thadeus Tho...:]

Yes and it was again, the yuppie automotive journalists who hyped up the foreign brands. In 1979- 1981 Honda Accords fenders rusted off. Nissan engines oil seals blew out like firecrackers. Volkswagen still isn't really a great car. They are "OK", but nothing special.

So it's no different than the real estate business and banks that "hyped" people up on house values and risky loans. Their is no real value or better quality in the mass produced foreign brands. Perception brought on by years of Madison Ave. advertising has taken it's toll. Truth in advertising has become a myth and it wrought more destruction through deregulation by the same people who want "less government" in everything else. The blanket idea of "less government" is also a contributing factor.

Feb 27 05:50 PM

[hotrodzombie:]

I do believe that alot of things in peoples minds about foreign cars being superior are related to the 80's cars. I also think they were a bit overrated on quality. I had a Mazda RX7 that was the biggest waste of metal that was ever made. I hear people say that american car companies should die because they are gas hogs and build crappy cars but I know that is not true today. When you compare a camry to a hummer then ok MPG sucks, but when you compare it to a malibu that gets 35 MPG the camry loses. I own two chevy's that are daily drivers. I also own three antique ford cars. I still believe though that if a foreign car company is going to put more americans to work then I feel they are doing more to help america than the american companies.

Feb 27 06:50 PM

[The Betsy:]

Just thoughts.
1. Do any of these problems have to do with "global warming?" I'd love to know if while we go into a global depression, our environmental pollution improves. If not, there is something important to learn about emissions and politics.

2. Oil men shut down Detroit.

3. Is all of this just a dramatic money-making segue to the next technologies? Do they already exist? Just unloading the old obsolete stuff to make money on it? There are enough cars on this planet to last us til the next new and improved. Just make them affordable for all of the future economically impoverished. Or will the lower class be riding the bus?

Feb 27 06:52 PM

[Thadeus Tho...:]

**** " There are enough cars on this planet to last us til the next new and improved. Just make them affordable for all of the future economically impoverished. Or will the lower class be riding the bus? " *****

Good points, probably both. I'd like to think that if more people drove a car with a 4 cylinder engine we could stave off a lot of green house effect. My dad taught me to be frugal and drove mostly 6 cylinder basic Chevy's with rubber floor covering, no carpet. A heater and AM radio was an option on some of them. Before those Chevys he had a Whippet , Willy's and aa feew others with 4 cylinder engines too. My wife and I both drive 4 cylinder vehicles getting between 18 & 24 mpg city and 26 to 35 mpg highway. My wife's car does have leather seats, so yes, a bit of the luxury bug!

I think we have , again, been deceived and beguiled by Madison Ave advertising for years. That and cheap oil for years. Luxury and performance.... some of us are convinced we "deserve" those lavish extras and status.

My dad and my uncle would declare: "Foolishness!" Perhaps they were right,

Feb 27 08:05 PM

[FedUpInDetroit:]

I am so sick and tired of hearing how "un-american" it is buying a foreign car. I live in Michigan and being someone who has worked for the big three...I know that less than half of parts used in "amercian" cars come from foreign countries...not to mention alot of them are assembled in foreign countries. I bought a Toyota and could not be happier...the best car I've ever owned and guess what...over 80% of it's parts are "american" made and it was assembled in Cincinatti, Ohio. And just so everyone knows the Big Three Executives could give a flying fig about it's workers who live check to check....People need to get more educated as to how economics and business works in Americia, because most things we buy in stores are not "made in america".

I am an American, therefore I have the right to buy any damn car I choose....It's Un American to think otherwise.

Mar 03 08:23 PM