Made in America
Auto Index
Auto Index
Research by Frank DuBois
Auto Index
What percentage of your vehicle's value contributes to the overall well-being of the US economy, and why does this information matter to you?
Most consumers are interested in where the products that they buy come from. In many cases, a product that you might think is American may, in fact, be something else–the same holds true in the case of foreign products in the US. You might think the country of origin of a car is Germany or Japan when in reality it’s Mexico or Canada. The Kogod Made in America Index helps consumers determine how “American” a car actually is by evaluating and ranking over 500 car models based on their country of origin and several factors that can be found on a vehicle's label in the showroom. Other rankings do not always take into account all of the factors that we include, such as the location of the headquarters of an automaker and where research and development (R&D) takes place.
Behind the Made in America Auto Index
Our index provides information to help consumers make a decision when they are purchasing a vehicle. We at Kogod are trying to make the buyer more knowledgeable about their purchases and understand the impact that these purchases have on the US economy.
Seven criteria are considered. These criteria include profit margin, labor, and the location of research and development, among others.
Improving the Label
One of the first things a consumer looks at while car shopping is the price and options label.
Under the terms of the American Automotive Labeling Act (AALA), cars sold in the USA must include four main pieces of data that are displayed prominently on the vehicle: where the car was assembled, where the engine came from, where the transmission came from, and, most importantly, the percentage of US and Canadian “parts” content in the vehicle. This last data point is problematic since it does not separate out US from Canadian parts content. In addition, this number can be applied to all the vehicles in this car line, even if it appears that it shouldn’t. For example, I’ve found cars made in Japan with a Japanese engine and transmission using the same US/Canadian parts content number as other versions of the same vehicle with a US engine, transmission, and assembly.
The index uses seven points derived from publicly available data.
Several years ago, the Center for Automotive Research in Ann Arbor, MI, developed a matrix for calculating the domestic content of vehicles sold in the US. We use seven criteria that are based on publicly available data in the Kogod Auto Index. These weighted criteria are used to determine how “American” cars sold in the US actually are. They include:
- Profit Margin - This is measured based on the location of the automaker’s headquarters. If an automaker’s global headquarters is located in the US, the model receives a six. If it is not, the model receives a zero. The assumption here is that (on average) six percent of a vehicle’s value is profit margin, so if it is a US automaker, the profits remain in the country.
- Labor - This category considers where the car is assembled. If a model is assembled in the US, it receives a six. If not, the model receives a zero. We assume that approximately six percent of the vehicle’s value is labor content.
- Location of Research and Development (R&D) - This category looks at the location of a car’s R&D activities. If the model is a product of a company with US headquarters, it receives a six. If it is the product of a foreign company but is assembled in the US, it receives a three. If the vehicle is a foreign import, it receives a one.
- Inventory, Capital, and Other Expenses - If the location of assembly occurs in the US, the model receives an 11. If the assembly does not occur in the US, it receives a zero.
- Engine - If the engine is produced in the US, the model receives a 14; if not, it receives a zero.
- Transmission - If the transmission is produced in the US, the model receives a seven; if not, it receives a zero.
- Body, Chassis, and Electrical Components - Fifty percent of a vehicle’s score is assigned to this category. The American Automotive Labeling Act (AALA) percentage is divided into two to derive this score.
Will it be viewed as controversial?
A. Yes, non-US manufacturers might be upset because compared to the information provided by the AALA, they are not going to rank as high because many of the costs associated with building a vehicle in the US are incurred outside of this country. Things like research and development, profit repatriation back to the home country, labor costs associated with non-US sourced parts, and equipment are incurred outside of America.
You may have a lot of local sourcing here in the US, and that’s great, but just looking at the location of assembly, parts sourcing, and where the engine and transmission came from really doesn’t provide an accurate picture in terms of where wealth and jobs are being created.
This is the same with a GM or Ford model that is manufactured in Europe. A lot of the costs associated with the production of that car are incurred in the US (although probably not as much as, say, a Japanese or Korean car since they have been in Europe for much longer).
- You might be surprised to find that a BMW SUV assembled in South Carolina actually has less US content than a Chevy Cruze hatchback or a Chevy Blazer assembled in Mexico, or that the Ford Mustang is assembled in the US but could have a US, Mexican, or Chinese transmission, depending on the options chosen.
- One also finds that some brands, although they have a strong domestic presence with a few models, import a lot of the cars that they sell here. VW/Audi makes only two of its popular models here in the US (the Passat and Atlas) with the rest imported from Mexico or Germany.
- Another aspect of the Kogod Auto Index is that, although the AALA label on the car may imply a very high level of US content, in reality, because of AALA rules, a specific car may actually have very little US content because of the options and features on the vehicle. There are a number of situations where the label on the car states that the car (actually “cars in this car line”) have over 60-70 percent US/Canadian content but when you look at the details, the car may have been assembled outside of the US, and the engine and transmission are both sourced outside the US, yet the automaker can imply the car has more US/Canadian content than it really does. A consumer would have to look at the vehicle identification number (VIN) to tell where the car is actually assembled.
A. As a global business expert at the Kogod School of Business and as someone passionate about cars, I want to start a conversation about what it means to buy an American product. I want to shed some light on what is behind a label. I find it fascinating to investigate the sourcing strategies of global manufacturers and the interdependence of the global supply chain. You will never see a true 100 percent US or Japanese or European car (maybe Bentleys or Lamborghinis) because of the thousands of parts in a car. Some will get made outside of the country of origin—like people, cars are a blend of DNA from everywhere. You could switch this around and look at this from a European or Asian perspective and get completely different results. In addition, there is limited evidence that this greatly impacts purchase decisions.
If a consumer is interested in knowing more about the US content of a car, start with the VIN number. The first digit in most cases tells you where the car is assembled. A quick Google search will provide the code for the different VIN numbers. Some are easy—the US is either one, four, or five; Mexico is three; and Canada two. Japan is J and Korea K. Others are not so easy. Next is the AALA data, which is required to be displayed on all new cars sold in the US[1]. For used cars or cars not covered in the Kogod Auto Index, the raw AALA data is found on the National Highway and Transportation Administration’s website (simply Google NHTSA AALA), which is updated quarterly. Unfortunately, we have found this data to be incomplete in many cases, so we have supplemented this data with actual visits to auto dealerships to confirm what is in the AALA data. For example, the most recent NHTSA data did not include the Toyota Camry, which is one of their most popular vehicles and which ranks 14th on the 2020 index.
Unraveling the true DNA of a car sold in the US is complicated. This process, at best, provides an educated guess in terms of the total domestic content. The 70 percent rule, for example, allows manufacturers to “round up” to 100 a part or component that has 70 percent US/Canadian content. Mixing Canadian with US parts content could result in an inaccurate AALA calculation in the case of most of the parts being sourced in Canada. Other complicating issues are a) the degree of accuracy in the AALA numbers reported by the manufacturers, b) the degree of accuracy in the domestic content of parts, and c) the inability to distinguish between US-owned and non-US-owned parts and component suppliers. A transmission manufacturer, for example, might be US-based but foreign-owned. ZF, a German company, has a subsidiary located in South Carolina that provides transmissions for BMW, Daimler, and Land Rover, as well as Ford, FCA, and GM. In addition, their factory in China provides manual transmissions for the Ford Mustang. There is no way to determine what percentage of the hundreds of parts in these transmissions are US-sourced without a complete teardown and source analysis. The same holds for electronics, braking systems, and other key components that are sourced from non-domestic global manufacturers. Further complicating the calculation is the use of the same US/Canadian value across a manufacturer’s car lines. A car line is defined as a car which shares the same characteristics across different option and trim levels. Four-door Honda Civics, for example, all have the same value of 65 percent for US/Canadian content. Yet, depending on the trim level and options, it could be assembled in the US, Canada, or even the United Kingdom. As such, it’s important for consumers to learn to decipher the VIN codes on cars as these codes contain a wealth of useful information about each specific car.
Conclusion
Cars, in general, have been are becoming less American over the past few decades.
If you look at AALA data on the National Highway and Transportation website from 2007 you can see cars with 95 to 90 percent US/Canadian content compared to the present high of 74 percent for the Dodge Grand Caravan, which is assembled in Canada. There has been a trend for less US/Canadian content because of the globalization of supply chains and the increase in the use of Mexico as a source of parts and components. Also, the 2007 data is difficult to compare to the more recent data because it doesn't include sources for engines or transmissions. In the 2020 AALA the source of parts and components may be Mexico, Japan, Germany, Korea or even China—depending on the brand.
If we could go back to the 1970s before the AALA legislation was enacted, you would be more likely to see an American-made car with domestic content approaching 100%. At that time, the US market was dominated by the big three: GM, Ford, and Chrysler. Parts and components came primarily from the US and Canada. At the time, VW, Toyota, Honda, and Nissan had comparatively small shares of the US market. VW opened a manufacturing facility in Pennsylvania in the late 70s that produced "Americanized" VW Rabbits (the precursor to the Golf) for the US market. Honda, Nissan, and Toyota followed with plants in the US in the 80s and 90s. Jaguar, MG, Land Rover, and Triumph from the UK were all imported, as were BMWs and Mercedes from Germany. There were some French imports too: Renault and Peugeot, for example.
As one of the most global industries, the automotive industry is in constant flux as new markets in the developing world open and manufacturers shift production into these markets to be closer to consumers and to take advantage of access to cheaper and more plentiful factors endowments. China, in particular, has evolved into a powerhouse in the industry, and we can expect to see an increasing amount of trade between the US and China in terms of auto parts and complete vehicles (depending on the way the political winds blow, of course!).
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