Published May 12, 2014
"Buy American" has been a staple of advertising campaigns for decades.
In the 1980s and 1990s, the exhortation to buy U.S.-made products, especially automobiles, reached a fever pitch as foreign competitors began to make goods that met or surpassed the quality of similar U.S. products.
Many Americans still want to purchase cars made in America. But the challenge of doing so has grown, thanks to the globalization of the economy.
Some cars are more "American-made" than others, says Frank DuBois, associate professor of international business at American University's Kogod School of Business in Washington, D.C.
Dubois developed Kogod's Made in America Automotive Index, which tries to identify the most American-made car models. He describes the findings of the 2014 index in the following interview.
Your study looks at the most American-made car models and ranks them. Can you define the criteria you use for determining a car is "American-made"?
We used a number of different factors to determine an American-made value for each car.
We first considered the self-reported data provided by carmakers to the National Highway Transportation and Safety Administration (NHTSA) in compliance with the American Automotive Labeling Act (AALA). This data gave us the number of models from each manufacturer sold in the U.S. market, and the percentage of U.S. and Canadian content each car contains.
The NHTSA data also provide information on the location of assembly of each car, and the country of origin of the engine and transmission. We used this data to construct an index weighted by such factors as headquarters location (where the profit goes), where the bulk of RandD (research and development) is done (in the headquartered country), and where the various assembly and manufacturing costs were incurred.
Using data from the Center for Automotive Research in Ann Arbor, Michigan, we estimated that on average, the sale of a vehicle generates revenues that compensate for the costs of manufacture, plus a residual that contributes to profits. In calculating the index, we use seven criteria based on publicly available data. These weighted criteria are used to determine how "American" cars sold in the U.S. actually are.
We used information from the AALA in the final factor (body, chassis and electrical components). Although this data does not disaggregate Canadian from U.S. content, it is still the best estimate available. Unlike other "Made in America" indices that may give 100 percent weight to the AALA data, we have attempted to dampen the AALA effect.
Which models ranked at the top of the listing?
The Ford F-Series and the Chevrolet Corvette tied for the top ranking, followed by several GM SUVs. The Dodge Avenger is tied for third with a number of other GM and Chrysler products.
In fact, the top 10 vehicles are U.S. or quasi-U.S. brands. Honda and Toyota have a number of models tied for the 12th position in contrast to the high ranking they would have if the AALA data were used as the only indicator of "localness."
Non-U.S.-headquartered brands may have high local content, according to AALA data, but much of their RandD is done offshore, and profits from auto sales in the U.S. are repatriated back to the automaker's home country.
People generally buy American in the belief that it will help the U.S. economy. Are those beliefs well-placed, or is the idea of buying American largely a myth that has little impact on U.S. economic growth?
Buying American has a huge impact on economic growth in the U.S., assuming U.S. consumers are not sacrificing price, quality and performance.
Auto manufacturing contributes as much as 4 percent to the U.S. GDP. Over 800,000 jobs depend on U.S. auto manufacturing.
This is the reason the U.S. government bailed out the auto industry. Had GM gone bankrupt as some politicians wished, it would have devastated those communities that rely on the auto industry to provide a reasonable living for its workers.
Some countries have seen their industrial base disappear, causing a concomitant reduction in living standards and income equality in the affected communities. Manufacturing jobs are typically good jobs that can support a decent middle-class lifestyle.
It appears that some cars are more American-made than others? Any thoughts about why this might be? What factors motivate a car company to create cars that are more American-made?
Managers have numerous choices with regard to where they can source parts and components for the automobiles they manufacture.
In the case of non-U.S. automakers with plants in the U.S., suppliers have often been impelled to relocate operations close to the point of final production and assembly. These relocations support just-in-time and "lean manufacturing" strategies that focus on reduction in supply chain costs in the production process.
In the academic literature, there is a concept known as the "liability of foreignness" that nondomestic enterprises must overcome. Some foreign manufacturers are able to parlay their localness or "American-ness" into marketing collateral. On the other hand, others may not want to. In some cases, there may be an advantage to identifying as nondomestic.
Global sourcing is significantly influenced by currency exposure issues. Producing a vehicle in the same location in which it is sold will negate much of the currency risk that occurs in exporting strategies. These strategies are often intentional in terms of providing a currency exposure hedging strategy.
Why is this information important for consumers? How can they use it?
In a perfect world, it should not matter where a product is made, or the impact that it may have on a particular economy. The reality is that some consumers may want to express their patriotism by purchasing products with as much U.S. content as possible.
Asian manufacturers are to be applauded for their efforts to increase their U.S. production and sourcing. In the end, though, profits and revenues will still be transferred back to stakeholders in the country of primary ownership.
It may be important to some consumers to think in terms of environmental factors and reducing their carbon footprint by purchasing locally made products.
For example, engines and transmissions in BMW SUVs exported from the U.S. plant in South Carolina to European markets have crossed the Atlantic twice! Once when they were sent from the mother plant in Germany to the assembly plant in South Carolina, and again when they are sent back to the European market for eventual sale.
In the end, country of origin is simply another product attribute that consumers use when making a purchase decision. Countries go to great pains to develop and protect positive geographic indicators: French wines, Italian fashion, Japanese electronics, etc. Some positive attributes for autos may include performance, styling, quality, features and so on.
In the end, the consumer's purchase decision is a complicated one, one that the marketing arms of all the major automakers go out of their way to try to understand and to influence. The "Made in America" label is simply another product attribute that may resonate positively with some buyers.
Copyright 2014, Bankrate Inc.