A Response to Joseph B. White’s
“What Is An American Car?”
In his January 26 column in The Wall Street Journal, Joseph B. White asks “What is an American car?”
He looks at “domestic content” and final assembly for a handful of models, as well as the close ties
between “American” firms and their foreign counterparts. His concludes that (1) this is a truly global
industry, and (2) transplant operations from Toyota, Honda and others have made it harder to define
what an “American” car is.
He’s absolutely right.
The problem is that White is asking the wrong questions.
As Congress debates whether to loan more money to GM and Chrysler, we really need to ask two
entirely different questions.
1. Do auto jobs matter to the U.S. economy anymore?
2. And, if so, do some companies matter more than others?
The answers to those questions are outlined below.
This is an efficient, global industry.
Every automaker selling cars in the U.S. today employs more workers abroad than it employs here.
And every automaker selling cars in the U.S. today sells more cars abroad than it sells here.i
It’s also a very efficient business. Even before last year’s buyouts, GM produced about as many cars
per employee as Toyota, and Ford produced about as many cars per employee as Honda.ii
Ford, GM and Chrysler do not employ more Americans because they are bloated – they just happened
to do more of the work that goes into making an automobile here in the U.S. In other words, it’s
where the work gets done that matters.
Every automaker waves the flag.
Despite these global realities, Americans still care about auto jobs. That’s why every automaker that
does business in the U.S. loves to talk about the workers and families it supports here.
In fact, Hyundai spent about $16 million on ads a few years ago to promote the launch of its first U.S.
assembly plant. That campaign represented about $8,000 of promotion for every job at the plant.
By comparison, if “Detroit” were to run a jobs ad campaign at Hyundai’s $8,000 per job rate, it would
cost about $1.5 billion. Imagine every ad during this year’s Super Bowl coming from Ford, GM or
Chrysler, telling you how great they are because they employ a lot of Americans.
There’s still a big difference between “Detroit” and other automakers.
Sales, production, jobs and domestic content data for 2008 prove that differences remain among
automakers, in general, and between “Detroit” and foreign automakers, in particular.
More than eight out of 10 of the vehicles “Detroit” sold here last year were made here, while the
same can be said of only half the vehicles sold here by foreign-based manufacturers.iii
As a result, “Detroit” brands sell about half the vehicles bought in the U.S. each year, but they
purchase approximately three-fourths of the parts made here.
On a sales-weighted, per car basis, Ford, GM and Chrysler used more than twice the “domestic
content” foreign automakers used.iv Thanks largely to this 2 to 1 difference in parts sourcing, a Ford
assembled in Mexico contains more U.S. and Canadian parts than a Hyundai assembled in Alabama or
a BMW assembled in South Carolina.
Because the auto industry is so big, even modest differences can mean
tens of billions of dollars in income, tax revenues, parts sales and R&D.
In 2007, U.S. parts suppliers employed 780,000 workers on $225 billion in sales. Parts suppliers were
the largest employer in seven states, and a top five employer in 11 others. Had Ford, GM and Chrysler
used as few U.S. and Canadian parts (per car) as foreign automakers did that year, approximately $95
billion of America’s $225 billion in parts sales would have moved overseas. Based on parts job
“spinoff” assumptions used by the Center for Automotive Research, 1.5 to 1.8 million U.S. jobs could
have moved overseas, as well.
A number of reporters have speculated what would happen if Ford, GM or Chrysler went out of
business. To appreciate just how important they companies are to America, it is helpful to ask a
smaller question: what would happen if Ford, GM and Chrysler stayed in business, but just happened
to invest only as much in U.S. jobs, plants and R&D as their foreign competitors do? First, more than a
third of U.S. auto jobs would move overseas. Second, more than $10 billion in U.S. R&D would move
overseas. Third, as noted above, $95 billion in auto sales 1.8 million U.S. jobs that depend on those
sales would move overseas.
If you want to compare automakers’ contributions to our economy, look at
their “jobs per car” score.
A simple way to assess how much each automaker contributes to the economy is to look at the
number of U.S. jobs it supports on a car-by-car basis. This accounts for differences in market share
and also gives a more complete view of the company’s U.S. investment than simply looking at where a
particular automobile is assembled.
Generally speaking, GM, Ford and Chrysler support more than twice the number of U.S. jobs per car
than foreign automakers – even after you account for 2008’s massive buyouts.v Honda scores highest
among major foreign automakers, followed by Toyota. Hyundai/Kia and VW are far behind.
For example, Ford currently supports about five times more jobs per car than Hyundai/Kia. Does this
mean that Hyundia/Kia is five times more efficient than Ford? No. In 2008, Ford manufactured seven
times more vehicles in the U.S. than Hyundai/Kia. Moreover, the bulk of Ford’s research, design,
finance, marketing and other management jobs are here in the U.S., while similar jobs at Hyundai and
Kia are in South Korea.
GM, Chrysler and Ford each support nearly twice as many jobs per car as Toyota, in part, because their
U.S. production in 2008 represented about 83% of their total 2008 U.S. sales. By comparison, Toyota’s
2008 U.S. production represented less than half of its 2008 U.S. sales. In other words, Ford produced
565,000 more vehicles in the U.S. last year than Toyota, even though Toyota sold about 350,000 more
vehicles here.
We need to fight to keep as much auto R&D in the U.S. as possible.
Before Congress writes off Detroit, it should also consider how important R&D is to our economy –
and how much of that R&D is done by automakers.
Toyota, GM and Ford placed first, second and sixth in global corporate R&D in 2007. Each spends
about 9 times more on R&D per year than Exxon – and nearly as much as NASA. vi Automotive
manufacturing is simply one of the most engineering-intensive businesses in the world. In fact, a
National Science Foundation found that nearly 1 in 10 of America’s engineers and scientists involved in
corporate R&D were employed by automakers and suppliers.vii
However, eighty cents of every R&D dollar at Ford, GM and Chrysler gets spent in the U.S. Thanks
largely to “Detroit,” Michigan ranks second in corporate R&D (behind California). On a per capita
basis, Michigan beats California. Thanks, in part, to this investment, our roads are four times safer
than they were in the 1960s (even though they are faster and far more crowded), emissions are 99
percent cleaner than they were in 1980, and it takes about eight fewer hours for to assemble a car
than it did in 1995 (a 20 percent improvement).
The 80 cents per dollar figure is likely the opposite at Toyota. And it is likely far worse for VW, Hyundai
and others. At VW, for example, fewer than one in 100 employees is based in the U.S.
Perhaps the best way to appreciate Detroit contribution in R&D is to compare it with what the U.S.
Congress hopes to contribute. For years, Congress has debated an “Apollo” project for fuel efficiency,
which would invest $100 million per year in more fuel efficient cars. That is certainly commendable,
but Ford alone expects to spend 20 times that amount on fuel efficiency (per year) between now and
2015. And Ford, GM and Chrysler spent 175 times as much on R&D, in general, in 2007.
Those who criticize Detroit’s “legacy costs” need to take a closer look at
why health care costs America so much.
Are health care costs hurting Detroit? Absolutely.
Is it because the packages are too generous? Not exactly.
Detroit spends too much on health care because (1) American spends too much on health care, in
general; and, (2) America makes companies cover the cost of insuring workers and retirees, while their
competitors’ workers and retirees tend to live in countries where the government picks up more of
the health care bill.
If America spent the same amount for healthcare that other industrialized nations do, its healthcare
bills would be less than half (about 40%) of what they now are. Ford would have saved about $2
billion last year – and GM could have saved about $3.1 billion. In fact, if America had a healthcare
system that was as affordable for employers and workers as the rest of the industrialized world, more
than 80% of Detroit’s North American losses in 2007 would have been wiped out.
Finally, health care costs differences are driven by the number of retired workers covered – not by the
difference in the U.S. health benefits packages they offer. For every one American retiree or family
member covered by foreign automakers, Detroit covers about 600. The bulk of foreign automakers’
retirees live in markets where more health care costs are covered by the government (and where
health care also happens to be a lot cheaper).
If consumers (and Congress) have the facts, every automaker selling cars in
the U.S. will be encouraged to keep (or bring) more jobs and R&D here.
So, as we ask the very legitimate question of whether U.S. auto jobs matter – and whether some
companies matter more to the U.S. than others – look beyond the headlines and consider last year’s
sales, production, job and domestic content figures. Even with all of 2008’s painful buyouts, “Detroit”
still contributes far more to our economy than its competitors.
Some argue that promoting “made in America” is somehow un-American. But the beauty of a free
market is that consumer demand can move businesses. Today, you can buy organic milk, free trade
coffee and make-up produced without animal testing – all because enough consumers made clear
they wanted it. Meanwhile, the shoes and clothes we wear are less likely to be produced with child
labor, because consumers made clear they would not trust a company that profited from it.
If consumers and regulators who care about American jobs have the facts, every automaker will have
more reason to keep (or bring) their jobs and R&D here.
i
The majority of Chrysler employees and sales are in the U.S., but combining Chrysler with Fiat will make it as “global” as
its competitors.
ii
Cars per worker is produced by dividing 2007 global sales by 2007 global employment.
iii
Based on each company’s U.S. sales divided by U.S. production. Does not account for vehicles made in the U.S. for
export.
iv
Fleet average domestic content is based on 2008 model year content figures and 2008 U.S. sales. U.S. parts purchase
estimates are based on 2007 data, including statements by automakers and their trade groups.
v
Employment for each automaker is estimated as of December 31, 2008.
vi
Based on analysis by National Science Foundation and Booz Allen.
vii
National Science Foundation, 2009 analysis of 2006 data.