In the United States, American-made products are highly regarded, with good reason, as they obviously boost the local economy as opposed to foreign-made products. However, are all the domestic-brand vehicles really assembled with components sourced from the United States? That’s what the Kogod School of Business figured out about American made vehicles.
This establishment just published their 2016 Kogod Made in America Auto Index, which ranks the automotive fleet by their American content, or the percentage of the vehicles that contributes to the local economy. This report rounds up the U.S. and Canadian markets, and takes into account where the engine, the transmission, the cockpit and the chassis come from, in addition to the assembly location and even where the profit margin ends up.
2016 Kogod Made in America Auto Index
WHAT is the Auto Index
What percentage of your vehicles value contributes to the overall well-being of the U.S. economy? How does your car impact the U.S. automobile industry’s economic vitality? And, most importantly, why does this information matter to you?
Kogod’s 2016 Made in America Auto Index seeks to answer these questions by evaluating the domestic content of vehicles sold in the US. The index takes into account other aspects of vehicles manufacturing that are not accounted for in other measures. Seven criteria are considered, including profit margin, labor, and research and development location, among others.
WHY is the Index important?
In 2015, of the 17.5 million vehicles sold in the U.S., approximately 65 percent were produced in the United States. That same year, the auto industry directly employed approximately 1.55 million workers and supported an additional 5.7 million jobs in repair shops, part supply stores, and car dealerships.
As such an important part of the U.S. economy, understanding the factors that influence the automobile industry is not just helpful—it is essential. A vehicles domestic manufacturing composition plays a key role in determining its overall impact on the American economy. This knowledge empowers consumers and automakers alike to make better economic decisions about where a car is made, and which offer the greatest commercial benefits to the country.
IMPROVING ON THE LABEL
One of the first things a consumer looks at while car shopping is the price and options label. Since the enactment of the American Automotive Labeling Act (AALA) in 1994, automakers are required to provide information on the label detailing the amount of U.S. and Canadian parts content, the country of assembly, and the engine and transmission’s country of origin.
AALA data, while useful, is not the most accurate means of assessing a vehicle’s contribution to the U.S. economy. It presents a number of limitations; U.S. and Canadian content are combined into one number, and automakers are allowed to round-up a part that is potentially only 70% U.S./Canadian to 100% U.S./Canadian.
Kogod’s method improves on the AALA data by incorporating a more comprehensive research methodology, providing consumers with a more accurate view of their vehicle’s composition.
HOW does the Index work?
The index uses seven points derived from publicly available data.
The components of the index are based on research into the economic value of different components of auto manufacturing that was done by the Center for Automotive Research in Ann Arbor Michigan. For example, the highest ranked cars are made by U.S. based manufacturers using American engines and transmissions, and a with a high AALA percentage of U.S. and Canadian parts.
The seven criteria are as follows:
- Profit Margin. This was measured based on the location of an automaker’s headquarters. If an automaker’s global headquarters is located in the US, the model receives a 6. If it is not, it receives a 0. The assumption here is that (on average), 6% of a vehicle’s value is profit margin, so if it is a U.S. 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 6. If not, the model receives a 0. We assume that approximately 6% of the vehicle’s value is labor content.
- 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 US company, it receives a 6. If it is the product of a foreign company but is assembled in the U.S. it receives a 3; if it is a foreign import it receives a 1.
- Inventory, Capital and other expenses. If assembly occurs in the US, the model receives an 11; if not, it receives a 0.
- Engine. If the engine is produced in the US, the model receives a 14; if not it receives a 0.
- Transmission. If the transmission is produced in the US, the model receives a 7; if not it receives a 0.
- Body, Chassis, and Electrical Components. 50 % of a vehicle’s score is assigned to this category. The AALA percentage is divided into two to derive this score.
In 2014, Fiat acquired the outstanding shares of Chrysler. The new entity, Fiat Chrysler Automotive (FCA), is headquartered in the Netherlands with a tax domicile in London, and shares listed on the New York Stock Exchange. As such, because of the hybrid nature of its organizational structure and its large production and R&D presence in the U.S., we assigned a value of 3 for profit margin and R&D, rather than a 6 or 0.
The index shows that vehicles produced by automakers headquartered in the US rated higher overall in the index. This is for two reasons: (1) profit derived from their sale was more likely to return or remain in the United States; and (2) a majority of a U.S. company’s R&D activities are located in the US.
The index also finds that foreign companies were more likely to use fewer US-produced parts, even if they utilize American manufacturing locations. US economic impact is lower, as the vehicle’s home country receives much of its profits. While the data contained in the AALA is important, a true index of “localness” must recognize other things such as company’s country of origin, as well as the location of its research and development activities.
Did you know that buying Made in USA has a bigger impact than you know? Click here for the top 4 reasons.