The author intends to distinguish sharp differences in national origin ofproduction and distribution of motor vehicles.
American Big Three producers (Chrysler, Ford and GM) and Japanese-ownedmanufacturers (Honda, Nissan, Mazda, Mitsubishi, Subaru, Suzuki, Daihatsu andIsuzu). By distinguishing b/w these differences, a vehicle may be classified asdomestic or foreign made. It provides a locational framework for understandingwhat an American automobile is. Although few are 100% domestic or foreign, thepercentage of national origin of any vehicle sold in the U. S. can be determined.
Difference b/w domestic and foreign made Sorting domestic from foreign cars is ageographical study because the distinction comes from where the carmakers carryout different stages of production. The distinction was clear until the 1980’s,before this time American cars were built in the U. S. by American companies,labor and parts. Foreign cars were built in foreign countries by foreigncompanies, labor and parts.
The appearance was also different. American carsexceeded 5 meters in length and had engines w/ displacements of 4 liters and 6or 8 cylinders. Foreign automobiles were over a meter shorter than Americanmodels and contained 4 cylinder engines w/ only 2 liter displacements. In 1955,foreign vehicle manufacturers only held 1% of the American car market- Europeansaccounting for most foreign sales. During 1970’s, Japanese-owned companiesovertook the Europeans as leading exporters of cars to the U. S.
, but distinctionb/w foreign and American cars remained well defined. However, the appearances ofboth foreign and domestic vehicles changed as American manufacturers respondedto demands for more fuel efficiency by shortening and decreasing the sizesimilar to their Japanese competitors. At the same time, Japanese companiesbegan to build larger, more luxurious cars to meet the demands of customers whowished to trade in the original smaller models. Other changes that reduced thedifference b/w foreign and American cars included the interest that Americanfirms took in importing Asian produced models to the U. S. Also, Japanese firmsbegan opening production facilities in North America, predominantly in the U.
S. ,in fear of having their American sales resticted by import Quotas. as domesticor foreign, but so do the components that are used to build them. Components canrange from nuts and bolts to engines and transmissions. American and foreigncompanies manufacture their own parts and also purchase them from outsidesuppliers.
Identifying national origin The easiest and most widely usedindicator of domestic or foreign production is calculated by the EPA under theCorporate Average Fuel Economy regulations. According to these regulations, inorder for a vehicle to be domestic, it must have the combined fuel economy inmiles/gallon must exceed a specified average of 27. 5 miles/gallon (1993). Thecombined fuel economy of foreign vehicles must also exceed a specified average(which was not given but is lower than that of domesic). The EPA also considersa vehicle domestic if at least 75% of its parts come from the U. S.
or Canada. The EPA also considers Mexican content as domestic under 1993 NAFTA. Overall,government efforts to classify all vehicles into 2 groups have failed because novehicle is entirely domestic or foreign made. Therefore, car companies andmodels are placed on a continuum from relatively low to high percentages ofdomestic content.
Selling price All new automobiles sold in the U. S. have windowstickers showing the suggested retail price. The country where each model ismanufactured is required to be identified to inform the consumer. The retailprice of a motor vehicle includes direct and indirect costs.
Direct costs thatare factored into the selling price are costs of production- res. and dev. ,purchase or production of components, the assembly of the components into thefinished vehicle, and transport costs from the assembly plant to the dealer. These costs account for two-thirds of the sticker price, one half of this pricegoes to buying parts for assembly. The cost of developing a new model ismeasured in billions of dollars. Chrysler spent 1 billion dollars to developlarge models such as Dodge Intrepid, Eagle Vision, the New Yorker and a halfbillion on the Neon.
Ford spent 6 billion on developing the Contour and theMystique. GM spent 4 and a half on the Saturn. Before building a new model, acompany first conducts research to identify potential buyer groups and demands. Next, individual parts must be designed and machines be built to make parts andassemble vehicles. Ofcourse, experiments are run on the finished prototype totest road use. Honda, Toyota and Nissan have design studios in southern Cal.
andAnn Harbor, Mich. The purpose of these studios is to modify Japanese-engineeredmodels to preferences and driving conditions of N. America. Indirect costsaccount for another one-third of the sticker price and include- centraladministration, corpoprate profit, marketing, and dealer expenses. They aredivided b/w the country where the manufacturer’s headquarters are located andthe country where the vehicle is sold.
Executives and shareholders reside in thecountry where company originated, even if production facilities are not. Chrysler, Ford and GM are considered American companies because their corporateheadquarters are in Detroit. Toyota and other Japanese companies sell in U. S. but have headquarters in Japan.
Marketing and advertising costs may account foras much as 5% of the total sticker price. The advertising budget averaged$875/vehicle in 1993. Regardless of where vehicles are manufactured, companiesselling in the U. S. hire American advertising agencies and place ads on AmericanTV and newspapers. Final Assembly The changing distribution of final assemblyplants began in the 1960’s with the constant growth of new models ofautomobiles.
Companies closed their coastal assembly plants and convertedinterior ones to produce 1 or 2 specialized products to distribute throughout N. America. Due to their fragility, finished vehicles are exppensive to transport. Consequently, assembly plants are located near customers and dealers. Demand forfor the is essential to this strategy or it wouldnot make sense to spend 1billion dollars on a final-assembly plant. Since the annual capacity of atypical plant is 200,000 vehicles, a manufacturer will dedicate a plant to onespecific product.
Two-thirds of vehicles sold in U. S. in 1992 were produced atAmerican assembly plants, rest were made in other countries. The Big 3 assembledin the U. S. 80% of vehicles they sold there and one-third of vehicles sold inU.
S. by foreign-owned manufacturers were assembled there also. Nine-tenths ofthe value of vehicles sold in the U. S. by the Big 3 had domesic content.
Vehicles sold in the U. S. but assembled elsewhere came from 3 areas- Canada,Mexico and eastern hemisphere countries. In 1992, 13% of all cars and truckssold in U. S.
were assembled in Canada, 2% in Mexico and 17% in easternhemisphere countries (Japan, Germany and South Korea). Honda is the first Asiancarmaker to build an assembly plant in N. America and operates 2 plants a shortdistance apart- Maryville and East Liberty Ohio and another in Alliston,Ontario. The reason for Honda’s aggression to establish assembly plants overseasis because there is little chance for increasing sales in Japan.
Honda soldtwice as many cars in N. America than in Japan in 1992 and has become theleading exporter of cars in N. America. Two other large sellers are Toyota andNissan.
Toyota has a final-assembly plant in Georgetown Ky. , and Nissan has onein Smyrna, Tenn. where trucks are a large portion of the output. Components Notonly do the final prototypes of cars have to be classified.