FREE ESSAY ON NATIONAL CONTENT OF MOTOR VEHICLES

NATIONAL CONTENT OF MOTOR VEHICLES

Purpose
The author intends to distinguish sharp differences in national origin of production and
distribution of motor vehicles that exist b/w American Big Three producers (Chrysler,
Ford and GM) and Japanese-owned manufacturers (Honda, Nissan, Mazda, Mitsubishi, Subaru,
Suzuki, Daihatsu and Isuzu). By distinguishing b/w these differences, a vehicle may be
classified as domestic or foreign made. It provides a locational framework for
understanding what an American automobile is. Although few are 100% domestic or foreign,
the percentage 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 a geographical study because the distinction comes
from where the carmakers carry out 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 foreign
companies, labor and parts. The appearance was also different. American cars exceeded 5
meters in length and had engines w/ displacements of 4 liters and 6 or 8 cylinders.
Foreign automobiles were over a meter shorter than American models and contained 4
cylinder engines w/ only 2 liter displacements. In 1955, foreign vehicle manufacturers
only held 1% of the American car market- Europeans accounting for most foreign sales.
During 1970's, Japanese-owned companies overtook the Europeans as leading exporters of
cars to the U.S., but distinction b/w foreign and American cars remained well defined. 
However, the appearances of both foreign and domestic vehicles changed as American
manufacturers responded to demands for more fuel efficiency by shortening and decreasing
the size similar to their Japanese competitors. At the same time, Japanese companies
began to build larger, more luxurious cars to meet the demands of customers who wished to
trade in the original smaller models. 
Other changes that reduced the difference b/w foreign and American cars included the
interest that American firms took in importing Asian produced models to the U.S. Also,
Japanese firms began opening production facilities in North America, predominantly in the
U.S., in fear of having their American sales resticted by import Quotas. 
as domestic or foreign, but so do the components that are used to build them. Components
can range from nuts and bolts to engines and transmissions. American and foreign
companies manufacture their own parts and also purchase them from outside suppliers.
Identifying national origin
The easiest and most widely used indicator of domestic or foreign production is
calculated by the EPA under the Corporate Average Fuel Economy regulations. According to
these regulations, in order for a vehicle to be domestic, it must have the combined fuel
economy in miles/gallon must exceed a specified average of 27.5 miles/gallon (1993). The
combined 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 considers a 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 no vehicle is entirely domestic or foreign
made. Therefore, car companies and models are placed on a continuum from relatively low
to high percentages of domestic content.
Selling price
All new automobiles sold in the U.S. have window stickers showing the suggested retail
price. The country where each model is manufactured is required to be identified to
inform the consumer. The retail price of a motor vehicle includes direct and indirect
costs. 
Direct costs that are factored into the selling price are costs of production- res. and
dev., purchase or production of components, the assembly of the components into the
finished 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 price goes to buying parts
for assembly. The cost of developing a new model is measured in billions of dollars.
Chrysler spent 1 billion dollars to develop large models such as Dodge Intrepid, Eagle
Vision, the New Yorker and a half billion on the Neon. Ford spent 6 billion on developing
the Contour and the Mystique. GM spent 4 and a half on the Saturn. Before building a new
model, a company first conducts research to identify potential buyer groups and demands.
Next, individual parts must be designed and machines be built to make parts and assemble
vehicles. Ofcourse, experiments are run on the finished prototype to test road use.
Honda, Toyota and Nissan have design studios in southern Cal. and Ann Harbor, Mich. The
purpose of these studios is to modify Japanese-engineered models to preferences and
driving conditions of N. America.
Indirect costs account for another one-third of the sticker price and include- central
administration, corpoprate profit, marketing, and dealer expenses. They are divided b/w
the country where the manufacturer's headquarters are located and the country where the
vehicle is sold. Executives and shareholders reside in the country where company
originated, even if production facilities are not. Chrysler, Ford and GM are considered
American companies because their corporate headquarters are in Detroit. Toyota and other
Japanese companies sell in U.S. but have headquarters in Japan. Marketing and advertising
costs may account for as much as 5% of the total sticker price. The advertising budget
averaged $875/vehicle in 1993. Regardless of where vehicles are manufactured, companies
selling in the U.S. hire American advertising agencies and place ads on American TV and
newspapers.
Final Assembly
The changing distribution of final assembly plants began in the 1960's with the constant
growth of new models of automobiles. Companies closed their coastal assembly plants and
converted interior 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 for for the
is essential to this strategy or it wouldnot make sense to spend 1 billion dollars on a
final-assembly plant. Since the annual capacity of a typical plant is 200,000 vehicles, a
manufacturer will dedicate a plant to one specific product.
Two-thirds of vehicles sold in U.S. in 1992 were produced at American assembly plants,
rest were made in other countries. The Big 3 assembled in the U.S. 80% of vehicles they
sold there and one-third of vehicles sold in U.S. by foreign-owned manufacturers were
assembled there also. Nine-tenths of the 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 trucks sold in U.S. were
assembled in Canada, 2% in Mexico and 17% in eastern hemisphere countries (Japan, Germany
and South Korea). Honda is the first Asian carmaker to build an assembly plant in N.
America and operates 2 plants a short distance apart- Maryville and East Liberty Ohio and
another in Alliston, Ontario. The reason for Honda's aggression to establish assembly
plants overseas is because there is little chance for increasing sales in Japan. Honda
sold twice as many cars in N. America than in Japan in 1992 and has become the leading
exporter of cars in N. America. Two other large sellers are Toyota and Nissan. Toyota has
a final-assembly plant in Georgetown Ky., and Nissan has one in Smyrna, Tenn. where
trucks are a large portion of the output.
Components 
Not only do the final prototypes of cars have to be classified