Tue, 09 Jun 2009 16:50:57 +0000 – By Mallory Factor
What could be more American than a pickup truck like the popular Ford F-150? Well actually, the Toyota Sienna is more American– it has 85 percent American content while the F-150 has only 80 percent American content. As we learn more about the troubles of GM and the other U.S.-owned car companies, we should reconsider what it means to be an American car company and look at which car companies are really benefiting our country, our workers and our communities.
BMW, Honda, Hyundai, Kia, Mercedes, Mitsubishi, Nissan, Subaru, and Toyota all have or are building auto manufacturing facilities in the United States. And not one of these has shuttered a plant during this recession or before. At a time when the domestic-owned car industry is in intensive care, with Chrysler and GM in bankruptcy, the rest of the domestic manufacturing industry is doing pretty well and continuing to benefit America and the communities in which their plants are located.
Starting in the 1980s, partly in response to protectionist threats but also from a desire to be closer to its customers, foreign automakers brought their manufacturing plants to the United States. For the most part, this has been a huge success story for America as well as for the car companies involved.
Take BMW, which has a plant in Spartanburg, S.C. Since 1992, BMW has invested a total of $6 billion in its South Carolina operations, including compensation of nearly $4 billion to workers in South Carolina. BMW has created 5400 local jobs, and its suppliers have invested an additional $2.1 billion in the South Carolina economy. The factory in Spartanburg had produced over 37,000 cars this year through April. These are high-value, higher-cost vehicles that are extremely reliable. BMW sells so many vehicles to law enforcement that it held a convention for law enforcement at the plant recently, which drew calls from concerned motorists wondering why police had descended on Spartanburg.
And now BMW is planning an expansion of its facilities – doubling the manufacturing space and adding 500 local jobs with an additional investment of $750 million. American auto manufacturers can only dream of such an expansion right now, even with its retooling to “greener” cars.
From an economic perspective, the importance of these foreign owned plants goes far beyond the final assembly of a car. Forty-nine suppliers to BMW in South Carolina, for instance, are located elsewhere in the state, adding 6,000 jobs beyond those at the plant. And 40 of those 49 suppliers are new businesses, rather than relocations to the state. About 23,000 jobs in South Carolina are in some way dependent on the plant. For every job at the factory itself, there are more than four new jobs elsewhere that depend on the plant – everything from suppliers to cleaning services and restaurants. The plant adds almost $2 billion to South Carolina’s economy. Similar stories abound in other states that have attracted car and car parts plants, whether it’s Alabama for Mercedes; California, Kentucky, and West Virginia for Toyota; Mississippi and Tennessee for Nissan; or Ohio and Indiana for Honda.
These foreign-owned plants are nothing less than the foundation of the new U.S. auto industry. In 2008, 3.1 million cars of the total 8.7 million sold, or just over a third, were produced by foreign-owned companies making their products here. That percentage is surely higher now, with the recent plant closings by American-owned car companies. And last year, plants for foreign-owned auto companies purchased $53 billion in parts from U.S. suppliers, further increasing the economic benefits to the U.S. of these vehicles being manufactured here.
Looking closely at the U.S. and non-U.S. content of vehicles sold here, the once-clear line between domestic and foreign autos becomes blurred. According to the Federal Reserve Bank of Chicago, Ford and GM as a whole had around 80 percent of domestic content in their vehicle lines in 2006 – but this was just barely ahead of Toyota (at 76.3 percent domestic)–which itself was actually ahead of Chrysler (at 71.3 percent domestic). The Toyota Camry has only 68 percent domestic content for 2008–but so does the Dodge Ram. Toyota, Nissan, Honda, and Hyundai also produce engines in the United States, which leads to even higher U.S. content in the vehicles produced here. So which cars are truly foreign and truly domestic these days?
Some complain that the foreign-owned plants are benefiting unfairly from tax breaks and similar incentives that may have brought them here in the first place. Labor unions and their allies claim that these concessions have been worth over $3.6 billion to the industry. But tax benefits are worth something only if you’re making money, which the foreign-owned auto manufacturers are doing and the domestic-owned manufacturers are not. In fact, the foreign owned auto manufacturers are generally paying substantial U.S. federal, state and local taxes (even with tax concessions) while the domestic owned auto manufacturers are costing us taxpayers billions.
The workers in these foreign-owned plants are Americans, too, even if they may not be union members. Most foreign-owned automotive plants in the U.S. are not unionized. And the simple fact is that even before the current recession, employment in auto manufacturing was falling in union states and rising in non-union, “right to work” states.
You can’t tell a book by its cover, and, increasingly, you can’t tell where a car or its engine was made by its hood ornament. There is a bright future for auto manufacturing in the United States-but only if you include foreign-owned auto plants located in the U.S., which have generated more jobs and helped sustain communities better in recent years than the domestic-owned auto industry.
Mallory Factor is a merchant banker and the co-chairman and co-founder of the Monday Meeting, an influential gathering of economic conservatives, journalists, and corporate leaders in New York City.
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