American auto industry has lost former dominance but retains some luster

american-flag-auto-detroit-335Automotive technologies have been a great focus for us here this year at IPWatchdog, especially since self-driving autonomous vehicles took center stage at this year’s Consumer Electronics Show. We’ve been following a shift in the regulatory atmosphere for vehicle developers working with autonomous systems which automate the work of navigation and steering a car. A recent shift in production operations made by one of the Big Three automakers, which we’ll discuss in further detail below, has us interested in the dynamic nature of the nationality of car brands: it’s becoming clearer every day that the idea of American-made or Japanese-made is not black and white. We’ll discuss this shift in brand nationality today and follow-up in the coming weeks with a series of columns exploring patents from American automakers and foreign competitors in key auto technology sectors, including autonomous driving.

For decades now, the American auto industry has dealt with a decline from its former splendor of the mid-20th century, especially among the Big Three. Rising personnel costs, competition from foreign brands and, more recently, a spate of automobile recalls have dug into both the pockets and the reputation of this sector. Since 2010, the industry has been on a bit of a rebound thanks to a greater embrace of innovation and a more constructive partnership with the United Automobile Workers union.

However, another recent blow to the industry was struck when Ford Motor Company (NYSE:F) announced that it would be moving the American production of both the Focus and C-Max models from Michigan to Mexico. UAW representatives were hopeful that a replacement product would be found for the Ford plant in Wayne, MI, which Ford officials have said will not close when production of the Focus and C-Max move in 2018. Some have argued that the relocation has been announced in large part to help Ford hold more bargaining chips when the company enters into contract negotiations with the UAW the following week.

American cars aren’t simply being produced in greater numbers overseas. Increasingly, the innovative technologies going into the vehicles being sold in our country are also coming from overseas.


It’s pretty telling that industry data indicates that there are no truly American-made cars being sold anymore. The National Highway Traffic Safety Administration’s 2015 American Automobile Labeling Act (AALA) report shows that the cars constructed with the most American parts still had foreign parts used in at least one-quarter of the vehicle’s construction. Most of the cars that were three-quarters composed of American parts were made by General Motors Company (NYSE:GM), including the Buick Enclave, the Cadillac CTS and the Chevrolet Corvette. Both the Ford Focus and the Ford C-Max are composed of 40 percent American-made parts, and that could still remain the case even after the assembly operations move to Mexico. Plenty of other vehicles developed by American auto stalwarts use even fewer American-made parts in their construction. The least American-made American car is GM’s Buick Encore, made of only three percent American parts. The engine, transmission, vehicle assembly and 67 percent of the parts are all South Korean.

We’ve been covering the past few decades of global impacts on the American auto market this summer. Japan automakers Toyota Motor Corp. (NYSE:TM) and Nissan Motor Co. (TYO:7201) struggled in their first few decades in America but energy crises in the 1970s helped their fuel-efficient models find a greater audience. South Korean automotives went through serious issues in the 1980s and 1990s but Kia Motors Corporation (KRX:000270) and Hyundai Motor Co. (KRX:005380) are the automakers expected by auto executives to grow their market share the most around the world over the next five years according to a report by global auditing firm KPMG.

We’ve also talked about how the first vehicle manufactured in China will be available in American showrooms in 2015. Most consumers in the U.S. may not realize, however, that the Volvo S60 Inscription, a midsize luxury sedan, will be that first Chinese car; the Swedish car manufacturer became the asset of a Chinese company when Ford sold Volvo to Geely Automotive Holdings (HKG:175) in August 2010 for $1.5 billion. The S60 Inscription will be manufactured in a factory located in the Chinese city of Chengdu. This points out a very interesting aspect of the way that the automotive sector has changed in recent decades, due in no small part to free trade agreements signed by the U.S. with other countries. A single organization might be making their own cars with parts sourced from their factories, but those factories could be spread out all over the world. The ownership situation of a particular brand can also an interesting situation like the one above, where a Swedish carmaker makes cars in a Chinese plant after being sold by the American company that originally owned the brand. It deserves point out that Chrysler, traditionally considered one of the Big Three of American Auto, is owned by Italian-American multinational auto manufacturer Fiat Chrysler Automobiles, which is headquartered in London. There really isn’t a lot of simple black and white when it comes to the nationality of car brands.

These global economic forces have also brought foreign companies to American shores, further muddying the notion of American-made vehicles. In our coverage of South Korean automakers, we noted that both Hyundai and Kia operate manufacturing plants in America. According to the 2015 AALA report referenced above, the group of cars tied for the most American-made parts includes the Honda Odyssey, the Toyota Camry and the Toyota Sienna. Honda in particular is so entrenched in the West that it plans to make English the official work language of the company by the year 2020; the company makes more than 80 percent of its vehicles outside of Japan and is trying to cultivate a global business base.

Car ownership is a hallmark of the middle class and though many have decried the shrinking affluence of the American middle class, it is encouraging to note that American auto sales have been increasing in recent years. The first half of 2015 saw car sales of 8.52 million units, the best first-half showing for the American market since 2005. Some industry insiders believe that 2015 may see better auto sales numbers than 2001, the last time that the auto industry topped the 17 million sales mark.

The major American automakers have made some moves to strengthen their commitment to the nation’s auto industry in recent days. In the middle of July, GM announced that it would be investing $1.4 billion into renovations at sport utility vehicle production plant in Arlington, TX. The money will go towards upgrades in the factory’s paint shop, body shop and general assembly areas. Ford may be able to make good on its promise of bringing a new vehicle to the plant which recently lost the Focus and C-Max production lines after the company revealed that a new Lincoln Continental full-size sedan would be produced at its plant in Flat Rock, MI. It perhaps bears mentioning that American sales of the Ford C-Max have been declining over the past two years anyways, so Ford may want to put the factory to work on a car that will sell better in this country.


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