In this discussion, Frank shares his thoughts on the American automotive industry and the how the new USMCA regulations are going to change the dynamics of the field.
Professor Frank DuBois’s Area of Expertise
Japan; FDI; international business practices; Europe; global competition and e-commerce; NAFTA; WTO; Asia; export management; Hong Kong; Brazil; US-Mexico; China; industrial clusters; auto industry; global supply chain management; customs facilitation
Professor DuBois is Associate Professor of International Business and Chair of the International Business Department. His research focus is in global supply chain management, customs
facilitation, country of origin impacts and industrial cluster theory. He is also author of the Kogod Made in America Auto Index. His work has appeared in The Journal of International Business Studies, International Marketing Review, Journal of Global Information Management, the International Trade Journal, the Production and Inventory Management Journal and other publications. DuBois has taught at Old Dominion University, Moscow Institute of Electronics Technology, Al Akhawayn University in Morocco, IMD in Switzerland and has
consulted for a variety of organizations including the Organization of American States, Korean Science and Engineering Foundation, World Economic Forum, National Institute for Science and Technology, USAID, Volvo-Penta, UPS and ITT Gwaltney. His main teaching responsibilities include international business courses at both the graduate and undergraduate levels. He also leads MBA study tours to such locations as Brazil, China, Argentina and Chile.
Made in America: What do you think of Ford’s plans to phase out to only two cars and just keep all of their trucks.
Frank: That’s where the money is right now. They’re making money with their trucks and SUVs at the moment and they’re just looking at becoming that kind of company. That’s what the buyers want in the US market right now. People are still buying Toyota and Honda, and it’ll be interesting to see if any other manufacturers follow their lead. My fear is that, while they’ve improved fuel economy in the larger vehicles specifically, some gas price increases could hit them fairly hard. But we’re in a really dynamic and exciting time of flux from the traditional internal combustion engine to these hybrids. It will be interesting to see how this pans out down the road. Nothing has really changed in the last 40 to 50 years. The new technologies are transforming the production process, the sourcing process and the supply chain networks. It’s getting more and more complicated. It’s getting to the point that the vehicles are just getting overly complicated. The other issue is that big name manufacturers are getting in a similar headspace to Tesla and coming up with new versions of all-electric vehicles with long mile range. I’m not sure how long Tesla will be able to pull this off.
Made in America: Last year, Tesla was saying that the Model 3 was going to be the most American made car, but you don’t think he’s going to be able to keep this promise?
Frank: Well, he’s got a lot of new competition moving into that space with Jaguar and the Volkswagen group. I wouldn’t be surprised if there was an acquisition of some sort. It’ll be interesting to see how that plays out in the next five to ten years.
Made in America: do you think Tesla at least get the trend moving faster towards electric?
Frank: yes, for sure. It’s sort of like smartphones when they first came out, it’s taken a while to catch on. I’m starting to see more charging stations around.
Made in America: Have you studied much with what the details in the USMCA are? Do you think that will have a little effect on the auto industry?
Frank: It’s going to have a significant effect on the consumer. Automakers are pretty clever at getting numbers to work out how they want. When you look at a car, it has the American automotive labelling Act labelled. There are a few issues with that number. If you go just by the American Automotive Labelling Act label, things can be quite bazaar. If you see a car that’s 60 percent American made, it might have a Mexican engine and an Italian transmission, or something like that. If you look at the legislation for the American Automotive Labelling Act, the manufacturers allowed to base that label on the car line. In reality, there are a lot of variations of the carline from what the label says. They can also round up from 70 percent to 100 percent. I’m not sure under the USMCA how much flexibility manufacturing is going to have in terms of getting to the number they need to get to. I think some of them may just pay the alternative tariff, but I still don’t have a good idea of what it is. That’s still up in the air. If a car can’t make that 75 percent threshold by 2020, I think they’ll just pay the tariff because it’ll be too expensive for them to get there. The 16 dollar an hour labor requirement is going to be problematic. This is going to be a compliance issue. Automotive makers are going to wonder how they can finesse these new rules. I want to make it clear, I’m pretty much agnostic with Made in America. I’ve owned cars from all over the world. This is adding, especially with the steel and aluminum tariffs, this is adding a lot more expenditures to the cost of the vehicle. It will be interesting to see if this will have a measurable effect on employment
Made in America: Do you think this will create more automation or jobs?
Frank: Well, it takes fewer and fewer people to make a car today. People that still work in line, you can afford to increase their salaries. And I think a lot of companies will just deal with the two percent penalty so they can continue to make their cars outside of the US. It’s also complicated with Mexico because I think they might just limit their exports to the US and focus on the rest of the world where there are no tariffs. Again, it’s the compliance cost that will be problematic.
Made in America: Of the last five or six years doing this, was there anything that surprised you while doing research that you didn’t expect to see?
Frank: I’ve been playing around with cars for most of my life since I was probably 14. I worked at a Volkswagen shop and we used to get a lot of parts from West Germany and also from Brazil. You would see the quality level of these parts from Brazil and other countries was not nearly as high as that of the German parts. It’s interesting to look at the supply chains for certain vehicles. An interesting one is the Ford Transit Connect. It’s assembled in Spain with a Mexican engine and a French transmission. So you’ve got parts and components flying all over the world to get in that vehicle.
Made in America: From 2017 to 2018, the Traverse, the Enclave and the Acadia fell off. Do you know what Chevy did?
Frank: I believe they starting sourcing more parts and components from Mexico. They dropped from about 71 percent to 57 percent American and Canadian made.
Made in America: and the TDC, that’s the rating you use?
Frank: yeah, I call that Total Domestic Content.
Made in America: So, do you think we are becoming more or less American made as far as cars go?
Frank: Less, but at a very gradual rate. I’ve been looking at the trends over six years. What it looks like initially is that US automakers are looking at Mexico more rapidly than other foreign automakers. You also need to look at American product lines. They have a lot of models made in the US, but they also have a lot of models imported from Japan or other parts of the world. You also see that with US automakers there’s a codependency with Mexico. As a result of NAFTA, they build a lot of their cars down there, and it’s a part of the supply chain network. With the new USMCA, that’s going to be an issue to find a less costly supplier. It will be interesting to see how this plays out within the next few years.
Made in America: Do you think we’re able to compete as American manufacturers now that more automation is available?
Frank: Yeah. We’re getting to the point of autonomous vehicles and taxis. They’re looking at autonomous cargo ships.
Made in America: And there’s no telling what this will look like in 10 years.
Frank: Exactly. We’re in a new wave of automation and productivity.
About Made in America Auto Index | Research by Frank DuBois
What percentage of your vehicle’s value contributes to the overall well-being of the U.S. economy and why does this information matter to you?
Kogod’s 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 vehicle manufacturing that are not accounted for in other measures.
Seven criteria are considered, including profit margin, labor, and research and development location, among others.
View the Made In America Auto Index and see how American Made your car is…or isn’t.