‘Buying American’ Becomes Increasingly Difficult as Car Makers Globalize Operations
It was just a small news item, but it spoke volumes about the state of the world’s automotive industry. Peugeot, the item revealed earlier this month, has formed a joint venture with an industrial company in India to produce French-designed pickup trucks near Bombay.
Peugeot’s announcement came the same week that Chrysler unveiled a double-barreled plan not only to link up with Renault of France, but Hyundai of South Korea as well. Chrysler said it will jointly produce mini-utility vehicles with Renault in both Europe and the United States, while Hyundai will build mid-size cars for Chrysler in Hyundai’s new plant in Canada.
Just the week before that, Toyota of Japan announced that it is seriously considering building passenger cars in Britain.
The globalization of the auto industry--heralded for more than a decade by analysts and industry executives alike--has arrived.
Look no further than your local Pontiac dealership, where cars are now just as likely to come from Seoul as from Detroit. Consider the Pontiac Le Mans, one of GM’s smallest cars. Designed in West Germany, it is assembled in South Korea with parts from around the world and finally is sold by Pontiac in the United States.
In fact, some cars today are import and domestic at the same time; Cadillac for instance, builds its Allante bodies in Turin, Italy and flies them each day to the United States to be attached to their chassis on a final assembly line in Detroit.
It’s enough to make people wonder what meaning is left in the phrase “Buy American.”
Today, a dizzying array of joint ventures and other production projects spread out around the planet is rapidly blurring the lines of demarcation between the major Asian, American and European auto makers.
Trade barriers have done little to stop the trend. If anything, they may have accelerated it as the Japanese and Koreans have scrambled to set up local production operations and form joint ventures around the world to skirt import restrictions.
In the mid-1980s, the Japanese quickly established assembly operations in the United States and Canada and by next fall will have eight plants up and running in this country; now they are moving fast to do the same in Europe to avoid tough new trade rules when the European Community becomes a true Common Market in 1992.
Nowhere are the results of this internationalization more evident than in the United States.
Indeed, with the industrial giants of Detroit, Tokyo, Paris and Turin working ever closer on new products aimed at the huge American market, it is becoming increasingly difficult for American consumers to tell import from domestic. As a result, old loyalties to American-built products seem to be breaking down.
“Those distinctions are becoming more blurred,” observes Bill Lehman, founder of Opinion Survey Center, a Maumee, Ohio-based market research firm. “People are becoming more open-minded about buying either domestic or import than they were five or 10 years ago.”
Adds a Ford official: “We find that customers don’t know and don’t even care where a car is built anymore. As long as it has one of the major auto makers’ names on it, there are not that many questions being asked out there in the dealerships about where a car comes from.”
Increasing Homogeneity
In fact, American, Japanese and European cars are now often designed in the same styling studios and built in the same plants, and there is growing concern that this sharing of resources and manufacturing prowess is leading to a new sameness in the way cars on the road look and feel.
To be sure, there is a wider array of product offerings than ever before, thanks to increased competition in the American market. Yet among cars competing head to head within the same size and weight classifications, there still seems to be an increasing level of homogeneity of technology, quality and design.
“We’re seeing a convergence in car design, especially in the really competitive compact market, where there is going to be an even greater blurring in the future,” says John O’Donnell, an analyst with the international automotive project at the Massachusetts Institute of Technology. “All you’ve got to do is drive around and see that everybody is converging on the Ford Aero look.”
At the same time, the major Japanese, American and European automotive parts suppliers have also begun to interlock. They have built plants in other nations and formed joint ventures among themselves to gain quick access to markets as they follow their customers--the major auto makers--around the world. Hundreds of Japanese parts suppliers, for instance, have opened plants in the United States to serve the new Japanese assembly plants and are working for the Big Three as well.
With their critical supply bases so intertwined, it’s no wonder that the major auto makers all have access to virtually the same base of knowledge.
“The international connections have become so extensive that there is a merging of technologies around the world,” observes David Cole, director of the Center for the Study of Automotive Transportation at the University of Michigan. “It’s almost like we are all a part of the same database.”
‘One-Shot Events’
Now, new technology developed in Tokyo or Paris often finds its way almost immediately to Detroit.
“What all of this is doing is speeding the availability of technology to the car and truck buyer,” says Chrysler Vice Chairman Gerald Greenwald. “What joint ventures are all about is two companies coming together to do technology they couldn’t quite get to on their own. That’s certainly the case with our new JJ (mini-utility vehicle) project with Renault.”
Some analysts and auto executives disagree, however, that the spread of so many interlocking ventures has really led to a high level of cooperation between the Japanese and American auto makers.
They argue that the joint ventures are little more than temporary supply arrangements and that the companies involved work hard to try to limit the amount of confidential information they exchange with their foreign partners.
“I don’t see these joint ventures as anything but extremely opportunistic relationships,” says Maryanne Keller, automotive analyst with Furman, Selz, Mager, Dietz & Birney, a New York investment firm. “These ventures are for the most part one-shot events. These companies are in fact competitors, major competitors, and that is a point that cannot be forgotten.”
Still, there seems little doubt that these partnerships are on the verge of forcing a dramatic change in the way this nation perceives the car industry. Most notably, the new global networking is quickly turning slogans such as “Buy American” and government policies like restrictions on Japanese imports--into anachronisms.
With their expanding American manufacturing operations, the Japanese are selling more cars here than ever before--at a time their direct imports from Japan are actually declining. It is no coincidence that the major Japanese auto makers have generally stopped complaining about the continuation of import quotas on cars shipped to the United States directly from Japan. It’s because the rules have become irrelevant.
“The restraints have lost meaning, they are dead,” says Cole. “I think that the Japanese government just wants to keep them around to provide some discipline among the Japanese manufacturers and to avoid increased pressure for protectionism here.”
Scouring Japan, Europe
And, while Detroit executives still insist on continued trade protection for the domestic industry, their firms have become some of the most international of any of the world’s auto conglomerates.
Between them, General Motors, Ford and Chrysler are selling cars in North America that are assembled in Japan, South Korea, Mexico, Thailand, Taiwan, West Germany and Italy, as well as cars built by joint ventures with Japanese auto makers in the United States and Canada.
While the domestics look to Asia for small cars, they scour Europe just as eagerly for luxury models. Chrysler, for instance, is counting on Maserati for a high-priced two-seat coupe and has already acquired Lamborghini outright.
Yet even more so than either GM or Chrysler, Ford seems to be the company that is staking its future most completely on an increasingly complex global web of automotive partnerships. A quick glance at Ford’s expanding relationships reveals the extent to which the world’s auto industry is interwoven.
Already, Ford has turned over much of its small car development to Mazda--which is 25% owned by Ford. Mazda also builds Ford’s hot new Probe in its new American plant; meanwhile, Ford has also formed a U.S. joint venture with Nissan to build a new van for the American market in an Ohio assembly plant. At the same time, Kia Motors of South Korea, which is 10% owned by Ford, now builds Ford’s Festiva model, while Ford produces its Mazda-designed Mercury Tracer in a new plant in Mexico.
Ford has also formed new partnerships that are strictly designed to function overseas. Ford has merged its auto operations in Brazil and Argentina into a joint venture with Volkswagen, has acquired 75% of Aston Martin of Britain and has begun a limited project with Nissan to share utility vehicles in Australia--where Ford and Nissan have announced tentative plans to work together on car development as well.
Now, Ford may be on the verge of taking its biggest international step of all. Analysts say Ford is about to become the first auto maker to divide up all of its basic car development efforts among engineers in Japan, the United States and Europe.
In the future, analysts say, Ford’s small cars--up to the size of its current Escort--will all come from Mazda, its mid-size cars--the replacements for its current Ford Tempo and Mercury Topaz--would be developed by Ford of Europe, and its large cars--from its Taurus-Sable line on up--would be developed in North America.
What Ford’s global strategy makes clear is that in more and more cases, there aren’t any differences between American and foreign cars.
The Ford Probe, for instance, is built on the same Mazda assembly line in Michigan that produces Mazda’s new MX6. The new Mitsubishi Eclipse, meanwhile, is built in the same Illinois plant that produces Chrysler’s new Plymouth Laser. GM’s Geo Prizm is built in the same GM-Toyota joint venture facility that is turning out the latest Toyota Corolla.
Analysts acknowledge that the auto industry’s international ties have made it increasingly difficult to determine winners and losers and to predict which companies will survive.
But many agree that only a handful of proud companies, most notably Toyota and Honda, are likely to go it alone in the future.
Instead, some see rival families of paired Asian and American and European companies forming into giant combines to dominate the world’s auto industry. The outlines of such families seem to be emerging in some of the joint ventures already under way: Ford and Mazda; Chrysler, Mitsubishi and Renault; GM and its Japanese partners, Isuzu and Suzuki.
“The production processes and the types of technologies that are emphasized in the world should become more similar among companies that are cooperating,” notes one former top product planner at General Motors. “I think the technology, designs and processes will come together by groups.
“And, eventually, I think you will see these international partnerships form their own giant spheres of influence.”
INSIDE THE 1989 PONTIAC LE MANS Designed - West Germany Final assembly - South Korea Engine - 1.6 liter engines produced in South Korea 2.0 liter engines produced in Australia Transmission & automatic transaxle - Canada and the United States Manual transaxle - Korea Brake components - France, the United States and South Korea Tires - South Korea Electrical (wiring) harness - South Korea Sheet metal - Japan Stamping of exterior body parts - South Korea Fuel injection system - United States Rear axle components - United States and South Korea Fuel pump - United States Radio - Singapore Steering components - United States Windshield glass - South Korea Battery - South Korea
