A Look at the Spatial Distribution of the Automotive Industry reflects the realities facing the global auto parts industry in the twenty-first century as individual companies strive to survive in an extremely competitive environment.
“More than ever, automakers are drawing on suppliers around the globe, shuttling parts across borders in search of lower prices and higher quality,” according to the Original Equipment Suppliers Association.
The report found that the value of parts coming from within the United States or Canada declined for all of the Big Three from 1995 to 2005. General Motors U.S./Canada-sourced parts in 1995 accounted for 91 percent of those used in vehicles sold that year and only 81 percent in 2005. Ford Motor Company U.S./ Canada-sourced parts accounted for 86 percent in 1995, down to 82 percent in 2005, and Chrysler U.S./ Canada-sourced parts accounted for 89 percent in 1995, down to 76 percent in 2005.
For that same period, the top three Japanese automakers increased their share of parts produced in the United States and Canada: Toyota with 49 percent in 1995 and 75 percent in 2005; Honda with 47 percent in 1995 and 68 percent in 2005; and Nissan with 42 percent in 1995 and 57 percent in 2005. However, the report also pointed out that “when considering all vehicles sold in the United States (in 2005), including those made in Japan, the share of parts value from U.S. or Canadian sources fell dramatically: Toyota, 49 percent; Honda, 58 percent; and Nissan, 48 percent.”
The United States imported auto parts valued at $95.2 billion in 2005, an increase of more than 50 percent since 1999 when auto parts imports totaled $61.6 billion. During that same period, exports of auto parts from the United States grew only 18 percent, from $49.9 billion in 1999 to $58.9 billion in 2006, tripling the U.S. trade deficit in auto parts.
Mexico is the largest exporter of car parts to the United States with $26.4 billion in parts in 2006; Canada is second with parts exports valued at $20.4 billion; Japan is third largest with $15.4 billion in exports to the United States. Together, these three countries accounted for approximately two-thirds of all car parts imported into the United States ($62.2 billion). Mexico and Canada, partnered with the United States in the North American Free Trade Agreement (NAFTA), exported auto parts valued at $46.8 billion to the United States in 2006. They also were the destination for 76 percent of all U.S. auto parts exported that year ($44.7 billion).
Most parts for vehicles built in the United States and Europe are supplied by independent producers since two of the largest supplier companies were spun off from their parent companies. Delphi Automotive Systems, a former subsidiary of General Motors, became independent in 1999 and Visteon Corporation, formerly part of Ford, became independent in 2000. They were among the 1,500 to 2,000 major Tier 1 automotive suppliers (companies selling components and systems directly to the vehicle builders) estimated to be serving the global automotive industry in 2004. This number is expected to shrink to between 500 and 700 major suppliers, and only about fifty of these survivors will be system-integrators dealing directly with the vehicle manufacturers, according to the Boston Consulting Group. The trend is for the major suppliers to provide larger and more complete vehicle systems or segments rather than simply supplying hundreds of parts and components, with some-like Magna International-building complete vehicles..
Japan, one of the leading global producers of automobiles, has traditionally operated under the keiretsu system in which an association of companies agrees to work together, often at the exclusion of firms outside the group. Automotive keiretsus sometimes have several hundred companies associated with a particular vehicle manufacturing company, usually in a somewhat exclusive arrangement. These agreements in essence bar non-members from obtaining supplier arrangements with the vehicle manufacturer. However, these keiretsu relationships are tending to dissolve as cross-sourcing of components among the suppliers increases with industry globalization.
The global automotive industry is a major consumer of a host of commodities worldwide. With vehicle production at more than 64 million units each year, it is a major consumer of various grades of steel, for example, which accounts for 55 percent of an average vehicle's content by weight, over 1,700 pounds in a mid-size sedan. Other materials consumed include cast iron, averaging more than 400 pounds, primarily for engine and suspension components; plastics and composites, nearly 250 pounds; aluminum, about 190 pounds; plus rubber, glass, copper, zinc, other metals, fabrics, and various fluids and lubricants. These materials are sourced from all over the world, the location depending on price, availability and accessibility on the part of the provider of parts and/or components supplying the vehicle manufacturer.
