Automakers are increasingly going global

America's new cars and trucks were a little more international in 2006, as Detroit and Japan's top six automakers bought more of their parts from outside the United States and Canada last year.

The trend comes thanks to the transformation of the auto parts business into a global bazaar, where continuous pressures for cost cuts have pushed suppliers to seek the lowest cost by building factories in countries such as Honduras, Romania and Cambodia.

Yet an analysis of federal data by the Free Press also found a trend among Japanese automakers to use more U.S.- or Canadian-made parts in the vehicles they built in North America. In fact, Toyota Motor Corp.'s North American-built cars and trucks had fewer imported parts on average than those built by Chrysler Group. However, Toyota's overall average of domestic parts fell because of a surge of vehicles imported from Japan.

Supplier industry experts say the future of the parts business in the United States likely rests in the hands of the transplant automakers. Already, the parts suppliers most favored by Wall Street -- and the ones most likely to survive the continuing industry shakeout -- are the ones with growing business from foreign automakers.

"I'm still a believer that there will be fairly strong and vibrant parts production in North America for years to come," said Kim Korth, founder and president of consulting firm IRN Inc. "What people don't recognize is that the Japanese are much more committed to local sources of production for supply than the Big Three."

The federal government requires automakers to tell their customers what percentage of a vehicle's parts come from the United States or Canada, which federal law defines as a domestic source. Using sales data, the Free Press computed the average domestic content for the six largest automakers for the 2006 model year.

Among Detroit automakers, General Motors Corp. had the highest average domestic parts content by sales in its 2006 models at 80%. Ford Motor Co. was second with 79%, and the Chrysler Group averaged 73%. In last year's survey, GM averaged 81%, Ford hit 82% and Chrysler averaged 76%.

Most new vehicles from Detroit tend to have fewer domestic parts than the models they replace, a by-product of automakers pressuring suppliers for continual cost cuts. The Mexico-built Ford Fusion had 30% domestic parts in 2006 models, the lowest level of any Ford model.

All Detroit automakers have put a premium on lowering parts costs as part of their turnaround plans. GM has said $2 billion of the $9 billion in annual cost cuts it made last year were set to come from lower parts costs. Bo Andersson, GM's group vice president of global purchasing and supply, has remade the automaker's buying habits over the past several years with a focus on quality and low prices around the globe.

Andersson told a panel at the Society of Automotive Engineers conference earlier this month that just as GM has spread its engineering work around the world -- designing sedans in Europe for North America and Asia -- it has centralized some of its global purchasing.

"If you are a seat belt supplier today, our seat belt group is sitting in Mexico. They buy the 9.1 million seat belts for all of GM's global needs," Andersson said. "We have been moving our people to what we call the best places to buy."@@page@@

Among Japanese automakers, Honda Motor Co. had the highest average U.S. and Canadian parts count in 2006 with 60% -- the only automaker among the top six to increase its average from 2005, when it hit 58%. Toyota averaged 48%, and Nissan Motor Co. averaged 45%, both down from last year due to strong sales of smaller imported vehicles, such as Toyota's Scion line.

Japanese automakers have been worried about a political backlash from an over-reliance on imported parts and vehicles, especially as Detroit automakers and allies in Congress accuse a weak Japanese currency of adding to the domestic industry's troubles. One of the internal Toyota reports obtained by the Free Press earlier this year raised the concern that Toyota could come under fire for selling vehicles to U.S. customers with high proportions of foreign-made parts.

Excluding imported vehicles -- which typically contain no U.S. or Canadian parts -- the figures for the Japanese automakers change substantially. Nissan's domestic parts average rises to 57% domestic parts, flat from a year earlier, while Honda's increases to 69% and Toyota's jumps to 76%, both increases from 2005.

A few of Toyota's U.S.-built 2006 models surpassed 80% domestic parts, including the Camry sedan. The new 2008 Tundra pickup matches the domestic parts content of the old model, also at 80%.

Toyota spokesman Daniel Sieger said the company was not targeting specific parts content goals, but that the increases were the result of expanded North American production, such as the new engine plant in Alabama and the factory now under construction in Mississippi.

So far, the domestic parts content figures have not been a drag on Japanese automakers' sales in the United States, and several studies have shown that buyers tend to ignore those numbers on the window sticker. But there is some evidence that American buyers may simply not know much about automotive sourcing.

Art Spinella, an industry sales expert with CNW Marketing Research, held focus groups in five cities last month to measure perceptions of Toyota's American-ness. After showing the groups the parts content figures for major automakers, a majority of those tested were surprised that Toyota's 48% average was so far below that of Detroit automakers.

"The perception among most folks was that there was far more North American content in Toyota than Honda," Spinella said. "They were very surprised at the relatively low percentage in Toyota, overall, and somewhat disappointed."@@page@@

For U.S. auto parts suppliers, the key to avoiding bankruptcy has been to expand their business with foreign automakers, reduce their reliance on Detroit and globalize fast -- moves that have triggered deep job losses in the United States. According to the most recent data from the U.S. census, auto parts makers shed 108,437 jobs from 2002 to 2005, with 95,215 coming from cuts in production workers.

Dick Dauch, chairman of American Axle, noted in a presentation to Wall Street analysts last month that when it was spun off from GM in 1999, all of American Axle's parts came from five states and Canada. Today, they come from 24 countries. He also said that American Axle was seeing more opportunities to win business from Toyota and Honda's U.S. plants, which had relied heavily on their keiretzu, or network of Japanese-owned suppliers, in the past.

"Each has their own operating culture and philosophy, and now they're having to adjust," Dauch said of the transplant automakers. "There's a different segmentation here as far as market penetration. There's also a concern for political backlash, and they're also finding out who are the best suppliers North America has with a global capability."

Dauch noted the company has expanded its Guanajuato, Mexico, plant six times since 1999, making it American Axle's second-largest factory in the world, with another addition planned for this year. By comparison, United Auto Workers President Ron Gettelfinger told union members earlier this month that the union was trying to convince American Axle to keep a plant open in Buffalo, N.Y., that's set to close later this year.

Korth of IRN Inc. said though much of Wall Street's attention had focused on restructuring suppliers in bankruptcy protection, such as Delphi Corp. and Collins & Aikman, those survivors actually had grown stronger -- enough so that they could resist some of the traditional pricing demands from Detroit.

"You have an environment of big winners and big losers in the supply base," Korth said. "The companies that are succeeding have more opportunities than they know what to do with. ... As the strong get stronger, the weak are left scrambling."