With the economy in crisis and the well-documented struggles of the Big 3 U.S. automakers continuing, the idea of buying American is beginning to gain traction once again. A March 2009 Gallup poll shows that the percentage of Americans saying they would only consider cars from American companies when making a new-car purchase has increased in recent months, up from 30 percent in mid-December to 37 percent today.
Furthermore, legislators considered (though ultimately decided against) a provision in the $787 billion economic stimulus package that would have required government projects to use U.S.-made iron, steel and other manufactured goods. One of the “Cash for Clunkers” proposals being floated in Congress would offer thousands of dollars in incentives more to buyers of U.S. auto brands.
But with Fords being manufactured in Mexico and Hondas built in Indiana, buying American is not as straightforward as it used to be.
And if you break those vehicles down to their individual parts, the picture gets even murkier, particularly in the automotive aftermarket. A consumer might find some specialty parts or chemical products that are designed, researched and manufactured all on U.S. soil, but most of the hard-parts manufacturers have shifted their production overseas, taking advantage of cheaper labor and materials costs. As this is being written, a leading specialty manufacturer is divesting itself of its U.S. manufacturing base.
Global sourcing has blurred the lines on what it means to be made in America. But that doesn’t mean the U.S. label doesn’t still carry some weight in the marketplace. American parts are still respected — both at home and abroad — because of their quality, not their country of origin. With the changing global economy, and U.S. companies expanding their operations overseas, it might be time to redefine exactly what it means to be “Made in the USA.”
The U.S. label
Lee Kadrich, vice president, Government Affairs & International Trade for the Automotive Aftermarket Industry Association (AAIA), says that the Federal Trade Commission (FTC) has rules against deceptive claims of being made in the USA, and a tough standard to earn that label.
“’Made in the USA’ is still significant in the marketplace to a lot of buyers if you can say made in America; there’s still a cache there,” Kadrich says. “To protect the meaning of that standard, all or virtually all of the components, all the value-adds and processing have to be done in the United States. There is some latitude for some very minor content coming from outside the United States further down the supply chain, but it is a pretty tough standard to meet.”
Parts suppliers can also make qualified claims, like “assembled in the United States,” or label the percentage of U.S content. The American Auto Labeling Act specifies the percentage value of U.S./Canadian parts content, the country of assembly, and countries of origin of the engine and transmission on new vehicles.
But for “Made in the USA” to have any meaning, consumers, technicians and resellers have to first look at that label.
A survey from the consultants at McKinsey & Company found that only 24 percent of consumers know the country of origin for auto parts purchased. Digging deeper, the survey found that 49 percent of respondents “don’t care where a part is manufactured as long as the brand stands behind its quality.” Also, only 54 percent said “parts made in the U.S. are better than parts made in China.”
Realistically, very few consumers will actually request U.S.-made parts directly. The onus of pushing quality parts — whether from the U.S. or elsewhere — falls on the distributors and service technicians.
The problem becomes that these groups often don’t know where a product came from either, according to the Automotive Service Association’s (ASA) Mechanical Division Operations Committee.
“Automotive parts are a global market. It has become increasingly more difficult to distinguish ‘what’s in the box’ – origin as well as provider,” the committee answered as a group. “Because of the difficulty we have in identifying parts’ origin, we cannot always make our decision based on manufacturer or country of origin.”
When technicians are ordering the parts they need, either online or over the phone, they usually won’t know where the product is sourced from until the box physically arrives and they can see it on the box. Their top concern is form, fit and function.
“As long as I know the quality is there, I don’t care where it’s made,” says committee member Bob Constant of Forest Hill Auto Service, Pacific Grove, Calif. “’Made in the USA’ used to come into play, especially with parts like brake rotors where there was a perceived difference in the quality of steel used. But now those are all made overseas. So my decision will come down to quality, length of warranty, availability. If a supplier is willing to stand behind the part, then that’s all I need.”
Global sourcing
While many might bemoan the loss of the U.S. manufacturing base, there are a number of benefits to taking a multinational approach to parts processing.
“Global sourcing is really a plus because when you think about the opportunities it has given aftermarket companies in places like Europe, which is an increasingly an open market and has really opened up markets to aftermarket suppliers,” says Kadrich.
When you make parts with worldwide sourcing, you get more common parts — which become cheaper to produce from economies of scale — and greater availability of your product. It also allows American companies to compete with some of the products being imported from foreign manufacturers and low-cost countries.
SPX Service Solutions, parent company of OTC Tools, offers a complete line of products, both made in the USA and imported from factories overseas. That way, the company is able to offer products to a number of market segments, both those that are more subject to price sensitivity, and others looking more for technology and innovation.
“Our decision on where we are going to make a product usually depends on which market is a product is going to be selling, what is the technician going to be looking for in our product, and where does it make the most sense to produce it,” says Tanvir Arfi, SPX president. “We make those decisions based on what’s core to us versus what’s not, how much capacity we have at which plants globally. Cost is a factor, but not the primary driver.”
David Coolidge, president, Automotive Aftermarket Division, Robert Bosch Corp., adds that though the company has manufacturing facilities in China, India, Latin America and Europe, the opportunities in these countries were not to create export opportunities in North America, but to help develop new markets for their products.
“People today understand that with high-quality goods the value chain is bifurcated; something can be designed in one place and actually manufactured in another place,” says Jon Vander Ark from McKinsey & Co. “What they care about is value.”
Recognition of global manufacturing, along with strategic partnerships overseas (such as Chrysler and Mercedes or Honeywell and Jurid), has eliminated the stigma attached to poor quality of non-domestic parts, explains Brian Keith, president of Walter S. White Auto Parts, Birmingham, Ala.
“That rotor plant in China, that bearing in South America, those are owned by U.S. companies, with U.S. equipment, following U.S. specifications,” says Keith. “It’s all based on making a quality part at a price where all levels of the supply chain are able to profit. The bottom line is that if companies are willing to stand by their products, we’re willing to work with them.”
Home field advantage
With the aftermarket extending its global reach, is there any tangible benefit to being made in America?
For some segments of the industry, the answer is still yes.
“In the Southeast, ‘Made in the USA’ still carries a lot of weight,” says Sid Dooley, general manager of Associate Jobbers Warehouse in Boaz, Ala. “Mechanics still request for products that are homegrown and will pay a higher price for it in most cases. At the store level our countermen still take pride in selling parts ‘Made in the USA.’ In the South, we are very patriotic and NASCAR crazy, which leads people wanting to buy U.S. products.”
Bar’s Products, manufacturer of premium automotive chemicals, has kept its footprint planted on U.S. soil. In the company’s product category, there are fewer direct low-cost competitors coming from overseas, compared to hard parts categories.
“Certainly you can face labor and other cost challenges. But with the rise really in the last few years in freight costs overall, we think we can produce quite an economical product right here in the United States,” says Carrie Mermuys, Bar’s Products executive vice president.
Mermuys also says that the company’s strong brand and “Made in the USA” label has opened up doors for the company internationally.
“We are really finding that we are being contacted by people outside the United States. In places like Mexico, we’ve had very good response because being made in the United States is associated with quality and a really good brand,” she says. “Brand identity is important in Mexico and Taiwan and other countries. I don’t think the consumers on that side of the equation are saying, ‘Well I just want the least expensive proposition here.’ It goes to brand loyalty and identity in the States translating overseas.”
Steele Rubber Products makes rubber parts and weatherstripping for classic cars, trucks and street rods at its plant in Denver, N.C. President Matt Agosta says he knows he can make the parts cheaper overseas — and has even tried it on occasion — but the negatives outweigh the cost benefits.
“’Made in the USA’ might not have the same weight as it used to, but what matters is how you are able to service the customer,” Agosta says. “Unless you’ve really got your people in place looking out for your interests, it can set up a variety of problems.”
Agosta says he has run into communication problems, or products not matching specifications when attempting to source overseas. Plus, in his business where there are fewer high-volume parts, doing the work at home gets parts to the market faster, better serving the customer.
“With the world changing the way it is, it’s not as good of a deal overseas as it used to be,” he says. “The environment is changing. Mexico is not that cheap anymore either. It’s not worth sacrificing customer service to save a few pennies.”
“The quality and reliability of the product really depends on the how robust the design is, the technology behind it, the quality and process standards to which you hold the manufacturing process,” concurs SPX’s Arfi. “The key is to hold the plants across the world to the same high level of quality and process control, and expect the same from suppliers.”
Edelbrock Automotive has made “Made in the USA” a key part of its branding strategy for years, and resisted the siren’s call of global sourcing.
“Back in 1990 we made a decision to build a foundry in California,” says President Vic Edelbrock Jr. “It would have been easy to move our sourcing overseas and reduce our cost per casting, but by taking advantage of a short-term gain, you open yourself up to great risk. You lose sight of your quality control and you turn over intellectual property that would be very difficult to litigate in foreign courts in the event of infringement on design.”
Green Earth Technologies even looks at the environmental benefits of producing in the U.S. Jeff Loch, co-founder and chief marketing officer of Green Earth Technologies, which makes biodegradable motor oil, says that because their product is made from beef tallow, the cows needed to supply the entire U.S. driving public with their G-OIL can be found in the proximity of company headquarters.
“By using G-Oil, the savings is in the millions. We can be green, and we can do it right here in the country,” Loch says. “We’re not at the mercy of anyone outside of our country. We believe it’s a better usage of our resources.”
In the end, whether sourcing overseas or producing in the U.S., the successful companies are the ones that build brand equity by producing a quality product. There are benefits to building a worldwide distribution network, and there are benefits to having “Made in the USA” on the box. With the shaky economy, drivers are going to rely on good value and good quality parts to keep them on the road until things turn around.
Still, it couldn’t hurt to support the U.S. economy by buying from American companies.
“At the WD level, if we have a choice and it is close in price, we will always purchase U.S.-made parts,” says Dooley. “It is our hope the some of the major vendors will bring manufacturing back to the USA.”
