Outsourcing in the Auto Industry

Many if not all major Auto manufacturers outsource or have outsourced during their company history (1). For those familiar with the industry, it can be difficult to to imagine the industry without outsourcing.


A recent trend for both US companies and US divisions of companies based overseas is to open domestic factories (2, 3, 4). In some cases this is done to cut costs. This recent trend of "insourcing" is also used as a selling point for automakers that are opening new US plants (5, 6).


Volkswagen, specifically, made news in 2008 when it announced plans to open a new, state-of-the-art US facility in Chattanooga, Tennessee (7). It opened the plant in May of this year (8) and has been able to cut labor costs (2). It has also designed a vehicle specifically for the US market that is being manufactured specifically at the Chattanooga plant (9).


Sources:
1. http://it.toolbox.com/blogs/sourceoff-blog/big-three-automakers-outsourcing-to-mexico-39465
2. http://online.wsj.com/article/SB10001424052748704083904576335501132396440.html
3. http://www.kmmgusa.com/
4. http://www.reuters.com/article/2010/03/07/us-toyota-idUSTRE6260DA20100307
5. http://www.youtube.com/watch?v=j264EVvD4gI
6. http://www.youtube.com/watch?v=clwZqni4a9U
7. http://www.autoblog.com/2008/07/15/volkswagen-announces-plans-for-factory-in-chattanooga-tenn/
8. http://www.timesfreepress.com/news/2011/may/24/live-grand-opening-chattanoogas-volkswagen-plant/
9. http://www.autoblog.com/2011/01/09/2012-volkswagen-passat-chattanooga-vw/
image: http://greennews4u.com/wp-content/uploads/2011/05/VW-Plant-Chattanooga.jpg

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Foreign Auto Companies

According to this graph, it shows a clear downhill trend in the top revenues for the “Big Three” between the years 2005-2008 (1). The Japanese automakers however saw tremendous success. As a result, revenues for the GM, Ford, and Chrysler are all significantly lower in 2008 compared to what they were ten years ago (1). Economists noted that, “General Motors shifted from being the highest revenue earner at $167 billion in 1998 and a high of $184 billion in 2000 to drop down to $122 billion in revenue in 2008—a distant second among automakers” (1). However, all three major Japanese automakers saw their revenues expand over this period with Toyota increasing its revenues from “under $100 billion in 1998—a distant third in ranking—to an astounding record $214 billion in 2008” (1).Toyota is now the largest automaker in the world and their constant annual growth of 8 percent in this period seems to show that they were the biggest reason of the decline of the American carmakers. (1)

These foreign-owned companies such as Kia, Mercedes, Toyota, Nissan, and Suzuki have actually been somewhat beneficial to particular southern areas in the United States. Two-thirds of "foreign imports" are, in fact, built in the United States in nonunion shops, where it costs at least $2,000 less in labor to build each vehicle (2).

Americans claim that the Japanese, Korean, and German auto companies are taking advantage of desperate communities in the South. But among people in West Point, Ga. disagree.

"Workers [in the South] understand that in order for them to have a job these companies have got to make money, because if they don't, they're not going to have a job," says Rep. Lynn Westermoreland "That's the first issue [Detroit auto executives] need to address before they come to Congress asking for a bailout or a loan or whatever it is," she says in a phone interview (2). Around the South and especially here on Interstate 85 – nicknamed the "autobahn" for the prevalence of foreign-owned car plants along its stretch – the manufacture of foreign vehicles has jumped 450 percent since 1986 (2). While the Big Three have lost more than 600,000 jobs since 1980, foreign automakers have created about 35,000 jobs in the same amount of time (2).

Sources

(1)http://www.ibrc.indiana.edu/ibr/2010/spring/article2.html

(2)http://www.csmonitor.com/Business/2008/1205/p01s04-usec.html

(Image) http://www.ibrc.indiana.edu/ibr/2010/spring/article2.html

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