NCPA - National Center for Policy Analysis


May 8, 2009

Last Thursday, when announcing the bankruptcy of Chrysler, President Obama advised: "If you are considering buying a car, I hope it will be an American car."

What exactly makes a car "American?"  Does it mean a car made by a U.S.-headquartered company?  If so, then it is important to understand that any future success of the Big Three will depend a lot on their ability to make -- and sell -- cars outside the United States, not in it, says Matthew J. Slaughter, an associate dean and professor at the Tuck School of Business at Dartmouth College, research associate at the National Bureau of Economic Research, and senior fellow at the Council on Foreign Relations. 

A big reason Chrysler has fallen bankrupt is its narrow U.S. focus, says Slaughter:

  • It has not boosted revenues by penetrating fast-growing markets such as China, India and Eastern Europe.
  • Nor has it lowered costs by restructuring to access talent and production beyond North America.

On many measures the Big Three automakers today are far less global than the most successful U.S.-headquartered companies.  Chrysler and GM will be stronger if they can become more global, not less so.  This should benefit not just their bottom lines but their U.S. workers, too.  Much research now shows that expansion abroad by U.S. companies tends to support jobs in America, not destroy them, says Slaughter.

Is an "American" car one made within U.S. borders?  If so, then it is important to understand that America today has a robust automobile industry thanks to insourcing, says Slaughter:

  • In 2006, foreign-headquartered multinationals engaged in making and wholesaling motor vehicles and parts employed 402,800 Americans -- at an average annual compensation of $63,538 -- 20 percent above the national average.
  • In fiscal year 2008, Toyota assembled 1.66 million motor vehicles in North America with production in seven U.S. states supported by research and development in three more.
  • Today, insourcing companies strengthen America's economy across all industries; in 2006, they employed more than 5.3 million Americans, conducted $34.3 billion in research and development, invested $160.2 billion in capital, and exported $195.3 billion in goods.

Chrysler and GM have long been struggling.  They are now deeply enmeshed in U.S. politics as well.  Government leaders should not make matters worse by handicapping them with antiquated policies that do not make sense in today's dynamic global economy, says Slaughter.

Source: Matthew J. Slaughter, is associate dean and professor at the Tuck School of Business at Dartmouth, "What Is an 'American' Car?" Wall Street Journal, May 7, 2009.

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