Why “Buying American” Is Not as Easy as It Sounds

With three young adults in the family, our driveway often looks like a used car lot.

The five vehicles run the gamut from an old Suburban to a late model luxury sedan. With that many cars, typically we replace one every year, and 2015 is the year of the wife (as if the other years aren’t, but that’s a different story!).

As we began our quest, we made a pointed effort to look at American brands.

Since the financial crisis, we’ve taken a closer look at how we spend our money and where it ultimately goes. Like many others, we decided to actively buy American products when we can.

We’re not Luddites. We won’t sacrifice quality just for the sake of buying a domestic brand, but we do recognize that the money we spend is someone else’s income.

Each month we publish the Dent Employment Index, revealing the distribution of jobs by level of income. In recent years the bulk of new jobs fall in the lowest income bracket and are service-oriented.  My family and I want to be part of a trend driving (no pun intended) the sale of American goods, which should create more American income, and reduce our reliance on service jobs.

But in our current search, we’ve run into a common problem — what constitutes an American car? With parts brought in from overseas and assembly plants spread across the globe, just looking at the brand doesn’t cut it.

To aid comparisons in this labor-intensive industry, Congress passed the American Automobile Labeling Act (AALA).

This requires automakers to list, by value, the percentage of a vehicle that comes from the U.S. or Canada (considered domestic), as opposed to other countries. The label reflects the value of parts from different countries, as well as the source of the engine, transmission, and the location of final assembly.

Reviewing the list of cars sold in the U.S. by their AALA ranking yields some surprises.

The Buick Encore is only 3% American, even though General Motors technically makes the vehicle.

The highly-rated Ford Fusion is only 25% domestic, with 50% of its value coming from Mexico, even though final assembly is done both here and south of the border.

Then there’s the Chevrolet Aveo, which comes in at a whopping… 2%.

Using AALA rankings, the website Cars.com used to publish a list of the top 10 vehicles with at least moderate sales volume (which knocks out Teslas), that weren’t discontinued, and had at least 75% of their parts sourced domestically.

I say that they used to do this because, as of 2015, there aren’t 10 vehicles that have at least 75% of their parts sourced here. What’s more, the nine cars that make the list all have the exact same American content: 75%.

Several models in the top nine aren’t even technically made by American companies. No. 7 is the Honda Odyssey, followed by the Toyota Camry and Toyota Sienna.

This raises the issue of foreign car companies with major operations here, and brings up a question: In our quest to buy American, should we be searching for products made by American companies, or those made by American workers?

While it would be great to have both, if I had to choose, I think my answer would depend on the business cycle. With companies earning record profits today while wages lag, my immediate concern is promoting more employment with higher pay.

Then there’s this issue: Most people don’t purchase new vehicles very often. If we’re going to promote American, we have to look outside automobile purchases. But figuring out the origins of smaller purchases can be devilishly difficult, as can be finding American alternatives.

For example, I recently replaced a cordless drill and a television. Before purchasing, I researched American offerings and found the choices were slim to none.

Still, I’m working on it.

As we weather the economic winter season, dealing with slack demand, low inflation, and yet rising costs for education and healthcare, every penny we earn or spend is important.

Each time we trade cash for goods we are making a choice. Not just about what we bought, but also about where employment gains are made. When we hear about more low-paying jobs in the economy, it is not just a reflection of what people are paid, it’s a reflection of how the rest of us choose to spend.

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Rodney

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.