U.S. Economic/Financial News

Outsourcing of U.S. Auto Parts Industry Is Growing Fast

A study, reported in the Detroit Free Press May 15, of the parts content of cars produced in assembly plants in the United States—and based on reports by car manufacturers to the Commerce Department—found that outsourcing of production of auto parts and supplies is growing rapidly. Here is the breakdown by manufacturer, for 2005, 2000, and 1995; and in each case, showing the percentage of parts used, which was made in the United States or Canada.

General Motors: Percentage of parts (by value) made in U.S. or Canada fell from 91% in 1995, to 87% in 2000, and to 81% in 2005.

Ford: 82% from U.S. or Canada. In 2000, 87%. In 1995, 86%.

Chrysler: Fell from 89% in 1995, to 80% in 2000, and to 76% in 2005.

Honda: Only 68% of parts, by value, from U.S. or Canada in 2005. In 2000, it was 70%. In 1995, it was 47%.

Nissan: Only 57% from U.S. or Canada in 2005. In 2000, it was 58%. In 1995, it was 42%.

Toyota: 75% from U.S. or Canadian sources. In 2000 it was 57%. In 1995 it was 49%.

This is the reason that since 2000, some 31 major U.S.-based auto suppliers have declared bankruptcy, and many more smaller firms. Thirty percent of the U.S.-based auto parts production is now done by foreign-owned firms, uniformly not unionized.

Fannie Mae Economist Warns vs. Mortgage Delinquencies

Former Fannie Mae economist Thomas Lawler warned of increasing delinquency of mortgage payments, the Wall Street Journal reported May 18. He said that, "by year's end, you could see a substantial increase in delinquency rates and the loans made in 2005 might experience their biggest problems in 2008." He also identified the 2005 period of mortgage sales as being plagued with a lot of interest-only mortgages and tied to adjustable-rate loans.

Manufacturing Firms Caught in Commodities Price Squeeze

The price squeeze facing manufacturing companies, between rising prices of commodities such as steel and copper, and reluctance to raise prices to corporate customers (both merchandisers and other manufacturers), is examined anecdotally through comments by CEOs at the Reuters Manufacturing and Transportation Summit in New York. "Manufacturing companies, which buy raw materials in bulk and turn them into finished products, represent one of the first stages in feeding inflation through the economy," Reuters notes May 17. Although meeting attendees said that strong demand has allowed large manufacturers to pass on higher commodity costs to their customers (although most have also relied on cost-cutting and productivity improvements to make up the shortfall), the article does not address what happens when "end user" consumers substantially reduce their purchases, as indicated in the recent problems of Home Depot.