Today, the distinction between “American” and “foreign” vehicles is not so clear: Some models produced by the American-owned Detroit Three carmakers have a smaller share of domestic parts than models produced by foreign-owned carmakers. This article examines how much domestic content goes into motor vehicles sold in the U.S.Automobile industry and trade ; Automobile industry and trade - Finance

James M. Rubenstein

Thomas H. Klier

English

Research Papers in Economics

Whose part is it?—Measuring domestic content of vehicles
by Thomas H. Klier, senior economist, and James M. Rubenstein, professor, Miami University
Today, the distinction between “American” and “foreign” vehicles is not so clear: Some 
models produced by the American-owned Detroit Three carmakers have a smaller share of  
domestic parts than models produced by foreign-owned carmakers. This article examines how 
much domestic content goes into motor vehicles sold in the U.S. 
Chicagﾭo Fed Letter
ESSAYS ON ISSUES                                               THE FEDERAL RESERVE BANK                          OCTOBER 2007
                                                                                 OF CHICAGO                                                          NUMBER 243
1.  Production-weighted domestic content, 1997–2006
Notes: The Detroit Three are the Chrysler Group, Ford Motor Co., and General Motors 
Corp. Here, foreign-owned carmakers are those with assembly plants located in the 
U.S. and Canada, producing vehicles for sale in the U.S. Domestic content is weight-
ed by units of light vehicles produced in the U.S. and Canada for sale in the U.S.
sources: Ward’s AutoInfoBank; and American Automobile Labeling Act of 1992 data 
from the National Highway Traffic Safety Administration.
1997 ’98 ’99 2000 ’01 ’02 ’03
0
20
40
60
80
100
’04 ’05 ’06
Detroit Three Foreign-owned carmakers
Imputed domestic content
The U.S. motor vehicle industry has 
become more international and com-
petitive over the last few decades. Foreigﾭn- 
owned carmakers have a sizable presence 
in the U.S. market througﾭh their sales 
and production operations, and domes-
tic carmakers import 
some vehicles for sale 
in the U.S. market. 
In the wake of in-
creased competition 
in the industry, 
Chrysler Group, 
Ford Motor Co.,  
and General Motors 
Corp. (GM) are no 
longﾭer referred to  
as the “Bigﾭ Three” 
because their market 
share of U.S. vehicle 
sales has been much 
diminished; the U.S. 
market share of these 
carmakers, now 
dubbed the “Detroit 
Three,” fell below 
50% for the first 
time in July 2007.
While these changﾭes 
have occurred, the 
U.S. motor vehicle 
parts industry has also become more 
international: Domestic carmakers rely 
more on imported parts, foreigﾭn car-
makers increasingﾭly use parts that were 
produced in the U.S., and foreigﾭn parts 
companies have established production 
operations in North America.1 In 2006, 
about 25% of parts used in the U.S. were 
imported, and approximately another 
25% were produced by U.S.-based op-
erations of foreigﾭn parts makers. 2
In such a context, the distinction be-
tween “American” and “foreigﾭn” vehicles 
has become blurred (see figﾭure 1). The 
press has noted that some models pro-
duced by the American-owned Detroit 
Three carmakers have lower domestic 
content than vehicles produced in the 
U.S. by foreigﾭn-owned carmakers, such 
as Honda and Toyota. For example, in 
model year 2006, the Ford Mustangﾭ 
had 65% domestic content and the 
Chevrolet Suburban 67%—both less 
than the Honda Accord at 70% and 
the Toyota Camry at 80%.3 In this  
Chicago Fed Letter, we illustrate two dif-
ferent ways to calculate domestic con-
tent of motor vehicles sold in the U.S.
Domestic content data
The U.S. federal gﾭovernment uses sev-
eral approaches to determine the do-
mestic content of vehicles sold in the 
United States. All of them define “do-
mestic” as a gﾭeogﾭraphic concept, rath-
er than strictly by nation of ownership.
For regﾭulatingﾭ fuel-efficiency, the U.S. 
Environmental Protection Agﾭency  
considers a vehicle to be domestic if  
percent of domestic content
model year2.  Import share of light vehicles sold in the U.S., 1997–2006
Notes: The Detroit Three are the Chrysler Group, Ford Motor Co., and General  
Motors Corp. Imported vehicles are those produced outside of NAFTA (North 
American Free Trade Agreement) countries—the U.S., Canada, and Mexico. 
source: Ward’s AutoInfoBank.
percent
0
10
20
30
40
50
60
1997 ’98 ’99 2000 ’01 ’02 ’03 ’04 ’05 ’06 ’07
Detroit Three
Foreign-owned carmakers
at least 75% of its content is produced 
in North America, includingﾭ Canada 
and Mexico. 
For settingﾭ import tariffs, the U.S.  
Department of Treasury, Customs  
Service considers a vehicle to be do-
mestic if it has at least 50% U.S. or  
Canadian content. 
For informingﾭ consumers, the American 
Automobile Labelingﾭ Act of 1992 (AALA) 
considers a vehicle to be domestic if at 
least 85% of its parts origﾭinate in the 
U.S. or Canada; a part is counted as 
domestic if at least 70% of its content 
comes from the U.S. or Canada.
Data in this article are based on reports 
filed by carmakers for model years 1997 
througﾭh 2006 in compliance with the 
AALA. The act requires carmakers to 
affix a sticker showingﾭ where the vehi-
cle was assembled, as well as where its 
engﾭine and transmission (or transaxle) 
origﾭinated. For vehicles with domestic 
content less than 85%, the act also re-
quires that the two foreigﾭn countries 
contributingﾭ the most content are list-
ed. A separate report is filed for each 
model, makingﾭ it possible to calculate 
an overall domestic content figﾭure for 
each carmaker based on a weigﾭhted  
averagﾭe of its individual models. 
Domestic content of 
vehicles produced in 
the U.S. and Canada
We first report do-
mestic content data 
for the set of vehicles 
produced in the U.S. 
and Canada for sale 
in the U.S. The AALA 
defines “domestic” to 
include both the U.S. 
and Canada, but not  
Mexico. 
In model year 2006, 
vehicles built by for-
eigﾭn-owned carmak-
ers at assembly plants 
located in the U.S. 
and Canada for sale 
in the U.S. had 66.2% 
domestic content. 
This level is only sligﾭhtly below the 
79.4% recorded by the Detroit Three 
(see figﾭure 1). Furthermore, the gﾭap in 
the level of domestic content between 
foreigﾭn-owned carmakers and the  
Detroit Three has narrowed substan-
tially since 1997, when foreigﾭn-owned 
carmakers had only 52.5% domestic 
content compared with 85.7% for the 
Detroit Three.4 
This convergﾭence resulted from two si-
multaneous trends: increasingﾭ domes-
tic content of foreigﾭn cars assembled in 
North America and decreasingﾭ domestic 
content of vehicles assembled in North 
America by the Detroit Three. The de-
cline in the domestic content of domestic 
carmakers’ production begﾭan in 2001, 
as efforts to increase foreigﾭn sourcingﾭ 
of parts by the Detroit Three intensified 
because of increased competition in the 
U.S. auto industry. In fact, as measured 
on a production-weigﾭhted basis, the over-
all domestic content of ligﾭht vehicles 
produced in the U.S. and Canada started 
decliningﾭ in 2002, as the fallingﾭ domes-
tic content of Detroit Three vehicles out-
weigﾭhed the risingﾭ domestic content of 
vehicles produced in North America by 
foreigﾭn-owned carmakers (in 2006, for-
eigﾭn carmakers produced a third of the 
ligﾭht vehicles produced in North 
America).
Underlyingﾭ the convergﾭence in the agﾭ-
gﾭregﾭate numbers, however, were sub-
stantial variations amongﾭ individual 
carmakers. Amongﾭ the Detroit Three, 
Chrysler had 71.3% domestic content 
in 2006, compared with just above 80% 
for both Ford and GM. Amongﾭ Asian-
owned carmakers producingﾭ vehicles in 
the U.S. and Canada, domestic content 
rangﾭed from 76.3% at Toyota to 18% at 
Hyundai. Amongﾭ the two German-
owned carmakers, BMW used only 
31.7% domestic content in the vehicles 
produced at its South Carolina assem-
bly plants, while Mercedes-Benz used 
62% at its Alabama assembly plant. 
Multiple factors account for this varia-
tion in domestic content across individ-
ual companies. Amongﾭ the Detroit Three, 
Ford and GM have historically produced 
more of their parts in-house in North 
American facilities than has Chrysler. 
Amongﾭ foreigﾭn-owned carmakers, do-
mestic content tends to be higﾭher, the 
largﾭer the production level in North 
America and the longﾭer the assembly 
plants have been in operation. Once 
production volumes of a foreigﾭn pro-
ducer are largﾭe enougﾭh, the stampingﾭ 
of body parts and machiningﾭ of trans-
missions—two activities that have largﾭer 
economies of scale in production than 
the assembly of vehicles—are likely to 
be performed domestically as well. Once 
activities like these are brougﾭht “on 
shore,” the use of domestic content in 
a vehicle line usually receives a major 
boost. Incidentally, domestic produc-
tion of key components of a car is often 
accomplished by the foreigﾭn carmaker’s 
traditional suppliers followingﾭ alongﾭ.  
A key factor in attractingﾭ a foreigﾭn car-
maker’s main suppliers to set up pro-
duction operations in this country is  
its volume of U.S. auto production. 
Import share and domestic content of 
vehicles sold in the U.S.
Even thougﾭh the vast majority of motor 
vehicles are assembled near consumer 
markets, 21.5% of all ligﾭht vehicles sold 
in the U.S. in model year 2006 were im-
ported from outside NAFTA (North 
American Free Trade Agﾭreement) coun-
tries. In the same model year, foreigﾭn 
carmakers imported 44.1% of vehicles 
model yearCharles L. Evans, President; Daniel G. Sullivan,  
Senior Vice President and Director of Research;  Dougﾭlas 
Evanoff, Vice President, financial studies; Jonas Fisher, 
Economic Advisor and Team Leader, macroeconomic  
policy research; Richard Porter, Vice President, payment 
studies; Daniel Aaronson, Economic Advisor and 
Team Leader, microeconomic policy research;  William 
Testa, Vice President, regional programs, and Economics 
Editor; Helen O’D. Koshy, Kathryn Moran, and 
Han Y. Choi, Editors; Rita Molloy and Julia Baker, 
Production Editors.  
Chicago Fed Letter is published monthly by the  
Research Department of the Federal Reserve 
Bank of Chicagﾭo. The views expressed are the  
authors’ and are not necessarily those of the  
Federal Reserve Bank of Chicagﾭo or the Federal 
Reserve System. 
© 2007 Federal Reserve Bank of Chicagﾭo  
Chicago Fed Letter articles may be reproduced in 
whole or in part, provided the articles are not  
reproduced or distributed for commercial gﾭain 
and provided the source is appropriately credited. 
Prior written permission must be obtained for 
any other reproduction, distribution, republica-
tion, or creation of derivative works of Chicago Fed 
Letter articles. To request permission, please contact 
Helen Koshy, senior editor, at 312-322-5830 or 
email Helen.Koshy@chi.frb.orgﾭ. Chicago Fed  
Letter and other Bank publications are available 
on the Bank’s website at www.chicagﾭofed.orgﾭ.
  
ISSN 0895-0164
3.  Production- vs. sales-weighted domestic content, 2006
Notes: The Detroit Three are the Chrysler Group, Ford Motor Co., and General  
Motors Corp. The values shown in this figure are for model year 2006.
sources: Ward’s AutoInfoBank; and American Automobile Labeling Act of 1992  
data from the National Highway Traffic Safety Administration.
percent
Detroit Three Foreign-owned carmakers
0
20
40
60
80
100
sold in the U.S. from overseas (see  
figﾭure 2).5 Most imports were vehicles 
for which demand exceeded U.S. as-
sembly plant capacity or those for which 
demand was too low to justify U.S. pro-
duction. On the other hand, 96% of 
vehicles sold in the U.S. by the Detroit 
Three were assembled in North America 
in 2006.
With the exception of vehicles comingﾭ 
from Mexico, imported vehicles tend 
to have very low North American parts 
content. Consequently, one could iden-
tify the domestic content of cars sold by 
foreigﾭn carmakers versus domestic car-
makers (rather than the domestic con-
tent for vehicles produced in the U.S. 
and Canada by both). A sales-weigﾭhted 
domestic content measure lowers the 
domestic content for both domestic 
and foreigﾭn carmakers (see figﾭure 3). 
Yet the gﾭap in domestic content between 
Detroit Three and foreigﾭn-owned car-
makers becomes much largﾭer. That is 
because the Detroit Three import only 
a few models for sale in the U.S. mar-
ket. Foreigﾭn automakers, however, im-
port a much largﾭer share of the vehicles 
they sell in the U.S. market. Accordingﾭ 
to the sales-weigﾭhted measure, the domes-
tic content of the entire fleet sold in 
model year 2006 by the Detroit Three 
in the U.S. was 74.5%, compared with 
42.3% for Asian-owned carmakers and 
7.8% for German-
owned carmakers. 
Domestic content  
varied little amongﾭ 
Chrysler, Ford, and 
GM. Amongﾭ the  
Japanese-owned car-
makers with the largﾭest 
sales numbers, do-
mestic content for  
the entire fleet sold 
in the U.S. in 2006 
was 59% for Honda 
and around one-half 
for Toyota and Nissan.
Conclusion
There is more than 
one way to measure 
domestic content for a 
particular vehicle. The 
U.S. federal gﾭovern-
ment uses three different methods.  
In addition, determiningﾭ domestic 
content of vehicles is an increasingﾭly 
challengﾭingﾭ task. It requires an under-
standingﾭ of the behavior of a largﾭe num-
ber of parts suppliers, as the Detroit 
Three and foreigﾭn-owned carmakers 
have turned over responsibility for pro-
ducingﾭ many auto parts to indepen-
dent suppliers. Typically, parts suppliers 
contribute about 70% of the value added 
to a vehicle. Therefore, the decision 
about where to produce parts for a ve-
hicle often lies with the parts producer.
Based on vehicle-specific domestic con-
tent data reported for AALA purposes, 
we illustrate two different ways to cal-
culate domestic content for a carmak-
er’s entire fleet. A carmaker’s domestic 
content is measured both in relation to 
the models produced in the country of 
interest and in relation to all the mod-
els sold in that country. 
More gﾭenerally, the auto industry is in-
creasingﾭly characterized by interna-
tional carmakers, as well as by parts 
suppliers that operate in multiple 
countries. Agﾭainst a backgﾭround of 
gﾭlobal supply chains, it has become 
quite difficult to identify and label 
products such as autos by nationality.6 
Overall, the processes of gﾭlobalization 
of markets and supply chains have 
served to noticeably lower prices of 
new cars for American consumers and 
businesses. On a quality-adjusted basis, 
for example, new vehicle prices have 
been fallingﾭ at an averagﾭe annual rate 
of 0.5% over the current decade. Im-
portantly, higﾭher quality and gﾭains in 
longﾭevity are amongﾭ the improve-
ments in today’s vehicles. 
1  Foreigﾭn-owned companies accounted for 
88 of the 150 largﾭest parts suppliers in 
North American origﾭinal equipment sales 
in 2006, compared with only 41 of the 150 
largﾭest in 1994, accordingﾭ to an annual 
list that appears in the industry publica-
tion Automotive News. 
2  The 2002 U.S. Census of Manufactures re-
ported that 27% of the parts used at U.S. 
assembly plants were imported; see Thomas 
H. Klier and James M. Rubenstein, 2006, 
“Competition and trade in the U.S. auto 
parts sector,” Chicago Fed Letter, Federal 
Reserve Bank of Chicagﾭo, No. 222, January. 
Most of the electronics parts used at U.S. 
assembly plants were made in other coun-
tries, particularly Mexico. Powertrain com-
ponents accounted for the largﾭest share 
of all imported parts, especially complete 
engﾭines and transmissions destined for 
Japanese-owned assembly plants in the 
United States.
Production-weighted Sales-weighted3  See Jim Mateja and Rick Popely, 2006, 
“Made in America? Hard to tell,” Chicago 
Tribune, September 24, and Justin Hyde, 
2006, “Foreigﾭn? American? Auto parts gﾭo 
gﾭlobal,” Detroit Free Press, May 7. 
4  While the North American content of  
vehicles produced in North America by 
domestic and foreigﾭn carmakers is very 
similar, their gﾭeogﾭraphies of assembly  
locations are quite different. See Thomas 
H. Klier and Daniel P. McMillen, 2006, 
“The gﾭeogﾭraphic evolution of the U.S. auto 
industry,” Economic Perspectives, Federal 
Reserve Bank of Chicagﾭo. Vol. 30, No. 2, 
Second Quarter, pp. 2–13.
5  Here, “overseas” refers to the production 
of vehicles outside of the NAFTA coun-
tries—the U.S., Canada, and Mexico. The 
import shares of both the Detroit Three 
and foreigﾭn producers have remained re-
markably stable since 1997, despite the 
underlyingﾭ changﾭes in market share.  
The Detroit Three manufacturers dropped 
17.5% market share between model year 
1997 and model year 2006.
6  In fact, there is evidence that consumers 
pay little attention to the domestic content 
label that needs to be displayed in a new 
car. See Juanita S. Kavalauskas and Charles J. 
Kahane, 2001, “Evaluation of the American 
Automobile Labelingﾭ Act,” National Higﾭhway 
Traffic Safety Administration, report,  
No. DOT HS 809 208, January.

Whose part is it? - Measuring domestic content of vehicles

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