Exports of U.S. made auto parts have stalled in recent years, while import levels of auto parts have continued to increase. The authors detail the magnitude and destination of U.S. imports and exports of specific auto parts in order to assess the challenges facing U.S. parts suppliers.Automobile supplies industry ; Automobile industry and trade

James Rubenstein

Thomas H. Klier

English

Research Papers in Economics

Chicago Fed Letter
Competition and trade in the U.S. auto parts sector
by Thomas H. Klier, senior economist, and James M. Rubenstein, professor, Miami University of Ohio
Exports of U.S. made auto parts have stalled in recent years, while import levels of auto
parts have continued to increase. The authors detail the magnitude and destination of
U.S. imports and exports of specific auto parts in order to assess the challenges facing
U.S. parts suppliers.
ESSAYS ON ISSUES THE FEDERAL RESERVE BANK JANUARY 2006
OF CHICAGO NUMBER 222
While U.S. auto parts suppliers employ
over three times as many people as the
vehicle assembly sector, auto parts em-
ployment continues to trend downward
as import levels continue to swell (see
figure 1).1 The market share of the Big
Three U.S. vehicle
producers has fallen
steadily from 73% in
1996 to under 52.2%
in October of 2005.
In turn, vehicle im-
ports and U.S.-based
production of for-
eign nameplates has
grown substantially,
picking up 8 and 7
percentage points of
market share, respec-
tively, since 1995.
This has resulted in
a changed customer
mix for many suppli-
er companies. With
continued strong
growth in parts im-
ports, U.S. parts
makers are facing calls by automakers
to accelerate and pass on cost savings
in parts production. In this Chicago Fed
Letter, we examine trends in the trade of
motor vehicle parts. We detail the mag-
nitude of U.S. imports and exports of
auto parts, the specific types of parts be-
ing traded, and the countries of origin
and destination. Finally, we identify
challenges for U.S. parts suppliers in
the years ahead.
Traded parts
The U.S. imported $77 billion of motor
vehicle parts in 2004, according to data
provided by the U.S. International
Trade Commission (ITC).2 In 2002,
these imports accounted for 27% of
all shipments of vehicle components
in the U.S.3 The nominal value of im-
ported motor vehicle parts more than
doubled during the past decade, from
$37 billion in 1995 to $77 billion in
2004 (see figure 2). Imports exceeded
$40 billion in 1997, $50 billion in 1999,
and $60 billion in 2002. Exports in-
creased from $34 billion in 1995 to a
historical peak of $47 billion in 2000.
Through most of the 1990s, exports of
motor vehicle parts were roughly equiv-
alent to imports. Both imports and ex-
ports of parts declined by $3 billion in
2001, in the wake of the September 11
attacks. Imports resumed their rapid
growth the following year, but exports
stagnated at $40-some billion per year.
As a result, a substantial trade deficit
in motor vehicle parts emerged in the
United States in the early years of the
twenty-first century.
Which parts are imported?
To summarize the trade data, we first
aggregate the parts information into
five major systems—engine, drivetrain,
1.  Auto parts—net imports and employment
SOURCES: U.S. International Trade Commission; U.S. Bureau of Labor Statistics;
and Haver Analytics.
dollars (billions) employees (thousands)
Net imports
Employment
1995 ’96’ 9 7’98 ’99 2000 ’01’ 0 2’03’ 0 4
0
5
10
15
20
25
30
600
650
700
750
800
850
9003.  Auto parts trade by system, 2004
2.  Auto parts trade by major countries
SOURCE: U.S. International Trade Commission; see the interactive ITC Trade DataWeb at http://dataweb.usitc.gov/.
dollars (billions)
NOTES: The total for each column is the sum of the nonitalicized numbers. Columns may not total due to rounding.
SOURCES: Authors’ calculations and U.S. International Trade Commission.
Imports Exports
Percent Percent
System Value of total Value of total
($bil.) ($bil.)
Engine 23 31 10 23
Air & fuel handling 4 6 2 4
Complete engine 6 8 4 9
Electrical 8 11 2 4
Engine parts 5 6 2 6
Body 12 15 11 24
Chassis 15 19 8 17
Drivetrain 10 13 4 8
Interior 10 13 3 6
Other 7 9 9 21
Total 77 100 44 100
chassis, body, and interior. Within these,
we identify subgroups requiring different
skill levels to manufacture. While some
auto parts imports are price-sensitive
generic parts from low-wage countries,
a large share of imports to U.S. final
assembly plants is made up of engines
and transmissions produced by high-
skilled workers in developed countries
like Canada and Japan.
Engine-related components (including
complete engines, as well as engine parts,
air and fluid handling, and electrical
parts) are most heavily represented in
imports, by a wide margin. This cate-
gory accounted for $23 billion of the
$77 billion in imports in 2004 (figure 3).
Among the engine-related subsystems,
two components at opposite ends of the
skills spectrum together accounted for
more than one-half of these imports
(and one-sixth of all auto parts imports).
At the highly skilled end, the single
highest-value category was complete en-
gines. Vehicles assembled in the United
States contained $6 billion worth of
imported engines in 2004, an increase
from $2 billion a decade earlier. Imports
from Canada were responsible for near-
ly half of the increase in the decade,
and imports from Mexico, Japan, and
Germany for most of the other half. U.S.
assembly plants installed about 500,000
engines manufactured in Canada and
250,000 from each of the following coun-
tries: Mexico, Japan, and Germany.
At the least-skilled end was electrical wir-
ing; 80% of wiring imports originate in
Mexico, which emerged as the leading
producer of wiring harnesses in the
1970s. Relatively labor-intensive and easy
to ship, wiring was the first major com-
ponent to be imported in large numbers.
Imports in chassis, at $15 billion the
largest of the remaining systems, have
made the greatest percentage gains since
1990. The chassis has become the prin-
cipal “battleground” system between
domestic and imported sources. Engi-
neering advances have transformed chas-
sis modules from high-cost production
items requiring skilled labor to low-cost
“generic” items highly sensitive to labor
cost savings. Among major chassis com-
ponents, brakes and tires had the high-
est levels of imports, $4 billion each in
2004. Steering, suspension, and wheels
each contributed about $2 billion to
the import total. Between 1995 and
2004, the level of imports quadrupled
for wheels, tripled for steering and sus-
pension components, and doubled for
brakes and tires.
National origin of imports
Canada, Japan, and Mexico were the
countries of origin for 72% of the parts
imported into the United States in 2004
(figure 2), totaling $22 billion from
Mexico, $19 billion from Canada, and
$14 billion from Japan. The same three
countries had accounted for 78% of to-
tal imports just a decade earlier. Mexico
passed Canada as the leading source of
imports for the first time in 1999.
Canada, Japan, and Mexico have all
been major exporters of engine com-
ponents to the United States, but dif-
fer in the other systems they export
(figure 4). Canada has been the lead-
ing source of body and chassis compo-
nents, as well as of assembled engines.
Body and chassis components are bulky
metal structures that have traditionally
been built close to final assembly plants.
Japan has been the leading exporter of
drivetrain components and a close sec-
ond to Canada in chassis components.
Japanese drivetrain exporters are close-
ly tied to Japanese carmakers in the
0
10
20
30
40
50
60
70
80
1995 ’96 ’97 ’98 ’99 2000 ’01 ’02 ’03 ’04
Canada
Mexico
Japan
Germany
China
Rest of world
Mexico
Canada
Rest of world
U.S. imports
U.S. exportsMichael H. Moskow, President; Charles L. Evans,
Senior Vice President and Director of Research;  Douglas
Evanoff, Vice President, financial studies; David
Marshall, Vice President, macroeconomic policy research;
Richard Porter, Vice President, payment studies;
Daniel Sullivan, Vice President, 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 Chicago. The views expressed are the
authors’ and are not necessarily those of the
Federal Reserve Bank of Chicago or the Federal
Reserve System.
© 2006 Federal Reserve Bank of Chicago
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Prior written permission must be obtained for
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ISSN 0895-0164
4.  Auto parts imports by system and country of origin, 2004
SOURCES: Authors’ calculations and U.S. International Trade Commission.
dollars (billions)
United States through keiretsu relation-
ships.4 Mexico has been the dominant
source of electrical and interior com-
ponents, such as wiring harnesses and
seat parts, which are especially sensitive
to labor costs.
Which parts are exported?
Imports and exports increased at the
same rate during the 1990s. That trend
was broken in 2000. Exports have stag-
nated since then, while imports have
continued to accelerate. Two countries,
Canada and Mexico, are on the receiv-
ing end of over three-quarters of U.S.
auto parts exports. During the first half
of 2005, Canada received 60% and
Mexico received 17%—virtually the
same percentages as a decade earlier.
However, since 2000 the levels of mo-
tor vehicle parts exports from the U.S.
to these two countries have declined,
reflecting market share losses by the
Big Three.
Canada and Mexico play such a domi-
nant role in U.S. exports because final
assembly plants in Canada and Mexico
are essentially the only markets for
original equipment parts made in the
United States. In particular, most U.S.
exports of chassis, engine, and drivetrain
components, as well as body stamp-
ings, are destined for Canadian assem-
bly plants, mostly Big Three facilities.
The China factor
China’s contribution to the U.S. parts
market in the early years of the twenty-
first century can be seen in two ways. On
the one hand, China’s role barely reg-
istered in the statistical tables: Only 5%
of all U.S. auto parts imports (2% of the
total U.S. market) in 2004 came from
China. So China’s impressive annual
growth rate of 58% between 1995 and
2004 started from a very low base. Still,
by June 2005 China had moved past
Germany to become the fourth largest
source of auto parts imports for the U.S.
In analyzing the underlying detail of
what is imported from China, we find
that the rapid increase was overwhelm-
ingly in aftermarket parts (sold to re-
tailers not manufacturers) rather than
original equipment. For example, 29%
of all imports from China during the
first half of 2005 were wheels and tires.
China passed Canada as the leading
source of wheels in 2002 and has ex-
panded its share of the market since
then. Producers of aftermarket parts
face more pressure to minimize price
than to maximize quality.
Balanced against the statistical record
and constraints of geography is a univer-
sal expectation that China will play a ma-
jor role in all facets of the world’s motor
vehicle industry, including original
equipment parts production. There is
strong anecdotal evidence to suggest that
original equipment parts could be im-
ported from China in increasing vol-
umes going forward. In 2004, GM
imported 124,000 2.4-liter V-6 engines
from Shanghai to the United States for
its Equinox sport utility vehicles. In 2005,
Toyota imported 25,000 2.4-liter engines
to Japan from a joint venture with
Guangzhou Automobile Group called
Guangqi Toyota Engine Co.5 Looking
ahead, GM recently announced that it
“expects to increase its original equip-
ment parts purchases from China twenty-
fold in six years—from $200 million in
2003 to $4 billion in 2009—while spend-
ing around $5 billion on sourcing for its
China production.”6 A number of U.S.
original equipment parts supplier com-
panies have also begun setting up shop
in China. Often these forays into a new
market are undertaken jointly with a lo-
cal partner to meet local demand in the
fast growing Chinese auto sector. But
future production for export to the U.S.,
as well as other countries, might well
be part of the business plan for some.
Conclusion
Auto parts production (like final vehicle
assembly) is highly integrated across
Complete 
engine
Engine
parts
Air & fuel
handling Electrical Drivetrain   Chassis Body Interior Other
Canada
Japan
Mexico
Rest of the world
0
1
2
3
4
5
6
7North America: In 2004, 55% of U.S.
auto parts imports came from Mexico
and Canada and over three-quarters of
U.S. auto parts exports were headed
for these two countries. But cost pres-
sures are reshaping the global footprint
1 The August 2005 payroll survey by the U.S.
Bureau of Labor Statistics reports 209,000
motor vehicle assembly and 660,000 mo-
tor vehicle parts production jobs in the U.S.
2 We report data for 166 individual import-
ed (and 120 exported) parts defined at the
10-digit level within the Harmonized Tariff
Schedule of the United States (HTS) trade
data. To do this, we screened the relevant
HTS classification chapters to measure
parts that go into the assembly of light vehi-
cles. Our analysis of the U.S. International
Trade Commission’s data closely resem-
bles that of the Office of Aerospace and
Automotive Industries’ Automotive Team,
part of the U.S. Department of Commerce’s
International Trade Administration. That
team’s numbers refer to a more broadly
defined list of parts that includes truck
and bus parts, and can be found at
http://ita.doc.gov/td/auto/pdata.html.
3 As both trade and shipments data combine
original equipment, i.e., parts destined
for the assembly of new vehicles, with af-
termarket parts, i.e., replacement and
of auto parts sourcing. Since 2001, U.S.
auto parts exports have been flat, where-
as imports have continued to grow at a
fast clip. Going forward, some of this
import growth may abate as U.S.-based
vehicle production by foreign producers
maintenance parts, it is not possible to
determine the precise amount of each.
4 Keiretsu is a Japanese term for a set of com-
panies with interlocking business relation-
ships and shareholdings.
5 The plant had an annual capacity of
300,000 engines—two-thirds were expected
to be exported, some to the United States.
6 Crain Communications, Inc., 2005, “Global
suppliers in China: Suppliers feel bite of
market slowdown,” 2005 Guide to China’s
Auto Market, May, p. 25.
increases and U.S.-based parts sourcing
subsequently substitutes for imports. At
the same time, the observed leveling off
of exports of auto parts to Canada and
Mexico appears to be related to the on-
going decline in Big Three market share.

Competition and trade in the U.S. auto parts sector

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Competition and trade in the U.S. auto parts sector

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