Thought #18                                                                               April 2009
Author: Bill Thurston

 Foreign and Domestic Cars

The Worlds Car Manufacturers

How well do you know the world's car makers? Here is a list of the top 50 car manufacturers in 2007.

A Thought

Over 50% of all cars in the world are manufactured by 6 companies. We have 2 (21.4% of the market), Japan has 2 (17%% of the market) and Europe has 2 (13.4%% of the market). The remaining 50% of all cars in the world are manufactured by about 50 manufacturers.

What's the definition of a foreign or domestic car?

People seem to get confused with this Thought but it's easy.

Domestic car manufacturers are United States owned companies. Foreign car manufacturers are non United States owned companies.

What's the differences between the car manufacturer and the car reseller or dealer?

The car manufacturer makes cars and sells them to car resellers or dealers. Once the car is made, it is sold to another company or individual. At this time the manufacturer is done and the manufacturer realizes the revenue and profit.

Let's take an example.   Ford makes some of its cars in Mexico. That doesn't make Ford a Mexican car company. Ford has found cost savings to make cars in Mexico instead of the United States.  Ford pays Mexico and Mexican workers to make these cars and it is part of the cost to make the car. But all the profits go to Ford and when these cars made in Mexico get sold, the revenue adds to the United States Gross Domestic Product and all federal taxes go to the United States. If a Mexican in Mexico buys a Ford made in Mexico, all profits from the manufacturing of the car go to the United States. Similarly, a car made and sold in the United States by Toyota has all the revenue added to the Japanese Gross Domestic Product and all federal taxes go to Japan.

Lets now take a look at the reseller or dealer. The reseller is usually a company incorporated in the country where it sells cars. If you buy any car in the United States, you will almost always buy from a United States company. The reseller makes their revenue on the difference between the price you pay and what they paid to the manufacturer for the car plus their cost to sell the car. This revenue would add to the US GDP and the reseller would pay taxes to the United States.

The United States Congress passed a law ensuring that car dealerships give you the information necessary in purchasing your new car.

 The law is commonly called the Monroney Law. A sticker is required to be placed on all new cars by the manufacturer and cannot be removed by the dealer. The sticker has to include several things: manufacturer’s suggested retail price, manufacturer’s suggested price for each accessory, make, model, and final assembly point among other items. The MSRP is the Manufacturer’s Suggested Retail Price. The maker of the automobile suggests this price.

The invoice price of a car is the price the dealer pays to the manufacturer. This is not necessarily the actual price the dealership paid for the vehicle, as there are rebates, holdbacks, and volume discounts that some dealerships qualify for, which lower the cost the dealer actually paid for the car. The invoice price should include delivery and destination charges.

Putting this information into a financial model.

For example, let's say we are looking at a Ford car made in the US with a MSRP of $20,500. The dealer invoice is $18,000 and there is a holdback of 3% or $600.

1. All the manufacturers sales revenue would add to the Gross Domestic Product of the county where incorporated. For Ford, GM, and Chrysler it would be the United States and for Toyota, Honda, and Nissan, it would be Japan.

In this example, Ford would add $17,400 to the United States GDP ($18,000-$600).

2. All federal taxes paid by the manufacturers would be paid to the country where incorporated. In this example, Ford would pay United States federal taxes on $17,400 of revenue.

3. The country where the car is made realizes some benefits in local employment and local taxes paid by the manufacturer. There are also negatives including the fact that pollution is created where the car is made.

In this example, Ford would pay US workers and support US employment. Labor cost is $4000.

4. Where parts of the car are made would add to that countries GDP and tax base.

In this example, it might be $3000 for the US.

5. The local resellers revenue which comes from the difference between the buying price from the manufacturer and the selling price plus sales costs.

In this example, let's say the dealer sold the car for $20,000. The dealer would have made $2600 in revenue which  would also be added to the United States GDP and the dealer would pay taxes to the United States on $2600 of revenue.

What's the economic difference to the United States between the selling of a domestic or foreign car in the United States?

Let's use the example of the Ford and a Toyota with the exact same MSRP, invoice price, dealership cost, etc. Both cars are made in the US. The Ford has the same amount of US parts as the Toyota has Japanese parts.

Final Thought

Given this example, it would take the sale of 4 Toyotas to equal the value of selling one Ford to the US tax base. This has significant impact because purchasing a car is one of the largest purchases a citizen makes.

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