What Happens to the Profits?
Only the corporate and government accountants know for sure precisely how much of the profit a foreign carmaker realizes stays in the U.S. and how much goes back to corporate headquarters and the global investors who own company shares.
But many of the major overseas automakers (BMW, Daimler, Honda, Hyundai, Mitsubishi, Nissan, Porsche, Toyota and Volkswagen) sell a form of stock investment in the U.S. that allows investors to share in corporate profits.
American Depositary Receipts, commonly called ADRs, represent a direct investment in the automaker. Just like common stock, ADR prices rise and fall on the exchanges along with the fortunes of the companies that issue them. They pay regular dividends, so buying, holding and selling ADRs is a way to participate in an overseas automaker's profits, including those earned in the U.S. and in other markets as well.
While anyone can buy ADRs, it is likely that American investors purchase many of them. One source with a major foreign-based car company, who asked not to be identified because he wasn't officially speaking for his company, says he believes American investors own a "significant portion" of the automaker's ADRs.
The Role of Payroll
Foreign-based car companies that build cars and parts in the U.S. are paying American employees to do that work, says Edmunds.com Senior Economist Lacey Plache. Those employees use their wages to buy houses and groceries and invest in their retirement. That is money that feeds the U.S. economy.
Carmakers that aren't based in the U.S. don't have as many workers here as do Ford, GM and Chrysler (which in December 2014 was renamed FCA US LLC and is a member of the Netherlands-based Fiat Chrysler Automobiles [FCA] family of companies). But they do have quite a few, as recent statistics from the top two Japanese companies show.
American Honda Motor Co. had a U.S. payroll in 2014 of $2.2 billion for 29,500 U.S.-based employees. Additionally, there are 153,000 people in the U.S. employed by dealerships that sell Honda cars, motorcycles, generators, lawnmowers and other equipment, Honda says. Using the average 2014 annual U.S. individual wage of $44,206, that would be an additional $6.76 billion in wages for which Honda is indirectly responsible.
Toyota, which had 33,765 direct employees in the U.S. in 2014, reported a total payroll of just under $2.9 billion. The company's 1,500 Lexus, Scion and Toyota dealerships had 132,900 employees, good for a $5.8 billion annual payroll at the 2014 average wages.
By comparison, General Motors counted 91,000 U.S. employees and about 4,300 dealerships with more than 250,000 workers at the end of 2014. Ford Motor Co. had 80,000 U.S. employees and 3,247 dealerships. In 2014, Chrysler had 55,000 U.S. workers and 2,630 dealerships (including 218 Fiat and Alfa Romeo showrooms).
Foreign Carmakers Buy American
Foreign automobile makers with U.S. manufacturing operations also buy a lot of their parts and components here, to say nothing of their supplies and office and manufacturing equipment.
It makes sense to do so, they say, because shipping costs, taxes and duties often make it more expensive to ship parts and supplies from the home country than to source them here, where the plants and office facilities are located.
Take Toyota and Honda as the examples again: The two companies reported that in 2014, they collectively spent $68.5 billion in the U.S. on parts, equipment and supplies. Honda had the larger share at $35.6 billion, with Toyota reporting $32.9 billion in purchases.
While some of the suppliers are U.S. arms of overseas companies and sent some of that $68.5 billion home as profit, most of the money remained in circulation in the form of things like wages, raw materials purchases by the suppliers, domestic transportation costs and even the U.S. taxes those suppliers paid, the companies said. Those suppliers include advertising firms and market researchers.
Making Capital Investments
The factories and other physical facilities that foreign carmakers build in the U.S. also represent money that mostly stays and is circulated domestically, covering the cost of land, infrastructure improvements and materials, as well as wages paid to construction workers and engineering and architectural firms.
Overall, Toyota says that it has directly invested more than $21.2 billion in capital projects in the U.S., including 10 factories and a number of warehouses, research, design and engineering facilities, and offices. Honda says its total capital investment in the U.S. through 2014 hit $16 billion, with the bulk of it spent on the company's nine U.S. manufacturing plants.
Volkswagen, which completed its only U.S. manufacturing plant in Chattanooga, Tennessee, in 2011, says the $1 billion factory has 2,400 direct employees and is responsible for almost 10,000 jobs at U.S.-based suppliers. The company says it expects to issue an average of $300 million a year in car-parts supply contracts in Tennessee alone, and has plans to add an additional 2,000 employees at the Chattanooga plant over the next year or so.
BMW has just one U.S. plant, in South Carolina. But it's a big one, with 8,000 employees and the capacity to build almost 350,000 vehicles a year, many of which are shipped from the U.S. to other countries. It has invested about $6 billion in that facility, and in 2013 announced a $1 billion, two-year expansion program to boost capacity by 50 percent and employment by 10 percent.
By contrast, domestic carmaker Ford had 24 assembly, power plant and tooling factories in the U.S. at the end of 2014. GM counted 39. The Chrysler Group (now FCA US LLC) had 23.
Finding Your Bottom Line
The U.S. holdings and employment of the three domestic carmakers easily outstrip those of overseas car companies.
But for a shopper making a purchase decision, it's hard to ignore the fact that there is a positive impact on the U.S economy when purchasing from companies such as Honda and Toyota, or smaller players such as BMW, Hyundai, Mercedes-Benz, Nissan and Volkswagen.
It's up to you to decide how the financials pencil out in your "American" car purchase.