I keep hearing rumblings from consumers and investors about how Toyota (NYSE: TM ) and Honda (NYSE: HMC ) vehicles are more American made than those from Ford (NYSE: F ) , General Motors (NYSE: GM ) , or Chrysler. So many people seem to believe this that I had to look into it myself. A simple search turned up a Cars.com "American-made index," which indeed declared that four of the top five most American made vehicles were Japanese models.
Fortunately for you readers -- and Detroit -- I was skeptical and dug deeper. The truth is that Ford, General Motors, and Chrysler are much more American made and the Cars.com index is deeply flawed. Here's what you need to know about buying American-made vehicles, and why it's important for consumers and investors.
The Cars.com index takes in to account whether cars are assembled here, the percentage of domestic parts used, and whether they're bought in large numbers. I scratch my head a little bit at that last factor. I understand that the point is to discount vehicles that could be 100% made here yet sell only 10 units. But in reality, there are much better factors to consider when measuring for the most American-made vehicles.
In addition, the Cars.com index seems to minimize the importance of domestic parts bought. GM doesn't have a single car in the top five of the index, yet consider that GM alone buys as many U.S. parts as Toyota, Honda, Nissan, Subaru, Mitsubishi, and all other Japanese automakers combined. Surprised? Wait -- it gets better.
Another thing the index fails to recognize is where the companies are headquartered. While the Japanese automakers do have plants and offices here, they aren't headquartered where the majority of their R&D money is spent. Detroit's Big Three are all headquartered here and have eight times the numbers of workers here that Toyota, Honda, and Nissan do. Detroit spends more on R&D here in the U.S. per year than juggernaut companies such as Boeing, Intel, Google, Apple, Hewlett-Packard, and ExxonMobil -- again, combined.
Made and sold here
While the Cars.com index uses volume in its calculation, it does so in a flawed way. Wouldn't you rather calculate which vehicles that are made in the U.S. and also sold here? The data ignores that Detroit's Big Three, on average, sell one and a half times as many U.S.-made vehicles into the U.S. market as its foreign counterparts do.
At this point, I decided to scrap the Cars.com index, and I found a much better study done by Prof. Frank DuBois of the Kogod School of Business at American University. This study viewed 253 cars, trucks, and SUVs to determine which had the most domestic content. It took into account labor, R&D, inventory, capital spent, engine parts, transmission parts, body, interior, chassis, electrical, and profits.
Tied at the top of this list, with a score of 88.5 out of a 100, were the Buick Enclave, Chevy Traverse, and GMC Acadia, which were all made in Michigan. Ford's F-Series -- the No. 1 truck in the U.S. -- was tied for second, with the Dodge Avenger at 87.5. Next up were two American muscle icons -- the Mustang and Corvette -- with a score of 85. You have to go down to a score of 81 to find the first foreign vehicle -- the Toyota Avalon. These results are a world away from the Cars.com index, yet, in my opinion, are much more accurate.
The best thing that could happen for Ford and GM investors is for the American public to once again back our automotive industry and actually buy American. Our auto industry supports nearly 8 million U.S. jobs and is expected to hire as many as 34,000 more workers over the next five years -- led by Ford and GM.
But while some consumers still think Japanese cars are as American-made as American cars are, others don't buy American because they think our vehicles are still poorer in quality. Consider this: Since 2010, Toyota and Honda have the most recalls of any automaker. Moreover, Toyota, previously known for its industry-leading quality, has more recalls than the No. 2 and 3 spots combined, or GM tripled.
Ford and GM aren't the same two companies that pumped out terrible vehicles and had management that ran themselves into the ground. Both are producing quality and, most importantly, American-made vehicles.
Maybe it's time to give Detroit a second chance.
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.