Trade agreements, a weak US dollar, and other factors have combined to create an environment in which the demand for American-made cars has surged abroad. US factories owned by the big three American automakers, as well as factories on American soil operated by foreign brands, shipped a record-breaking one million plus vehicles out of the country in 2012.
The Weak Dollar
The US dollar initially strengthened when the financial crisis hit in 2008, but its value fell dramatically the following year. Since then the dollar has struggled, remaining weak against other major currencies such as the Euro and the Japanese Yen. While this has been bad for the economy in other ways, it has contributed to a situation in which labor and other business costs in the US are effectively cheaper, increasing the global demand for American-made cars and other goods. There is an especial demand in countries where the economy is growing at a faster rate than that of the United States.
Even though exchange rates could change at any time, investments being made in US plants now ensure that the trend will continue for the foreseeable future.
The US is manufacturing cars that end up at dealerships in other countries partly because it can.
One effect of the financial crisis and subsequent bailout of the auto industry has been the scaling back of capacity in this sector. Production slowed down. Automakers closed down older, less efficient plants, but this still left the remaining ones under capacity.
Even as domestic demand for new cars has come back, the now-leaner US automakers still have resources available to produce more vehicles. As demand for cars has also rebounded overseas, the logical way to meet this worldwide need has been to tap into the unused capacity of US factories.
In auto news over the past few years, there have been reports that the quality of American-made cars is reliably consistent and improving further. USA Today quotes Ed Kim of industry research group AutoPacific as calling the quality of American cars “very, very consistent” and “equal to the best in the world.” In 2010, US auto companies scored better than foreign brands in a JD Power and Associates quality survey for the first time. Ford, for example, received the best score for a low report of initial problems per 100 new cars among all non-luxury brands.
Free trade agreements with Korea, South American countries such as Columbia, and with other countries and regions have helped to increase the demand for American-built cars in many markets around the world. These agreements address such issues as environmental and safety standards and allow more American models to be sold in these markets. They relax or remove the tariffs many models were once subject to, and in many cases tariffs will only continue to decrease over the coming years.
This combination of circumstances is making American-built cars welcome and desired in markets in around the globe. This boom in American car sales is sure to carry out into the American economy.
Featured Image via Flickr by Ed Callow