The U.S. automotive industry supply chain is a complex network responsible for the production and delivery of vehicles and their components. A typical car comprises approximately 30,000 parts, ranging from engines and transmissions to small nuts and bolts. Managing the manufacturing with such a large variety of parts, and then distribution and sourcing of these automotive parts involves a multifaceted supply chain network. This process encompasses the entire journey from raw material procurement to the final delivery of vehicles and spare parts to customers.
The U.S. automotive industry supply chain includes multiple stages: designing and producing individual components, sourcing and procuring parts, assembling complete vehicles, and overseeing post-production logistics and spare parts management.
Key Components of the U.S. Automotive Supply Chain:
Like other countries, the U.S. automotive supply chain encompasses several critical stages:
- Raw Materials and Part Manufacturing: This initial phase involves sourcing essential materials like steel, aluminum, plastics, and rubber, which are then transformed into specific parts such as engines, transmissions, and electronic systems by specialized manufacturers.
- Vehicle Assembly: Manufactured parts are transported to assembly plants, where they are systematically combined to construct complete vehicles, ensuring all components fit and function correctly.
- Quality Control and Testing: After assembly, vehicles undergo rigorous quality checks and testing procedures to ensure each meets safety standards and performs as expected.
- Distribution, Retail, and Aftermarket Services: Approved vehicles are distributed to dealerships and retailers, making them accessible to consumers. This stage also includes services like maintenance, repairs, and the provision of replacement parts. This stage ensures that vehicles remain in optimal condition throughout their lifespan.
- End-User Services: Such services include financing options, warranties, and customer support, enhancing the overall ownership experience.
Tiers in the Automotive Supply Chain:
Automotive manufacturing involves a complex supply chain network structured into different tiers. Each tier represents a level of supplier working directly or indirectly with the original equipment manufacturer (OEM). Here, OEM refers to companies or brands that originally design and manufacture parts for vehicles. In the USA, the famous OEMs are Ford, GMC, Subaru, and many more.
Tier 1 Suppliers:
These suppliers often have direct relationships with OEMs and can be heavily involved in design and engineering. Tier 1 suppliers manufacture and deliver engine systems, transmission systems, and safety features like airbags.
Tier 2 Suppliers:
Tier 2 suppliers provide products to Tier 1 suppliers, including smaller parts or raw materials integral to the components produced by Tier 1. For instance, Tier 2 might provide individual sensors, wiring harnesses, or smaller subcomponents.
Tier 3 Suppliers:
At this level, suppliers focus on basic raw materials, supplying foundational materials to Tier 2 suppliers. Tier 3 suppliers produce raw materials or basic components, such as plastics, metals, or rubber. These suppliers typically do not have direct interactions with OEMs, but they supply the necessary materials that are further used in the manufacturing process.
Origins of U.S. Auto Manufacturing Parts:
Like the rest of the world, the recent U.S. automotive industry supply chain also relies on a global network for its parts and materials. It is now a matter of fact that big American auto manufacturers aren’t so American anymore. This is evident from the contribution of American/Canadian parts in the US. Made cars. According to allamerican.org report, current American-made cars contain only 40% US and Canadian content, compared to 73% content in past years. Key regions that are contributing to the sourcing and final assembly of American-made cars are:
Mexico and Canada:
Under the United States-Mexico-Canada Agreement (USMCA), these neighboring countries supply a range of parts, from engines to interior components, transmission systems to alternators, and many more. Other than spare parts, a lot of final assembly of American cars is happening in these countries. For example, General Motors assembles 19% of its models in Mexico and 13% in South Korea. Similarly, Ford assembles 13% of its models in Mexico and 13% in Canada. Fiat also has 46% of its cars being assembled in Italy, 17% in Canada, and 17% in Mexico.
Japan and South Korea:
Besides Mexico and Canada, Korea, and Japan also export high-quality components like transmissions and electronic systems to U.S auto manufacturers. Allamerican.org report states that all American manufacturers source 22% of their cars’ engines from Japan and 13% from South Korea. In case of transmission systems, the US. Manufacturers source 27% of their transmission systems from Japan and 14% from Korea. On the contrary, US manufacturers are also leading and exporting transmission systems to non-US. Car brands. It is estimated that 87% of Acura and 58% of Honda cars incorporate the US. Made transmission systems. Similarly, famous non-US. Car manufacturers like Toyota, Kia, and Hyundai also source transmission systems from the US. Based suppliers.
China:
China is known as the world’s factory due to its strong business ecosystem, low labor costs, and abundant raw materials. According to the U.S. International Trade Commission (USITC), U.S. auto parts imports increased from 7% in 2007 to 13% in 2018. This number has likely increased further with the growing demand for electric vehicles (EVs) and batteries.
The same report states that 105 Chinese suppliers and auto-tech companies operated in the U.S. in 2018. This number has also likely grown, driven by the rising use of EVs and advanced batteries in modern cars.
One example is Yanfeng, a Chinese company that first supplied parts to GM Shanghai. Later, Yanfeng acquired an Ohio plant and became a global supplier of interior trims and seating parts for GM. Buick Envision also sources parts from China, with its engine manufactured there. Similarly, some Ford Bronco transmission components and the six-speed transmission in the Ford Mustang come from China.
Challenges in the Automotive Supply Chain:
Due to the globally spread networks of suppliers, the U.S. automotive industry supply chain faces several challenges:
Geopolitical Factors:
Like other industries, geopolitical tensions and trade barriers continue to impact the automotive industry in the United States. Recent U.S. plans to impose significant tariffs on Chinese imports, including automotive parts can intensify the supply chain uncertainty and potentially increase production costs. Additionally, the US. Trade challenges with Mexico and Canada could lead to more strict regulations and adjustments in supply chain strategies. Another side of geopolitical factors is ongoing wars that have further exacerbated global instability. These wars are impacting the supply chain of critical raw materials like steel, transportation routes, and labor availability, all of which create delays in production and shipments.
Impact of Pandemics on the U.S. automotive industry supply chain:
Global health crises, especially the COVID-19 pandemic, have caused severe disruptions in the automotive industry. Major automakers in United States like Ford and General Motors faced significant production delays as COVID-19 containment measures shut down many plants. In addition, long shipment delays in spare parts further reduced automotive production during COVID time. Such globally connected supply chains always remain vulnerable to pandemics, creating supply shortages and demand fluctuations.
Natural Disasters:
Natural disasters like hurricanes, floods, earthquakes, and wildfires cause major disruptions in global manufacturing and supply chains. When Hurricane Harvey struck in 2017, it severely impacted key petrochemical plants along the U.S. Gulf Coast. This disruption affected multiple industries, including the automotive sector, leading to delays in parts and vehicle manufacturing. Earthquakes in Japan and floods in Europe also disrupted component sourcing, exposing supply chain vulnerabilities. Above all, recovering from these disruptions requires significant time and cost.
Impact of Electric Vehicles (EVs) on U.S. Automotive Industry Supply Chain:
As the automotive industry shifts toward electric vehicles, traditional supply chains have also undergone significant changes. Along with other auto parts, the companies are now sourcing materials like batteries, motors, sensors, and more parts for the EV industry. Below are the major shifts the EV industry brought to the automotive industry supply chain:
Battery Production:
Electric vehicles (EVs) largely depend on lithium-ion batteries. Because of this, the demand for these vital power sources increases. China, the leader in battery production, currently controls roughly 70% of the global battery market, with access to extensive lithium reserves and a dominant position in the supply of cobalt and graphite. This abundance of materials solidifies China’s leadership in the battery industry. Chinese companies like CATL (Contemporary Amperex Technology Co. Ltd.) are at the forefront of producing high-quality batteries for electric cars, ensuring the country’s dominance in global EV manufacturing.
Rare Earth Elements (REEs):
Rare earth elements (REEs), like neodymium, play a crucial role in developing electric motors for EVs. China dominates global REEs production, controlling about 80% of the supply, while other deposits exist in Greenland, Australia, and the U.S. This uneven distribution creates heavy dependence on a few regions, limiting supply chain diversification for other countries.
Platinum Group Metals (PGMs):
Platinum group metals (PGMs), which include platinum, palladium, and rhodium, are essential for traditional automotive catalytic converters; however, their role in EVs is evolving. As EV adoption progresses, the demand for PGMs may decrease, but they will continue to be relevant for fuel cell EVs.
Sustainability and Circularity in U.S. Automotive Industry Supply chain:
Like other industries, modern automotive are trying to practice sustainability and circular economic initiatives in the whole manufacturing process. Here are a few highlights about the circular economy in the US. Auto manufacturing industry.
Recycling Initiatives:
Major automakers are actively working toward material circularity through better recycling practices. For example, General Motors (GM) and Honda have committed to zero-waste-to-landfill projects within their manufacturing plants. Honda has taken steps to recycle materials like aluminum, steel, and plastics from decommissioned cars. The goal is to reduce the need for extraction of new raw materials. Brands like Tesla are also exploring EV battery repurposing, giving them a second life in energy storage systems. These efforts aim to create a more sustainable and resource-efficient automotive industry.
Battery Recycling:
As EV adoption grows, battery recycling has become a crucial focus for sustainability. Companies like Li-Cycle and Redwood Materials are developing advanced recycling technologies to recover lithium, cobalt, and nickel for reuse in new batteries. However, challenges persist due to complex battery designs and varying recycling methods among manufacturers. High costs, limited facilities, and a lack of standardized processes further hinder sustainable battery recycling efforts. Despite these obstacles, American automakers are investing in recycling innovations to minimize the environmental impact of EV batteries.
Eco-Friendly Manufacturing:
U.S. automakers like Tesla and Ford are improving manufacturing processes to enhance energy efficiency and sustainability. Tesla’s Gigafactory uses renewable energy to produce eco-friendly EVs, reducing environmental impact. Ford integrates renewable energy into its plants while expanding hybrid and electric vehicle production to lower carbon footprints. Additionally, Ford is collaborating with suppliers to cut water and energy usage across its network. These efforts highlight the industry’s shift toward sustainable and energy-efficient production.
Conclusion:
The U.S. automotive industry supply chain is a multifaceted system linked to different regions of the world. As the industry evolves, especially with the advent of electric vehicles, addressing challenges related to global sourcing, geopolitical factors, and sustainability becomes more important. With that, embracing innovative solutions and fostering circular economic initiatives within U.S. automotive industry supply chain will be key to navigating the future of the auto manufacturing industry.
Have any questions or want to know more about circular economy, sustainable supply chain, and business ethics issues in oil & gas industry? Please reach out to the COBE Ethics Chair at COBEEthics@boisestate.edu. Explore the College of Business and Economics (COBE) website to learn more about undergraduate and graduate degree programs in economics, and supply chain management.