Farmed Out: How Detroit Ceded Control

This is the third of five articles on the American automotive industry. It covers the modern automotive supply chain and the impact that outsourcing has had for consumers.

The first essay showed how automaker profits moved from selling cars to lending against them. The second examined how regulation has made cars more complex and more expensive to own.

The next essays in the series will cover insurance and the erosion of our right-to-repair.

In the 1970s Detroit’s automakers produced as much as 70% of their own components. Over the next three decades they divested most of their parts manufacturing. GM spun its parts division off as Delphi in 1999. Ford did the same with Visteon in 2000. Parts suppliers now account for 70% of the value of a new car.

Ford’s CEO, Jim Farley, explained why Ford began outsourcing:

The result, by Farley’s own account, is a car whose design Ford does not fully control.

A modern Ford contains around 150 of these modules, each controlling a different aspect of the vehicle’s function and each with its own chips. The software that powers these modules is “written by, you know, 150 different companies and they don't talk to each other.” In his words, “even though it says Ford on the front, I actually have to go to Bosch to get permission to change their seat control software."

Ford is now trying to reverse course. On the company’s February 2026 earnings call, Farley explained his view on what would make Ford competitive again: “We’re controlling the electrical architecture at Ford.”

Outsourcing did deliver on its original promise. For 20 years, it kept the price of a like-for-like car nearly flat, while prices across the economy rose 53%. But it was a devil’s bargain, and the cost for American automakers was control.

In pursuit of lower costs, Detroit’s automakers gave away much of their ability to see, change and improve their products. In 2021, the other side of the bargain came due. A chip shortage that automakers could not anticipate pushed like-for-like new-car prices up 19% in two years, nearly five times the increase seen over the previous twenty.

Today’s article examines what outsourcing gave consumers and what it cost them. I’ll also contrast Detroit’s model with the Japanese and Chinese automakers that kept control, and look at what happens when a supplier’s part fails.

Most of what makes up a modern car is produced by suppliers. When an automaker plans a new model, it typically has suppliers compete for each component and awards the work to one of them. Prices are “negotiated with respect to each business award,” according to the electrical systems maker Aptiv. Whichever supplier wins the work usually makes that part for the life of the model.

The contract also locks in price cuts. Aptiv’s supply agreements “generally require step-downs in component pricing over the period of production,” typically 1% to 3% a year. This is what Farley meant by bidding suppliers against each other. A supplier that resists the cuts risks losing the next award.

This is a very common practice across the industry. BorgWarner, an engine and drivetrain parts manufacturer, says in its 2025 annual report that “virtually all automakers have implemented aggressive price-reduction initiatives and objectives each year.” Lear, which makes seats and wiring, says its contracts with major customers “generally provide for an annual productivity price reduction.”

This squeeze from the automakers on the suppliers did keep cars cheap for a while. Adjusted for inflation, the like-for-like new car was about a third cheaper in January 2020 than in January 2000.

The risk of this arrangement became immediately apparent in 2021. The White House's 100-day review of supply chains, published in June 2021, traced the chip shortage to the start of the pandemic:

Chipmakers quickly decided to move the freed capacity to chips for electronics where demand was surging. Cars made up only about 10% of global chip demand, so when car production restarted and orders came back, automakers and suppliers were forced to wait.

The review blamed the slow recovery on "just-in-time supply chains and limited visibility into upstream suppliers." Many automakers did not buy their own chips. Their suppliers did, and the automakers could not see far enough down the chain to know what was coming.

AlixPartners estimated that the shortage cost the industry 7.7 million vehicles of production in 2021. The like-for-like new-car index rose 18.6% from January 2021 to January 2023, almost five times its rise over the previous 20 years. Used-car prices rose 56% from January 2020 to their peak in February 2022.

Vehicles drove a large share of 2021's inflation. At the end of 2020, new cars made up 3.8% of the basket of goods the consumer price index tracks. Their prices rose 11.8% in 2021. Used cars made up 2.8%, and their prices rose 37.3%. Multiplying each weight by its rise, the two together added about 1.5 points to 2021's 7.0% inflation. Within core inflation, the measure that leaves out food and energy, they accounted for about a third. The Dallas Fed tied the rise in vehicle prices to "severe supply constraints and a semiconductor shortage."

The like-for-like index has not fallen back to the pre-pandemic baseline, and September 2026 was its highest reading yet.

The automakers actually increased earnings during the shortage by selling fewer cars at higher prices. Stellantis' North American business shows this margin expansion most clearly:

The company shipped 24% fewer vehicles in North America in 2021 than in 2019, yet made more than twice as much on each one. FCA merged with PSA to form Stellantis in January 2021. Both profit figures are the companies' own adjusted measures, and the 2021 figure is pro forma.

GM reported record profits in 2021 and again in 2022, while delivering 23% fewer vehicles in the US in 2021 than in 2019. Ford's adjusted operating profit rose 56% from 2019 to 2021, on 13% less revenue.

Ford also chose to keep inventories lean after the shortage, which kept supply tight by design. On the company’s July 2021 earnings call, Farley said navigating the chip shortage had led Ford "to make important permanent changes." He set a target of 50 to 60 days of inventory. Ford's finance chief, John Lawler, said Ford had historically run about 75 days. Farley said building more cars to customer orders “allows us to significantly reduce our incentives.”

Discounts fell from 10.9% of the average transaction price in December 2019 to 2.7% in December 2022, according to Cox Automotive.

Outsourcing also cost the automakers control of their software and their relationship with the customer.

Software has proved hard to take back. Herbert Diess, then Volkswagen's CEO, said in 2020 that "hardly a line of software code comes from us." VW built its own software unit, Cariad, which lost about €6.9 billion from 2022 to 2024. VW then committed up to $5.8 billion to Rivian and a joint venture with it, to use Rivian's electrical architecture. At Ford, Farley told investors in February 2026 that its planned eyes-off driving system would be affordable. The reason, he said, was that "we did this inside the company, and we had control over the hardware."

The degradation of the customer relationship is another important impact of outsourcing. The automaker sells the car, takes the complaint and pays the warranty claim, while in many cases a supplier wrote the faulty code. Infotainment is the most complained-about category in J.D. Power's 2026 dependability study, and phone connection is the top single problem for the third year running.

In the same 2023 interview, Farley explained why Ford could not simply send out a fix. "Even if I had a high-speed modem in the vehicle and I had the ability to write their software, it's actually their IP." He called his suppliers "the loose confederation of software providers."

This arrangement causes issues for consumers when it comes time to file a warranty claim or arrange a recall repair. NHTSA counts 4.4 million vehicles in 2025's recalls that could be fixed over the air, in the owner's driveway. That was 15% of all recalled vehicles. At Tesla it was 91% of the vehicles it recalled, and at Volvo 99%. At Ford it was 18%, and at GM 14%. Stellantis, Toyota, Honda and Volkswagen had none.

To understand the consumer impact when a supplier part fails as opposed to an OEM part, I read the automakers' filings for the 50 largest recalls of 2025. Sixteen of them were software faults. Where the automaker had made the faulty module itself, about three-quarters of the vehicles could get the fix over the air. Where a supplier had made it, fewer than a quarter could, and the rest needed a dealer appointment. Bear in mind, the sample is small, and a car's age and hardware also affect what can be updated remotely.

Toyota kept control of its supply chain through long-term partnership. It owns about a fifth of the parts maker Denso and is its largest shareholder. After the 2011 earthquake in Japan, Toyota required its suppliers to hold two to six months of chips. That stockpile bought it several months relative to other automakers in 2021. Toyota still cut its global production plan for September 2021 by 40%. Even so, it outsold GM in the US that year, the first time in about 90 years that GM had not led.

Suppliers rate Toyota highest of the six automakers in Plante Moran's 2026 survey of supplier relations. Toyota scored 409, Honda 360, GM 318, Nissan 255, Ford 223 and Stellantis 163. Toyota also tops Consumer Reports’ reliability rankings.

Toyota’s supplier relationships go well beyond the lowest bid. US automakers traditionally chose suppliers “by competitive bidding based almost solely on price,” according to a 2000 National Academies report. The resulting relationships were adversarial. Toyota and Honda took the opposite approach. In a 2004 Harvard Business Review study, Jeffrey Liker and Thomas Choi found that both companies invest in their suppliers’ capabilities and work with them to improve their processes. They had built strong partnerships with some of the same suppliers that were “at odds with the Big Three.”

That collaboration extends to designing the car. In a 1989 study, Harvard’s Kim Clark found that bringing suppliers into engineering accounted for “a significant fraction” of Japanese automakers’ advantage in cost and development time. Detroit’s bidding war approach produced the opposite outcome. In a 2003 WardsAuto survey, a third of suppliers said they no longer offered Detroit’s automakers their best innovations.

In 2024, while Carlos Tavares was CEO, Stellantis stopped accepting suppliers’ claims for price relief, which reached about $6 billion. It still ranks last with its suppliers.

China's carmakers maintained control by vertically integrating. UBS found in 2023 that BYD made about 75% of its Seal sedan's parts itself. Reuters has put Volkswagen's ID.3 at 35%. Chinese automakers now develop a new model in as little as 18 months, by the same report. AlixPartners puts the typical cycle at legacy automakers at five years.

Ownership is not the only advantage that Chinese automakers have, however. The Center for Strategic and International Studies estimates that Chinese government support for the electric vehicle industry totaled $230.9 billion from 2009 to 2023, through buyer rebates, tax exemptions, charging infrastructure and research funding.

Bringing the work in-house is no guarantee either. Rivian builds its own software and electrical architecture, and ranks last of 26 brands in Consumer Reports' reliability scores. Ford reportedly abandoned its own next-generation electrical architecture in 2025, over cost and delays.

Most recalled cars are recalled over a part made by a supplier. Recalls are rising again. Part 1 of this series noted that 2025's recall total was the lowest since 2013. This year has already surpassed it. According to NHTSA's data, 33.2 million vehicles were recalled in 2026 through mid-October, against 29.3 million in all of 2025. The share of recalls involving a supplier's part had already been rising. The Transportation Department's inspector general counted supplier parts in 84 of 180 light-vehicle recalls in 2012. By 2016 it was 252 of 346, a rise from 47% to 73%.

One supplier's part often goes into many brands. In the same 50 recalls from 2025 that I analyzed above, the automaker's own filing named another company as maker of the defective part for 79% of the vehicles. Magna's backup cameras alone were in about one in eight vehicles recalled in the US that year, across at least six recalls. The year's largest recall, of 1,456,417 Fords, began one level further down the chain. Ford's filing says:

Supplier defects often surface years after the sale, when the car may have changed hands. Recall letters go by mail to the owner on state registration records. NHTSA's January 2025 report on completion rates grouped recalls by the age of the oldest car. Where it was three years old or newer, 84% of vehicles were fixed by the fifth quarter. Where the recall reached cars four to nine years old, only 34% were.

Many owners are also forced to wait for the fix. About 70 million vehicles recalled from 2021 to 2025 waited more than two months for a remedy, according to NHTSA's 2025 report. Nissan owners waited longest, 299 days on average. Owners of cars from FCA, Stellantis' US arm, waited 225 days, and Ford owners 174.

Federal law treats new and used recalled cars differently. A dealer cannot sell a new car with an open safety recall. A large rental company must stop renting one within 24 to 48 hours of the notice. The same car, sold used, is legal. The FTC said in 2016 that "neither NHTSA nor any other federal agency has the authority to ban the sale of used cars that have open recalls." The free recall repair is also time-bound. Automakers are not required to repair a car for free if it was first sold more than 15 years before the recall.

Negotiate on supply. Dealers held 73 days of inventory in August 2026, by Cox Automotive's count, against 88 days in 2019. Discounts have come back more slowly, averaging 6.6% of the transaction price in September 2026, against 11.1% across 2019 (Cox). With supply recovering faster than discounts, there is room to push.

Compare automakers on reliability. Changing brands will not avoid a supplier's defect, because the same supplier's part goes into many brands. Reliability still differs, though. The two automakers suppliers rate highest, Toyota and Honda, also rank in the top four of Consumer Reports' reliability scores.

Before buying used, run the VIN. Enter it at nhtsa.gov/recalls. The search covers the past 15 years and leaves out recalls already repaired. If it shows an open recall, ask the seller to complete the repair before you sign. The fix is free to whoever owns the car.

Sign up for recall alerts with NHTSA's email service, because the letter follows the registration and may not reach you.

If you work in automotive or have dealt with a recall lately, tell us about your experience in the comments or continue the discussion in the community.

Thank you, as always, for your readership and support.