The Competitive Status of the U.S. Auto Industry A Study of the Influences of Technology in Determining International Industrial Competitive Advantage (1982) / Chapter Skim
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4 International Competition: Trade Flows and Industry Structure
4 International Competition: Trade Flows and Industry Structure
Pages 51-75
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From page 51... ...
industry had developed into the world's largest automotive industry behind the protection of a 45 percent ad valorem tariff. By contrast, European countries had a relatively open tariff policy in the pre-World War I era but maintained various horsepower and other use taxes that together with high transportation costs meant that significant U.S.
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From page 52... ...
52 of sir o I' of to Cal 3 o AL a)
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From page 53... ...
West Germany used a combination of tariffs, foreign exchange restrictions, and local content requirements to provide an effective measure of protection. In the face of such restrictions on trade, Ford and G M acquired or established a significant number of manufacturing facilities in the major European countries; by 1929 the facilities of the two companies numbered 68.
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From page 54... ...
54 Cal o V O an _ ~ on ~ ~ o _4 ~ ~ ~ C)
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From page 55... ...
Among the three major EEC producers -- West Germany, France, and Italy -- there had been, as in the United States, an obvious increase in the volume of trade. But in contrast to its leading position in the U.S.
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From page 56... ...
Imports held 14 percent of the British market in 1970; their share in 1978 had grown to just over 50 percent. West Germany, followed by France, lead the EEC importers to the United Kingdom, and, as a result, Germany has joined France as a net exporter within the EEC.
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From page 57... ...
Thus, if open markets prevail, it is not unreasonable to expect production from lower-cost areas to increase in significance in world trade. THE STRUCTURE OF MARKETS AND COMPETITION The evolution of technology, the rapid growth of world trade, and the emergence of mass consumption in Europe and Japan in the postwar era have had a profound effect on the number, strength, and strategies of competitors in the world auto industry.
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From page 58... ...
Such introduction is unlikely to be smooth in its effect on market shares. In the first place, an innovating firm may need additional volume to justify the change.
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From page 59... ...
auto industry.3 (The measure of market structure used here is the number of equivalent firms -- that is, roughly speaking, the number of firms that would populate the industry if all had the same market share as the larger firms. Technically, it is the inverse of the Herfindahl index, defined as the sum of the squared market shares.)
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From page 60... ...
Table 4.4, which compares world market-share data for 1965, 1975, and 1979, presents evidence broadly consistent with the previously discussed trends in international trade. The Japanese have become the principal source of increased competition in the
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From page 61... ...
The internationalization of the auto industry has seen a long-term trend toward increased competition; both the number of competitors and their relative strengths have increased. The evident concentration in the last f ew years is a response to worldwide market shifts that have required significant capital outlays for new technologies and new modes of competition.
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From page 62... ...
Firms have moved vigorously to gain advantages of scale and competing technology through various interfirm arrangement$ agreements ranging from outright mergers to joint ventures have changed the traditional boundaries of many firms. More often than not these arrangements have been realized through the encouragement of host governments in the case of foreign firms.
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From page 64... ...
If significant alliances develop short of outright merger or acquisition, there may be fewer effective competitors than are immediately apparent. The press for scale economies may force consolidation in practice if not in name, so that products of the cooperating firms, at least in technical aspects, become less distinctive and more standardized.
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From page 65... ...
It was a segment traditionally filled by foreign producers -- a niche in which the domestic producers had offered some products but which had been a minor part of the business. The story of the small car in the American market illustrates many of the themes developed in our discussion of product convergence, international trade, and market structure.6 It is especially useful in providing insight into th e nature of the dilemma facing domestic manufacturers in 1980 and the extent of the transformation that is under way in the industry.
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From page 66... ...
The price-size relationship that grew out of market preferences and product competition stands in sharp contrast to the relationship between size and cost. Within reasonable size ranges, production costs did not decline as rapidly as price with declining car size.
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From page 67... ...
Ch rysler / ~ / Buick I / ·/ Chevrolet Corvair—~ '> Valiant Fiat Renault _' _A,l,, 4~VW ~ '~ Ford 1 1 1 1 2,000 3,000 4,000 5,000 WEIGHT (lb.) FIGURE 4.4 Price-weight relationships for selected models, 1958, 1959, 1960.
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From page 68... ...
Initial Import Penetration In a market where size is associated with luxury and premium products and where pricing policy follows suit, the cost-size r elationship renders small cars relatively unattractive from a profit standpoint. These relationships are illustrated in Figure 4.5, which contains a hypothetical cost-weight curve overlaid on the price-weight curve of Figure 4.4.
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From page 69... ...
From a relatively small base of 38,000 vehicles in 1955, West German products expanded sales to 190,000 by 1960. With the additional sales volume accorded the French and British products, the share of imports reached 10 percent of the market in 1959.
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From page 70... ...
The rise of the small car reflected fundamental demographic trends (increased suburbanization, shifts in the age structure, changes in female labor force participation) and the growth of multicar families.
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From page 71... ...
Unlike Ford in 1936 the domestic manufacturers did not simply miniaturize the larger cars. The new domestic subcompacts were f undamentally redesigned to reduce the number of parts by 30 percent and were produced with higher levels of automation and capital intensity than was typical of industry practice.
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From page 73... ...
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From page 74... ...
in a market focused on the large road cruiser, are gone. The industry is now faced with several somewhat unfamiliar competitors with different strategies and a market demanding different products.
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From page 75... ...
(1971) presents an analysis of the small-car story that emphasizes the effects of market structure on new product development.
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