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Provide a 10 pages analysis while answering the following question: The United States Automobile Industry. Prepare this assignment according to the guidelines found in the APA Style Guide. An abstract
Provide a 10 pages analysis while answering the following question: The United States Automobile Industry. Prepare this assignment according to the guidelines found in the APA Style Guide. An abstract is required. Automobiles are durable experience goods that sell for a fairly high price. Consequently, as the purchase of a car constitutes a large investment for the average household, the demand for cars is fairly price and income elastic and strongly affected by macroeconomic conditions, including income trends, employment, and interest rates (Adams and Brock, 1995: 68). Because we look at competitive performance within the industry, however, we do not consider the industry's overall performance and its impact on the national economy.
The US automobile industry is highly concentrated, with domestic production dominated by a tight triopoly. The top three firms, General Motors, Ford, and Chrysler (the 'Big Three'), account for 98% of domestic production. This high concentration started mainly in the 1930s. In the first three decades after the automobile was invented in the 1890s, more than 80 firms existed in the industry, with a number of companies entering and leaving the market every year. The number of companies that managed to stay efficient and profitable, and that survived the Depression in the 1930s, shrank to eight firms in the 1940s (White, 1982: 143). Since then, the Big Three have merged with or bought the remaining domestic firms.
Historical Analysis
In the 1970s, however, US automakers first began to face significant foreign competition. German and especially Japanese car markers, which were already established in their home markets, entered the US market with small, efficient cars that provided stiff competition for domestic producers. Today, imports account for about a quarter of the existing US market share (as opposed to 0.4% market share immediately after World-War II). This trend is reflected in Figure 1, which shows the market shares of the Big Three over our sample period. This considerable gain in market share for the foreign companies resulted mainly from the oil crisis of 1979, after which US consumers began to value fuel efficiency oversize and style.
