Since 1973, the time of the first Arab Crude Oil Embargo against western countries, the automobile manufacturing industry in the United States has been on the defensive against foreign competition. The American industry suffered additional setbacks in the economic recession of the early 1980s, and, although the American Big 3 automobile manufacturers have made progress since the end of that recession, they have continued to see their market share erode, although during the current recession their market share appears to have stabilized to some extent (Leach, 1992, pp. 101 102). By 1989, the foreign manufacturers' share of the American new car market had reached 32 percent. In 1990, the foreign share increased to 34 percent; however, in 1991, fell back to 32 percent.
The most intense foreign competition for American automobile manufacturers is provided by the Japanese automobile manufacturers, which hold a combined share of the American market approximating 25 percent. The success of the Japanese in the American automobile market, together with their successes in consumer electronics and some other industries, has led to the development of massive trade imbalances favorable to Japan between the two countries. American efforts to deal with the trade deficit with Japan are most often based in rhetoric that blames the Japanese for being unfair traders, as opposed to carefully examining the management of the automobile manufacturing industries in the two countries to determine the real reasons for the Japanese successes.
For most of the twentieth century, the American automobile manufacturing industry was the most productive in the world. Over the past 20 years, however, the American industry has lost its comparative advantage. By 1983, Japanese automobile manufacturers, on the average, could produce an automobile for $2,500 less than could American manufacturers.
The Japanese automobile manufacturers were thought to have ...