Competition and the Auto Industry

In a previous posting, I noted the intriguing observations of Michael Barone in his book, Hard and Soft America, regarding the importance of competition and accountability (“Hard” concepts) to overall progress. An interesting piece by Gregg Easterbrook in Sunday’s New York Times, entitled “What’s Bad for GM is …” (see http://www.nytimes.com/2005/06/12/weekinreview/12gregg.html?ex=1119240000&en=ecb31b994c3d753a&ei=5070&emc=eta1) provides some examples of competition and accountability in the U.S. automobile industry.

Easterbrook outlines the struggles of General Motors over the past several years in meeting competitive demands here and abroad. General Motors, which in the 1950s provided over 46 percent of the vehicles sold in the U.S., now provides about 27 percent. Its chief rivals, Ford and Chrysler (now Daimler Chrysler), did not fare much better, slipping from a combined share of 44 percent in the 1950s to 32 percent now. Other automakers have grown from a market share of 10 percent to 41 percent.

The good folks who worked in assembly plants closed as a result of these shifts have often had a difficult time. Easterbrook points out that job losses in these U.S. companies have been offset, at least in part, by new plants and investments in the United States by other companies. (This would be an interesting area for further inquiry.) In the meantime, consumers have benefited from higher quality cars at inflation-adjusted prices that are actually at or below the levels of the early 1980s.

If it has been a while since you shopped for a new car (as in my case), there does seem to be an initial sticker shock that is hard to get over. However, when you think about it, the cost of a car in relation to the growth of personal income is not out of line. To illustrate, between 1980 and 2004, per capita personal income in Nebraska increased from $8895 to $31,339 – about 3.5 times more in 2004 than in 1980. (To see your state, check here: http://www.infoplease.com/ipa/A0104652.html


Assuming a new car price of $20,000 (OK, I’ll admit I’m not a fancy car guy), that translates to a corresponding 1980 price of about $5676, which is probably not too far out of line with what we paid then. But when we consider, as Easterbrook also points out, that the modern car now has more safety features, a better radio, antilock brakes, and all that jazz, it starts to sound like the consumer got a pretty good deal out of this competition. (It is too bad, though, that the automobile industry wasn’t able to match the computer industry in terms of productivity!)

EAM