Wednesday, January 5, 2011

US Auto Market: USA vs Japan since WWII

Ford’s industrial and managerial innovations established the modern automobile industry in the US during the first part of the 20th century.  Coming out of World War II, Japan was just entering the automobile industry anew and was emerging from post-war reconstruction.  Japan's auto industry benefited from the highly protectionist policies the government used to support the domestic industry while it adopted and improved upon existing industry best practices for decades.  By the 1970s and 1980s the US consumer had responded, and by 1990 it had handed nearly one quarter of the US auto market to Japanese manufacturers. By 2009 it had about 40% of the US market.

One reason for this might be the rapid expansion of productivity in the Japanese auto industry.  Economists use the concept of total factor productivity to ascertain the portion of gains in output attributable to productivity as opposed to those related to the inputs of capital and labor.   Using data from a paper by Dale W. Jorgenson of Harvard and Koji Nomura of Keio University, I plotted "eras" of the Japanese and US auto industries' contribution to each country's average growth in total factor productivity since WWII.  On the same chart I plotted US automobile market share data from Wards Auto over the same period.