THE IMPACT OF GOVERNMENT REGULATIONS ON COMPETITION IN THE U.S. AUTOMOBILE INDUSTRY

The impact of government regulation on competition in the American automobile industry is examined, specifically on the competitive position of Chrysler Corporation relative to General Motors Corporation (GM) and Ford Motor Company. The classical "wedge" model is employed, as well as a model that corrects a firm's accounting profits to economic profits. The analysis points to an inevitable increase in concentration in the U.S. auto industry through 1985 as a result of regulation, with GM dramatically improving its relative position. The model suggests that even with an expanded market share, GM's economic rate of return will tend to fall well below the previous decade's average. The study concludes that Chrysler, in order to survive as a full-line domestic auto manufacturer, must minimally have removed the regressive regulatory bias it now faces in competition with Ford and GM. Shifting the tax spectrum away from lump sum levies toward proportionality would bring some relief to Chrysler, but merely to return to zero profitability from a negative position, Chrysler's operating profit margin must grow 15% annually between 1977 and 1985. Strategies suggested to help the entire auto industry include permitting foreign-made units to be added to domestic fleets for estimating fleet fuel efficiency; terminating fuel efficiency standards (replacing with gasoline tax); modifying fuel efficiency standards ("end-loading," rather than "front-loading"); delaying imposition of all regulations; and freezing emission and fuel economy standards at 1979 or 1980 levels. Strategies for improving Chrysler's position include permitting research and development pooling; imposing less stringent standards on the smaller firms or allowing them more time for compliance; and providing government subsidies to offset the regulatory tax and bias.

• Supplemental Notes:
  • Reference copy only. Sponsored by Chrysler Corporation. See also HS-031 011.
• Corporate Authors:

  Wainwright (HC) and Company

  1 Boston Place
  Boston, MA  United States  02108
• Authors:
  • Clarkson, K W
  • Kadlec, C W
  • Laffer, A B
• Publication Date: 1979

Media Info

• Features: References;
• Pagination: 124 p.

Subject/Index Terms

• TRT Terms: Automobile industry; Competition; Deregulation; Economics; Federal government; Regulations
• Identifier Terms: Chrysler Corporation; Ford Motor Company; General Motors Corporation
• Geographic Terms: United States
• Subject Areas: Economics; Law; Safety and Human Factors; Vehicles and Equipment;

Filing Info

• Accession Number: 00369178
• Record Type: Publication
• Source Agency: National Highway Traffic Safety Administration
• Report/Paper Numbers: HS-031 010
• Files: HSL, USDOT
• Created Date: Dec 30 1982 12:00AM