U.S. Automakers and their competition with International Market

U.S. auto industry faced tremendous competitive challenge with the foreign market due to huge economic crisis. The U.S. automakers such as Ford Motor Company, General Motors were dominating the auto industry few decades back. However, foreign carmakers have expanded their share from 0.4% to 40% of the total share in the early 2000. The reason behind for the Big Three to face these obstacles is its cost and production quality. And at the same time, the industry faced the problem of developing new products to meet the changing market demands of customers such as small compact and fuel-efficient. 

Beside these rising health care costs are huge burden for U.S. automobile business where they compete globally with International automobile companies where their health care costs are lot cheaper. Therefore, U.S. manufacturers are facing difficulties to compete with foreign companies. For foreign car makers, their comparative advantage is their cost of production where they can make their production lot cheaper and firm can avoid the cost of employee health insurance because it is paid by the government. Whereas, the U.S. manufacturer have to bear large unfunded pension obligations and health care costs for all retirees and that's the reason American big three are not able to make more investment in technology and innovations.

Likewise, another comparative advantage for foreign carmaker is they are more fuel-efficient. Since the price of gas is rising, customers look for those cars, which consume less gas. And cars like Toyota, Honda and other foreign cars are more durable, fuel efficient than those American big three cars. 

In my opinion, the most important thing is to meet the consumers’ expectations and their needs. Recent crisis and the layover made consumer to buy inexpensive cars with fuel-efficient. US automakers can gain the market by setting the plant and production in low labor cost foreign country to produce low cost cars and the saved money can be used for technology advancement. This may lead to unemployment but if government wants then they can reduce the high medical cost.

Chart Retrieved from http://mjperry.blogspot.com/2012/01/big-threes-dramatic-u-turn.html

Source: http://www.cfeps.org/health/chapters/pdf/Rising%20costs%20and%20US%20competitiveness.pdf