The German Motor Vehicle Industry: Costs and Crisis During the late 1980s and 1990s, Japanese expertise with their flexible and efficient motor vehicle manufacturing system posed a substantial challenge to the German automobile industry. The German industry, renowned for its high quality, struggled to maintain its competitiveness in the new environment. This research investigates cost characteristics of the German motor vehicle industry, using a translog cost function to examine economies of scale, relationships among the input pairs, and other issues involving the industry between 1975 and 2007. The findings include that German automobile production still has available economies of scale at its maximum output level; that the input pairs of capital and labor, capital and insourced intermediate goods as well as labor and insourced intermediate goods are complements, while the other input pairs are substitutes. However, not all of these input relationships are statistically significant. The industry has increased its use of imported (outsourced) inputs, and labor demand has become more sensitive to its own price as well as that of outsourced inputs. The results also suggest that the recent restructuring of the industry has been successful in increasing its international competitiveness

Truett, Lila; Truett, Dale

The German Motor Vehicle Industry: Costs and Crisis During the late 1980s and 1990s, Japanese expertise with their flexible and efficient motor vehicle manufacturing system posed a substantial challenge to the German automobile industry. The German industry, renowned for its high quality, struggled to maintain its competitiveness in the new environment. This research investigates cost characteristics of the German motor vehicle industry, using a translog cost function to examine economies of scale, relationships among the input pairs, and other issues involving the industry between 1975 and 2007. The findings include that German automobile production still has available economies of scale at its maximum output level; that the input pairs of capital and labor, capital and insourced intermediate goods as well as labor and insourced intermediate goods are complements, while the other input pairs are substitutes. However, not all of these input relationships are statistically significant. The industry has increased its use of imported (outsourced) inputs, and labor demand has become more sensitive to its own price as well as that of outsourced inputs. The results also suggest that the recent restructuring of the industry has been successful in increasing its international competitiveness

Lila Truett and Dale Truett
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Lila Truett: The University of Texas at San Antonio
Dale Truett: The University of Texas at San Antonio

No 1, Working Papers from College of Business, University of Texas at San Antonio

Keywords: Globalization; Germany; Motor Vehicle Industry (search for similar items in EconPapers)
JEL-codes: D2 F14 L6 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-01-17
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