Detroit's Big Three and the U.S public policy effect

      Established gradually between 1910 and 1930, the "Big Three" (Ford, Chrysler, GM) hold nearly 70% of the U.S. market in the late 1920s. From the early 1930s to the late 1970s, they hold nearly 85% of the domestic market. The globalisation of the economy and the opening of the U.S. market to competition from the late 1950s, progressively brought down that hegemony of the three groups. In 2007, the share of the "Big Three" in the domestic market fell to 54%. The Japanese car manufacturer Toyota was in the second place in the American market, and then it became the first in the first months of 2008. How was the comparative advantage of Detroit’s big three affected?

The second oil shock occurred in 1979 in the wake of the Iranian Revolution, developed the interest of American consumers for imported cars, smaller, lighter, and consume less fuel. These models do not exist in the range of Detroit’s Big Three, consumers have turned to Japanese brands, and found that Japanese cars were not only sober, but also reliable!

The lack of anticipation of U.S. cars manufacturers and lower quality products lead to a gradual loss of interest of consumers for domestic manufacturers. For their part, American manufacturers thought the crisis was temporary, and customers would come back sooner or later to large and luxury cars. While the client had discovered a reliable and well finished car (Japanese car), and wanted to stick to it.

In addition, American manufacturers were affected by their commitments to offer health-care benefit packages to their employees and retirees. The big Three increased the cost per vehicle to $1000 since they were providing their employees and formers with healthcare, however their foreign competitors have lower costs since the health-care was offered by their countries' public policy. Even if Asian companies like Toyota have set up factories in the United States and are required to pay health insurance for their workers, they don’t have retired employees yet to take charge as the American giant automakers; which guarantees conservation of their competitive position. I believe that the obligation of U.S. businesses to pay a portion of health care benefits negatively affects comparative advantage of Detroit’s big three.