Costs, Technology, and Productivity in the U.S. Automobile Industry

Abstract

This article analyzes the structure of costs, technology, and productivity in the U.S. automobile industry by estimating a general hedonic joint cost function for domestic automotive production for the Big Three American automobile producers: General Motors, Ford, and Chrysler. In general it is found that costs are highly sensitive to the scale and composition of output, with General Motors and Chrysler experiencing an output configuration that exhibits increasing returns to scale and economies of joint production. On the other hand, Chrysler's recent productivity growth is found to be far below that of General Motors. Although Ford's cost structure is not so advantageous as General Motors', its recent productivity growth suggests that it can remain an effective competitor in the domestic automotive market.