Developing countries and the future of the automobile industry

Abstract

This paper reassesses the controversial view which has assumed that, at some point in the future, the global automobile industry, having reached maturity, would naturally migrate to the leading developing countries where the markets are growing more rapidly and wages are substantially lower. The authors argue that the threshold facing a developing country seeking to establish a domestic automobile industry has risen because of two recent developments: the rise of Japan as a major automobile producer; and a new wave of technological and organizational innovation. This involves use of state-of-the-art microelectronics and flexible manufacturing system, as well as complete restructing of component supply resulting in considerable unit cost and lead-time advantages.The authors look at what these trends mean for both the OECD and the developing countries. They outline the conventional view in more detail and then present an alternative analysis of the evolution of the industry. New policy options for the developing countries are spotlighted.