“The More Things Change…”: Business Litigation and Governance in the American Automobile Industry

Abstract

Business litigation is a relatively neglected area of corporate governance, particularly given its enormous rise in the United States over the past generation. As a preliminary effort to engage this issue, we examine dispute avoidance and resolution in the automotive sector since the early 1970s-focusing on relationships between auto manufacturers and their suppliers and dealers. We generally presume intercorporate litigation to be a “last resort” in business practice, chosen only on the breakdown of less costly means of dispute avoidance or resolution; we take such breakdown typically to be caused by shifts in the terms of competition among firms (e. g., increased competition, instability, uncertainty); and we expect that, over time, the costs of litigation will motivate efforts to construct new structures of nonlitigious dispute resolution. In the case of the U. S. auto industry, we find disruptive shifts in the terms of competition and increased recourse to litigation. Throughout, however, this litigation effect is mitigated by the dominance of major manufacturers over their suppliers and dealers. Over time, it is further dampened by industry development of mechanisms for arbitration or other nonlitigious dispute resolution.