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The Competitive Status of the U.S. Auto industry: A Study of the influences of Technology in Determining international ~nclustria~ Competitive Advantage Prepared by the Automobile Panel, Committee on Technology and I International Economic and Tracle Issues of the Office of the Foreign Secretary, National Academy of Engineering and the Com m issi on on E ng i neeri ng and Technical Systems, National Research Council William J. Abernathy, Chairman Kim Clark, Rapporteur NATiONAE ACADEMY PRESS Wash i ngton, D.C. 1 982

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NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the Councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedure] approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Research Council was established by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and of advising the federal government. The Council operates in accordance with general policies determined by the Academy under the authority of its congressional charter of 1863, which establishes the Academy as a private, nonprofit, self-governing m embership corporation. The Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in the conduct of their services to the government, the public, and the scientific and engineering communities. It is administered jointly by both Academies and the Institute of Medicine. The National Academy of Engineering and the institute of Medicine were established in 1964 and 1970, respectively, under the charter of the National Academy of Sciences. This project was supported under Master Agreement No. 79-02702 between the National Science Foundation and the National Academy of Sciences. Library of Congress Cataloging in Publication Data Main entry under title: The competitive status of the U.S. auto industry. Bibliography: p. 1. Automobile industry and trade--United States. I. National Academy of Engineering. Committee on Technology and International Economic and Trade Issues. Automobile Panel. II. National Research Council (U.S.). Committee on Engineering and Technical Systems. HD97 10.U52C58 1982 338.476292'0973 82-12506 ISBN 0-309-03289-X Available from NATIONAL ACADEMY PRESS 2101 Constitution Avenue, N.W. Washington, D.C. 20418 Printed in the United States of America First Printing, August 1983 Second Printing January 1984 Third Printing, March 1987

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Participants at Meetings of the Automobile Panel, Committee on Technology and International Economic and Trade Issues Panel WILLIAM J. ABERNATHY (Chairmanj; Professor, Harvard University Graduate School of Business Administration ALAN A. ALTSHULER, Professor and Chairman, Political Science Department, Massachusetts Institute of Technology JAMES K. BAKKEN, Vice-President, Operations Support Staff, Ford Motor Company DONALD F. EPHLIN, Vice-President and Director of National Ford Department, United Auto Workers DONALD A. HURTER, Manager, Automotive Technology Unit, Arthur D. Little, Inc. T REV OR O. J ON ES, V ice-President and General Manager, Transportation and Electrical and Electronics Operations TRW, Inc. HELEN R. KAHN, Bureau Chief--Washington, Automotive News DUANE F. MILLER, Vice-President, Engineering, Volkswagen of America, Inc. RALPH L. MILLER, Vice-President of Market Development and Strategic Planning for the Light Vehicles Group, Rockwell International* RICHARD H. SHACKSON, President, Shackson Associates, Inc.t PETER D. ZAGLIO, Vice-President--Securities Division, Lehman Brothers Kuhn Loeb *Formerly, Director, Manufacturing Facilities Planning, General Motors Corporation. fFormerly, Assistant Director of Transportation Programs, Energy Productivity Center, Carnegie-Mellon University. . .

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Rapporteur KIM B. CLARK, Assistant Professor, Harvard University Graduate School of Business Administration Additional Participants JOHN ALIC, Project Director of International Security of Commercial Programs, Office of Technology Assessment, U.S. Congress LARRY BURDETT, Vice-President, Marketing, Gelco, Inc. WILLIAM CHANDLER, Director of Energy Conservation Project, Environmental Policy Center ROBERT COLEMAN, Automobile Industrial Specialist, U.S. Department of Commerce PETER FROST, Office of Advanced Technology, U.S. Department of State K E N FRIEI)MA N. Director of Policy Coordination and Support, U.S. Department of Energy RICHARD JOHN, Director, Office of Energy Environment, Transportation Systems Center, U.S. Department of Transportation WILBERT JONES, General Engineer, Office of Industrial Policy, U.S. Department of Commerce ALAN KANTROW, Associate Editor, Harvard Business Review LUCY LAUTERBACH, Presidential Management Intern, Office of Industry Policy, U.S. Department of Transportation LARRY LINDEN, Senior Policy Analyst, Office of Science and Technology Policy, Executive Office of the President MARK MARTICH, Sloane Fellow, Massachusetts Institute of Technology RICHARD NANTO, Analyst in International Trade & Finance, Congressional Research Service, Library of Congress ROLF NORDLIE, Director of Transportation and Heavy Equipment Division, Office of Producer Goods, Bureau of Industrial Economics, U.S. Department of Commerce SUMIYE OKUBO, Policy Analyst, Division of Policy Research and Analysis, Scientific, Technological, and International Affairs, National Science Foundation ROLF PIEKARZ, Senior Policy Analyst, Division of Policy Research and Analysis, Scientific, Technological, and International Affairs, National Science Foundation ALAN RAPOPORT, Policy Analyst, Division of Policy Research and Analysis, Scientific, Technological, and International Affairs, National Science Foundation 1V

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BRUCE RUBINGER, Operations Research Analyst, Transportation Systems Center, U.S Department of Transportation Consultant BENGT-ARNE VEDIN, Research Program Director, Business and Social Research Institute, Stockholm, Sweden Stat f HUGH H. MILLER, Executive Director, Committee on Technology and International Economic and Trade Issues MARLENE R. B. PHILLIPS, Study Director, Committee on Technology and International Economic and Trade Issues ELSIE IHN AT, Secretary, Committee on Technology and International Economic and Trade Issues STEPHANIE ZIERVOGEL, Secretary, Committee on Technology and International Economic and Trade Issues v

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Committee on Technology and International Economic and Trade Issues (CTlETI) Chairman N. BRUCE HANNAY, National Academy of Engineering Foreign Secretary and Vice-President, Research and Patents, Bell Laboratories (retired) Members WILLIAM J. ABERNATHY, Professor, Harvard University Graduate School of Business Administration and Chairman, CTIETI Automobile Panel JACK N. BEHRMAN, Luther Hodges Distinguished Professor of International Business, University of North Carolina CHARLES C. EDWARDS, President, Scripps Clinic and Research Foundation and Chairman, CTIETI Pharmaceutical Panel W. DENNEY FREESTON, JR., Associate Dean, College of Engineering, Georgia Institute of Technology and Chairman, CTIETI Fibers, Textiles, and Apparel Panel JERRIER A. HADDAD, Vice-President, Technical Personnel Department, IBM Corporation (retired) MILTON KATZ, Henry L. Stimson Professor of Law Emeritus, Harvard Law School RALPH LANDAU, Chairman of the Board and Chief Executive Officer, Halcon International, Inc. JOHN C. LINVILL, Professor, Department of Electrical Engineering, Stanford University and Chairman, CTIETI Electronics Panel RAY McCLURE, Program Leader, Precision Engineering Program, Lawrence Livermore Laboratory and Chairman, CTIETI Machine Tools Panel . . V11

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BRUCE S. OLD, President, Bruce S. Old Associates, Inc. and Chairman, CTIETI Ferrous Metals Panel MARKLEY ROBERTS, Economist, AFL-CIO LOWELL W. STEELE, Consultant--Technology Planning and Management* MONTE C. THRODAHL, Vice-President, Monsanto Company *Formerly, Staff Executive, General Electric Company. . . . vail

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Preface In August 1976 the Committee on Technology and International Economic and Trade Issues examined a number of technological issues and their relationship to the potential entrepreneurial vitality of the U.S. economy. The committee was concerned with the following: . Technology and its effect on trade between the IJnited States and the other countries of the Organization for Economic Cooperation and Development (OECD). Relationships between technological innovation and U.S. productivity and competitiveness in world trade; impacts of technology and trade on U.S. levels of employment. Effects of technology transfer on the development of the less-developed countries and the impact of this transfer on U.S. trade with these nations. Trade and technology exports in relation to U.S. national security. In its 1978 report, Technology, Trade, and the U.S. Economy,* the committee concluded that the state of the nat~on's competitive position in world trade is a reflection of the health of the domestic economy. The committee stated that, as a consequence, the improvement of our position in international trade depends primarily on improvement of the domestic economy. The committee further concluded that one of the major factors affecting the health of our domestic economy is the state of industrial innovation. Considerable evidence was presented * National Research Council, 1978. Techn~ U.S. Economy. Report of a works Hole, Massachusetts, August 22-31, 1976. National Academy of Sciences, Washington, D.C. 1X

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during the study to indicate that the innovation process in the United States is not as vigorous as it once was. The committee recommended that further work be undertaken to provide a more detailed examination of the U.S. government policies and practices that may bear on technological innovation. The first phase of the study, based on the original recommendations, resulted in a series of published monographs that addressed government policies in the following areas: The International Technology Transfer Process.* The Impact of Regulation on Industrial Innovation.* The Impact of Tax and Financial Regulatory Policies on Industrial Innovation.* Antitrust, Uncertainty, and Technological Innovation.* This report on the automobile industry is one of six industry- specific studies that were conducted as the second phase of work by this committee. Panels were formed by the committee to address electronics; ferrous metals; machine tools; pharma- ceuticals; and fibers, textiles, and apparel. The objective of these studies was to (1) identify global shifts of industrial technological caDacitv on a sector-by-sector basis. (2) relate those shifts in ~ ~ ~ ,. . . International competitive Industrial advantage to technological and other factors, and (3) assess future prospects for further technological change and industrial development. As a part of the formal studies, each panel developed (1) a brief historical description of the industry, (2) an assessment of the dynamic changes that have been occurring and are anticipated as occurring in the next decade, and (3) a series of policy options and scenarios to describe alternative futures for the industry. The methodology of the studies included a series of panel meetings involving discussions among (1) experts named to the panel, (2) invited experts from outside the panel who attended as resource persons, and (3) government agency and congressional representatives presenting current governmental views and summaries of current deliberations and oversight efforts. The drafting work on this report was done by Kim B. Clark, Harvard University Graduate School of Business Administration. Professor Clark was responsible for providing research and resource assistance as well as producing a series of drafts, based on the panel deliberations, that were reviewed and critiqued by the panel members at each of their three meetings. *Available from the National Academy of Engineering, Office of the Foreign Secretary, 2101 Constitution Avenue, N.We, Washington, D.C. 20418. x

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Contents Summary 1 The U.S. Auto Industry in Crisis 2 An Industry Primer 3 The Evolution of Technology: From Radical to Incremental Innovation 4 International Competition: Trade Flows and Industry Structure 5 Government Regulation: The Evolution of Public Demands on the Industry 6 The Sources of Competitive Advantage: Cost and Quality Comparisons 7 Jobs and People: The Impact of Workforce Management on Competition 8 Technology and Competition in the U.S. Automobile Market 9 The Character of Automotive Innovation in the 1970s and Beyond 10 The Automotive Future: Three Scenarios and Their Implications X1 10 17 35 51 76 90 109 122 133 150

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Appendixes A Estimates of Comparative Productivity and Costs Under Alternative Methods ~ Productivity and Absenteeism C Statistical Analysis of Technology, Sales' and Prices Bibliography Biographical Sketches 169 189 192 197 201 . . X11

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The Competitive Status of the U.S. Auto Industry

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