Introduction

In this chapter we compare and analyze the relative levels of unit cost and productivity between the United States and Japan over the period 1970–84, and between Germany and both Japan and the United States over the period 1970–80. (Comparisons between Canada and the United States, and between Canada and both Germany and Japan, are presented in Chapter 8.) We also examine cost and productivity levels for the three countries in 1979 and 1980. A comparison for 1979 is the one that has been used for most accounting cost studies (see Chapter 2), and we contrast our results with those earlier studies. In 1980, the North American automobile industry for the first time lobbied for protection against a perceived large Japanese cost advantage.

Our results indicate a Japanese cost advantage of 19.3% over American producers for 1979; these results are considerably less unfavorable to North American automobile production than were those of most analysts surveyed in Chapter 2.

Our empirical results for 1980 show a substantial Japanese cost advantage over American car producers, on the order of 35%. However, the large change in relative costs between 1979 and 1980 was primarily due to substantial reductions in capacity utilization rates in North America, rather than to any abrupt deterioration of long-run comparative productivity levels. Depreciation of the Japanese yen relative to its purchasing power parity (PPP) equilibrium also contributed to the North American disadvantage. In 1984, the Japanese cost advantage over U.S. producers was still at 1980 levels.