In recent years there has been heightened interest in the trading relationships among nations as trade liberalization interacts with the forming of trade blocks to create new realities. The strengthened integration of the European Economic Community in 1992, the Canada-U.S. Free Trade Agreement, and the proposed trilateral free trade agreement between Canada, the United States, and Mexico are examples of the changing world order.

Motor vehicles are prominent among the flow of exports and imports for many countries. In this book we compare the motor vehicle production sectors of four countries heavily involved in international trade: Canada, Germany, Japan, and the United States. The trade in automobile products among these nations as well as their exports to other countries are very much influenced by the basic relative competitiveness of their production processes for automobile manufacturing. We analyze in depth the factors that contributed to the comparative cost competitiveness of the four countries' auto industries over the period 1961–84.

We begin by evaluating previous estimates of intercountry cost and efficiency differences that use methodologies of plant inspection and comparison of company financial reports. We then proceed to our main contribution, which is to provide estimates of comparative costs of automobile production (both short-run and long-run), and the sources of these cost differences, based on the econometric cost-function methodology. We believe this methodology is superior to the methods used previously because it allows us to disentangle the factors contributing to cost and efficiency differences in a coherent and objective manner.