We develop a consumer-level model of vehicle choice to shed light on the erosion of the U.S. automobile manufacturers’ market share during the past decade. We examine the influence of vehicle attributes, brand loyalty, product line characteristics, and dealerships. We find that nearly all of the loss in market share for U.S. manufacturers can be explained by changes in basic vehicle attributes, namely: price, size, power, operating cost, transmission type, reliability, and body type. U.S. manufacturers have improved their vehicles’ attributes but not as much as Japanese and European manufacturers have improved the attributes of their vehicles.
Until the energy shocks of the 1970s opened the U.S. market to foreign automakers by spurring consumer interest in small fuel-efficient cars, General Motors, Ford, and Chrysler sold nearly 9 out of every 10 new vehicles on the American road. After gaining a toehold in the U.S. market, Japanese automakers, in particular, have taken significant share from what was once justifiably called the Big Three (table 1). Today, about 40 percent of the nation’s new cars and 70 percent of its light trucks are sold by U.S. producers.1 And new competitive pressures portend additional losses in share, especially in the light truck market—a traditional stronghold for U.S. firms partly because of a 25 percent tariff on light trucks built outside of North America and the historical absence of European automakers from this market. Japanese automakers are building light trucks in the United States to avoid the tariff and introducing new minivans, SUVs, and pickups, while European automakers are starting to offer SUVs.
The domestic industry’s loss in market share is not attributable to the problems experienced by any one automaker (table 2). Indeed, GM, Ford, and Chrysler are all losing market share at the same time. Toyota has recently surpassed Ford as the second largest seller of new cars in the United States and Honda has surpassed Chrysler (notwithstanding Chrysler’s merger with Daimler-Benz in 1998) and is within reach of Ford. Both companies as well as Nissan (not shown) are also likely to increase their share of the light truck market as their new offerings become available. On the other hand, General Motors’ share of new car and light truck sales has not been so low since the 1920s.