Essay: Government Business Relations a Comparison Between Models in the United States and Japanese Automobile Industries

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Government-Business Relations

Since the end of World War II, Japan has evolved from a country that was a conquered nation, to one that would rebuild to become an economic powerhouse. As they rebuilt key industries, that would help it to dominate markets; that were once the exclusive territory of overseas competitors. In the case the auto industry, the changes that took place helped the Japanese automakers to become some of the largest and most profitable organizations in the world. A good example of this can be seen with Toyota overtaking General Motors as the largest producer of small cars and trucks. ("Japanese Auto Industry," n.d.) This is significant because it underscores how the differences in philosophy; between the government to business relationship is helping the Japanese auto industry to remain competitive, during some of the worst economic conditions for the industry in decades. As a result, it is obvious that the Japanese model is superior in comparison with the American model. Part the reason for this is because of the different environmental and economic advantages that they have. To fully understand this requires examining the different levels of regulation, environmental concerns and the various standards in Japan that make it superior to the United States. Together, these elements will provide the greatest insights as to what makes the Japanese model better and why.

Overview of the American Automobile Industry

The American Automobile Industry is going through some of the most challenging times since the end of World War II. This is because of high labor costs and a change in the overall psychology of the consumer; would cause the entire industry to see sharp declines in sales. What happened was the Big Three were facing high pension and health care costs; that increased the price of all vehicles by $1,500.00. Then when you combine this with the fact; that they were mainly manufacturing large fuel inefficient sport utility vehicles / light trucks, meant that it would only be a matter of time until the entire industry would see a severe contraction. (Cooney, 2005) This would force General Motors and Chrysler to receive government bailouts that totaled $17.4 billion, as an organized bankruptcy was allowed to take place. Ford did not need any kind of government assistance and was able to restructure. ("Automobile Industry Introduction," 2010) Part of the reason for this was a shift in consumer psychology, as high fuel prices and the credit crunch caused sales to plummet 20% or 10.43 million units. ("U.S. Eclipsed by China in 2009 Auto Sales," 2010)

Environmental Issues Facing the U.S. Automobile Industry

The auto industry is facing increasing amounts of pressure to respond to the issue of global warming by reducing carbon emissions. One way to do this is to increase fuel efficiency standards. Several states have been pushing for even greater regulation of tailpipe emissions, with California taking the lead. This is significant because it would allow the state to increase the carbon emissions requirements above that of the federal government. If California is able to undertake such regulations, it will affect nearly half of all cars and trucks sold throughout the United States. ("Obama Issues Memorandum," 2009) What this show is how the industry will face increased amounts of regulation. This is because various treaties such as the Kyoto Protocol have been pushing many nations to begin regulating the overall amounts of carbon emissions that is going into the atmosphere. Since cars and trucks pollute the most carbon, means increasing fuel efficiency standards worldwide are becoming common. ("G8's Gradual Move," 2010) This has caused many automakers such as: Toyota, Honda and Nissan to begin introducing the hybrid. This is a car that will run off a traditional gasoline engine, then once the car has been running a small electric motor will power the car. ("Automobile Industry Introduction," 2010) as result, the sales of the Japanese automakers that are producing these cars have remained steady.

How the U.S. Government is Addressing Environmental Issues

Last year the federal government increased fuel economy standards by 40% to 35 miles per gallon by the year 2020. This is significant because it allows the EPA to regulate the amount of carbon emissions starting in 2011. ("Obama Issues Memorandum, " 2009) the actions taken by the federal government reverse a long standing position, of inaction by previous Presidents. As a result, the increased fuel economy standards will place the federal government in line with states that have their own proposed fuel economy standards such as California. ("Automobile Industry Introduction," 2010)

How U.S. Environmental Standards are Changing CAFE Standards

The U.S. environmental standards are changing in response to increasing pressure from the states that are creating their own environmental regulations and because of economic forces. Like what was stated previously, if California is able to impose their own standards on fuel economy, then this could affect half the cars and trucks produced in the country. This means that an uneven set of standards would apply in regards to the Corporate Average Fuel Economy standards. This is the power that was given to the federal government to increase fuel efficiency standards in the Energy Policy Conservation Act. ("CAFE Overview," 2010) Economic forces made it clear that the entire auto industry was working off of an unproductive model, as the sharp drop in sales highlighted how consumer tastes have shifted toward more fuel efficient cars. The implications of these changes in the industry are that a shift has been taking place, in the overall kinds of automobiles that are being produced by the Big Three. An example of this can be seen with the Volt that is being produced by GM. What makes this car so unique is the fact that it runs off of electricity and has a gasoline generator to recharge the batteries on long trips. ("Automobile Industry Introduction," 2010) This is significant because it highlights how the increased fuel economy standards and the change in consumer attitudes; are forcing the industry to develop fuel efficient cars using alternative technology.

The Differences in Regulation between Bush and Obama

The Bush Administration loosened various environmental regulations. This is because Administration officials believed that current regulations were too cumbersome for many businesses. For the auto industry this would mean, that fuel economy standards would remain the same. (Stoffer, 2001) the reason why is because there was no cap on carbon emissions. This is because the Bush Administration rejected the provisions of the Kyoto Protocol. Once Obama became President, he issued several different executive orders to increase fuel economy standards and allow the states to go beyond the federal CAFE guidelines. An example of this is when President Obama signed an executive order allowing the EPA to grant waivers to the state of California for certain provisions of the Clean Air Act; that would allow the state to set fuel economy standards beyond the federal government. ("Obama Issues Memorandum," 2010)

The Stimulus and the U.S. Auto Industry

The $17.4 billion in stimulus money that was loaned to GM and Chrysler was used to keep the industry from facing a liquidity crisis. This is because fears of outright bankruptcy would force a number of negative ripple effects on the economy. The stimulus money was allowing both companies time to form a viable reorganization plan and to renegotiate with creditors. However, attitudes have been divided with some arguing that the government is supporting a failed entity that will not become competitive, unless it is forced into bankruptcy. As a result, the federal government allowed both Chrysler and GM to enter a modified form of bankruptcy, which would help them to restructure. ("Automobile Industry Introduction.," 2010)

Car Safety Regulation Standards

The National Highway Traffic and Safety Administration have the power to regulate vehicle safety standards under the U.S. Code chapter 301. This included everything ranging from: the regulation of break hoses to seat belts. ("Federal Motor Vehicle Safety Guidelines," n.d.)

Benefits U.S. Government Business Relations Model

The benefit of the U.S. government business relations model is that it helping to improve the overall amounts of regulation within the industry. This is because the various financial scandals over the last several years have indicated a shift, where the lack of government regulation was apparent, as it was helping to contribute to some of the problems over the last several years. The increased amounts of regulation, means that executives will build cars that are more fuel efficient, reliable and what consumers demand. This helps to improve the overall quality of cars that the automobile industry is building. (Reich, 2009)

The Drawbacks of the U.S. Model

The drawback of the U.S. model is that is can over regulate the industry. This is where the government will set restrictions that so are cumbersome, that it affects the competitiveness of businesses. During the late 1970's there was a push to loosen some of the different regulations, as many people believed that they help to contribute to the slowdowns that were being seen. The key is to have a… [END OF PREVIEW]

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