Essay: Market Failure an Analysis of the Auto

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Market Failure

An Analysis of the Auto Industry as a Market Failure

Of all market failures over the last ten years, the greatest one continues to be the melt-down of the American auto industry. Having completely lost touch with the concept of cost efficiency in their supply chains, while at the same time getting out of step with customer demand led to many of them teetering on the edge of bankruptcy. Only after the U.S. Government chose to initiate a massive bail-out did this segment of American manufacturing survive (Hortaccsu, Matvos, Shin, Syverson, Venkataraman, 2011). If this industry had averted market failure by concentrating first on the changing needs of consumers while at the same time using technology to automate and simplify every complex process, they could have averted a total market meltdown (Hortaccsu, Matvos, Shin, Syverson, Venkataraman, 2011). Now Americans are encouraged to buy their products even when it is widely known many models lack the reliability, performance and comfort of off-shore models (Hansen, 2009).

An Analysis of the Auto Industry as a Market Failure

The American auto industry has for over a century symbolized American production prowess and the concepts of mass production and managing supply chains to continually aggressive cost levels. It has also shown what happens when an entire industry becomes too complacent with the repurchase cycles of its products, letting go of its focus on what customer requirements are and how to react to them (Hortaccsu, Matvos, Shin, Syverson, Venkataraman, 2011). Amidst all of these strategic problems is the one large, looming financial challenge that could force the entire industry to collapse, and that is the costs of continually complying to organized labor's unrealistic demands (Lucas, Furdek, 2010). While unions served a useful purpose in previous generations, the UAW continually pushed American auto manufacturers for raises and cost-of-living increases when sales of autos were down, quality was dropping fast, and everyone was voting with their dollars Japanese, German and Korean autos that met or exceeded their expectations (Lucas, Furdek, 2010). The UAW paradoxically became more like a protection racket or a crime syndicate than a partner in production, extracting more and more money from businesses already hurting due to their lack of focus on customer needs. Asking for a raise when a company has a net loss for over a year is ridiculous and would be laughed at in any non-union business anywhere in the world. At its worst point, the U.S. auto industry was moving in the direction of socialism, only with the businesses designed to survive based on profitability were paying the way.

The result was a near-collapse of this industry with the U.S. government stepping in to save it. Even the most impassioned pleas by auto makers to Americans to buy their cars didn't make… [END OF PREVIEW]

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Market Failure an Analysis of the Auto.  (2011, July 8).  Retrieved December 11, 2019, from https://www.essaytown.com/subjects/paper/market-failure-analysis-auto/171714

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"Market Failure an Analysis of the Auto."  Essaytown.com.  July 8, 2011.  Accessed December 11, 2019.
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