.. States. One action taken by the company to reverse this sales decline is the introduction of a new, smaller, and less costly passenger car line in the United States (Martin, 1997). Volkswagen, Germany (market share: 15.4 percent), Fiat, Italy (market share: 14.2 percent), and Peugeot, France (market share: 12.9 percent) hold the first three places in the European automobile market (Phelan & Feast, 1997). General Motors is the fourth largest seller of automobiles in Europe (market share: 11.8 percent), while Ford in number five (market share: 11.6 percent).
Unlike the United States, where Japanese automobile manufacturers hold 27 percent of the market, the Japanese manufacturers have a market share of only 11.6 percent in Europe (Woodruff, 1997). Industry Production Costs A major labor-related problem for industries moving into Germany is the fact that Germans by and large are unwilling to accept jobs in industries where the wages are relatively low and the working conditions poor by German standards. Unemployment, however, is high in relation to traditional post-war German standards. Therefore, labor wage rate increases have been moderate. Labor stability is higher in Germany than in the United States. The turnover rate in German manufacturing firms is quite low (Feast, 1996).
For years, Germany had a shortage of labor and even brought in guest workers from Southern Europe and Turkey. Germany has on of the shortest workweeks at 35 hours per week. The average America worker works longer hours and receives twelve days of paid vacation verses six weeks and 13 to 16 days of vacation (holiday) for Germans. Strong industrial unionization and legislation in Germany create job protection and security for German industrial workers. As a consequence, both strikes and unauthorized absenteeism among most German workers is low in relation to most other industrial countries (Feast, 1997).
German employers are encountering difficulties in effecting changes among the German workforce. The tradition of strong worker social services and strong labor unions in Germany strengthens the will of employees to resist such changes suggested by management (Feast, 1997). Growth in manufacturing labor productivity in Germany and the United States are compared. Relevant data are presented in Table 2, which may be found on the following page. For both Germany and the United States, manufacturing multifactor productivity (MFP) is a more important explanatory factor than capital-for-labor substitution in explaining labor productivity growth.
The differences in labor productivity growth between the two countries is another question (Lysko, 1995). The contributions to manufacturing output growth in Germany and the United States by labor, capital, and MFP are compared. Relevant data are presented in Table 3, which may be found on page 8. While hours worked were declining in German manufacturing at the rate of 0.6 percent per year, hours worked in the United States increased at the rate of 0.8 percent per year. The net result was that, although the use of combined factor inputs increased more in Germany than in the United States (an annual rise of 2.4 percent versus 1.6 percent), German multifactor productivity grew marginally faster over this 17-year period; the average difference was 0.4 percentage points per year (Lysko, 1995, p.
52). Table 2 Sources of Manufacturing Labor Productivity Growth, 1956-93 (Percent) Output Per Capital-Labor multifactor Country Hour Substitution Productivity United States: 1956-90 3.0 1.0 2.1 1956-93 3.1 1.0 2.1 1956-73 3.8 0.8 2.9 1973-90 2.3 1.1 1.2 1973-79 .8 1.1 -.2 1979-90 3.1 1.1 2.0 1990-93 4.0 1.1 2.8 Germany: 1956-90 4.7 2.0 2.6 1956-93 4.4 2.0 2.3 1956-73 6.5 3.1 3.4 1973-90 2.9 1.1 1.8 1973-79 4.3 1.7 2.6 1979-90 2.1 .8 1.3 1990-93 1.2 1.7 -.4 [source: Lysko, 1995] Table 3 Contribution of Labor, Capital and MFP to Manufacturing Output Growth, United States Versus Germany, 1956-93 (Percent Annual Change) Manufacturing Labor/Capital MFP Growth Period Output Growth Input Growth 1956-1990: Germany 3.6 1.0 2.6 United States 3.3 1.2 2.1 Difference .3 – .2 .5 1956-1993: Germany 3.1 .8 2.3 United States 3.2 1.1 2.1 Difference – .1 – .3 .2 1973-1990: Germany 1.4 – .4 1.8 United States 2.0 .8 1.2 Difference – .6 – 1.1 .5 1990-1993: Germany – 2.2 – 1.8 – .4 United States 2.6 – .2 2.8 Difference – 4.8 – 1.6 – 3.2 [source: Lysko, 1995] The competitive position of the Germany automobile manufacturing industry has suffered in the decade of the 1990s, as German unemployment has increased by German standards (Feast, 1996). High labor rates in the German automobile industry also have hurt the industry, as German manufactured automobiles increasingly are unable to compete within the context of price (Short-Term Prospects for the German Motor Industry and Market, 1996). The pricing problem has hurt the industry in the domestic German market, the wider European market, and the global automobile market. Automobile Industry-Specific Tariffs and Trade Restrictions No tariffs or trade restrictions apply to automobiles manufactured within the European Union, regardless of the country in which the manufacturing plant is located and regardless of where the headquarters of the plant owner is located.
Thus, General Motors and Ford based in the United States have subsidiaries in Europe, including those located in Germany, which compete on equal terms with European-based automobile manufacturers. One Japanese automobile manufacturer has a plant located in Spain. The output of this plant competes on an equal footing with European-based automobile manufacturers. Automobiles manufactured in Japan, as well as those manufactured in the United States, and then shipped to the European Union members, however, are subject to both tariffs and trade restrictions in the form of import quotas. Bibliography Economic indicators. (1998, 11 April).
Economist, 347(8063), 80. Feast, R. (1996, August). Why Germany is hurting: High labor rates could mean there’ll never be another new vehicle plant built here. Automotive Industries, 176(8), 43-45.
Financial indicators. (1998, 11 April). Economist, 347(8063), 81. Hunter, B. (Ed.). (1997). Statesman’s year-book, 1997-1998.
New York: Oxford University Press. Lysko, W. (1995, July). Manufacturing multifactor productivity in three countries. Monthly Labor Review, 118(7), 39-55. Martin, J.
(1997, 7 July). Mercedes: Made in Alabama. Fortune, 136(1), 150-155. Maastricht follies. (1998, 11 April). Economist, 347(8063), S8-S10. Phelan, M., & Feast, R.
(1997, October). European sales are in a funk: The vise of overcapacity tightens in an increasingly fragmented market. Automotive Industries, 177(10), 143-144. Roby, E. F.
(1994, 22 September). A great leap forward. Far Eastern Economic Review, 42-43. Short-term prospects for the German motor industry and market. (1997, Summer).
Motor Business Europe, 18-41. Short-term prospects for the German motor industry and market. (1996, Summer). Motor Business Europe, 25-57. Upper-segment cars in Western Europe: A market under siege.
(1997, Winter). Motor Business Europe, 103-116. Woodruff, D. (1997, 13 October). Japanese cars spin their wheels on the continent. Business Week, (3548), 50. World Bank.
(1997). World development report 1997. New York: Oxford University Press.