Unbeknownst to many, the government had intervened in the auto industry prior
to the 2008 market collapse. Around ’79 -’80, the US auto industry had a major
crisis. Domestically, Ford, Chrysler and GM were grappling to meet the consumer
demand for fuel-efficient and environmentally conscious vehicles. Brought on by
the passing of the Clean Air Act in 1963 and succeeding amendments in ’70, ’77
and ’90. Added regulations posed additional expenses to the Big 3 automakers.
In addition to, the OPEC Oil Embargo also caused crippling effects on gas prices
and commodities (Cohen, n.d.). Coupled with the Japanese surpassing US in
production, affordability, efficiency and environmentally friendly. In effect,
reducing US sales by 20% and increasing Japanese auto sales by 21%. Back
then, citizens criticized consumers who bought Japanese cars due to the
potential shutdown of the US auto industry and increasing number of factory
workers losing their jobs.
Government intervention came in the form of Voluntary Export Restraints (VER).
Where President Ronald Reagan convinced the Japanese to voluntarily limit the
import of Japanese cars to the US instead of letting the US Congress dictate the
quota and tariffs (Cohen, n.d.). Thereby giving the Big 3 the time, resources, and
market share to get their factory in compliance with the new government
environmental regulations. Clearly, the Big 3 automakers benefited the most out
of the VER deal that ran from 1981-1994 as they were able to successfully regain
their balance and market share. On the other hand, the US consumers were
affected the most because car prices went up both in domestic made (as they
recoup money) and Japanese cars (due to the self-imposed sully limit). Would
imposing higher tariff been a more probable answer, whereby the government
also gained revenue? Subsidy? Or tax credits? Certainly, the situation has
enlightened the government to the effect of a VER.
Foreign businesses having a limit on export supply certainly affects profit.
Succinctly, as demand declines, prices will go up and it did. Threat of competition
became marginally larger forcing Japan to kick up their product research in high
gear increases cost. Tying it to present time, Tesla has halted production of an
international factory expansion in Mexico due to delays with the Mexican
government. Moreover, Elon Musk is hesitant due to the recent announcement of
President-elect Donald Trump’s plan of increasing tariff on cars made in Mexico
(Revell, 2024). If it does come to fruition, cost of Tesla cars manufactured in
Mexico will increase and affect sales and revenue.
