A conservative view of the auto industry is that it is characterized by an oligopoly, meaning that the top three automakers dominate their competitors. The fact that these three companies have so much power shows that they are not operating within a free market. There are obstacles to new car manufacturers entering the market, and those in power seem satisfied with the status quo.
In today’s age of advanced manufacturing tools such as CNC and CAD, an enterprising individual can start a small car manufacturing company that produces, say, 10 to 20 cars per year, while still making a profit. You should have the ability. These vehicles could be tailored to local conditions, such as Wisconsin’s harsh winters. What hinders such adventures is the extensive government regulations governing car manufacturing. The removal of most government regulations, particularly those related to auto manufacturing, could lead to a surge in the creation of small auto companies. An example can be taken from the beer industry in the 1970s. At the time, beer production was an oligopoly, but after President Jimmy Carter repealed the ban on homebrewing, the number of microbreweries mushroomed across the United States. Similar changes will occur in the auto manufacturing industry once government barriers to entry are removed. Currently, only billionaires like Tesla’s founder can realistically enter the auto industry.
The “Big Three” automakers, along with the United Auto Workers (UAW), oppose the idea of a large number of smaller auto companies emerging. Both groups are lobbying in Washington to maintain these barriers to competition. In a free market system that operates according to a Pareto distribution, the landscape at the top and bottom would be more dynamic. The same top three companies will not continue to dominate, and approximately 20% of these smaller companies will grow significantly. This will foster a more dynamic economy and generate wealth. The potential losers in this scenario could be the big three automakers. However, increased competition could force them to become more innovative and either maintain their position, face extinction like the dinosaurs, or adapt to changing market dynamics. .
Rick A. Callwell
somerset
