Economics

Introduction
Impact of global recession can be seen on all markets around the world and automotive market is no exception. With once key players in the US automotive market General Motors and Chrysler filing bankruptcy and economy showing weak signs of current situation of automotive market seems bleak. Japanese automotive market has shown similar trends with Toyota facing difficulties and government being forced to lend a helping hand, not unlike US, all are keeping fingers crossed to witness auto industry recovery. Plunkett Research Ltd reflects that the impacts of recession which were seen in US first time 2007 i.e. the automotive industry witnessed a down ward slope in its demand curve. However the Japanese market was combating downward slope few years before 2007.  

Although the two markets have reacted to the recession in a similar manner it does not signify that the markets are also similar in nature. Not only is the target market but also the way producers and consumers react to different situations is very different. The similarities and the differences between two markets are considered below

Firms in the market, Size and Number of Consumers
US firms in the market and there production as recorded by OICA are as follows
Firms Production in 2007GENERAL MOTORS2,850,817TOYOTA1,334,183BMW157,530NAVISTAR55,197NISSAN703,662VOLVO 35,238VOLKSWAGEN1,199,902ISUZU4,981MITSUBISHI78,739MAZDA78,121FORD144,459CHRYSLER1,651,285DAIMLER250,711HYUNDAI250,549MAZDA78,121

EMBED MSGraph.Chart.8 s

Japan firms in the market and there productions as recorded by OICA are as follows
FIRMS PRODUCTION IN 2007TOYOTA4,226,137NISSAN 1,179,080ISUZU240,287MITSUBISHI846,083MAZDA995,511FUSO(DAIMLER)189,243SUZUKI1,218,297MAZDA 995,511
 EMBED MSGraph.Chart.8 s

In the US market General Motors is no longer the market leader and was surpassed by Toyota in 2008. General Motors in 2009 filed bankruptcy and is now known as Motors Liquidation Ltd. Though Chrysler also filed bankruptcy in 2009 but Fiat technology it still continues to operate.
In Japanese market Toyota is still the market leader though because of prevalent recession it was forced to look for government assistance.

Since 2007, the consumers who purchase new vehicles have been decreasing due to the economic downturn. US car consumers due to the difficulty of obtaining a loan together with increased unemployment have resulted in them choosing to keep their cars for longer than they would have otherwise done. This is not only true for the cars but also for commercial vehicles as many firms using those have either opted for downsizing or have gone into liquidation.

Product differentiation
Japan is a country with very limited space and a different culture as compared to US. Not everybody in the crowded Japanese cities have the luxury of private parking places and it is costly to keep and maintain a car. In addition the maximum distance travelled by a Japanese car is the US average.
With the change in perception of Japanese about vehicles, especially cars, from a status symbol to the things they can travel in, the size and qualities they were looking for in a car previously also changed. Ease of travelling by public transport together with change in perception as well as cost efficiency has lead Japanese market to demand a different product as compared to US.

AP (2007 p.12) observes that Japanese auto market has seen a shift from large luxurious cars to minis or kei, in Japanese.  In the crowded Japanese cities where parking spaces are measured minis are highly suitable because of their low registration and maintenance cost fuel efficiency and size.
On the other hand, AP (2007 p.12) observes, Americans, even though they are abandoning their lunky sports vehicles, with their congestion free wide roads will be unable to accept kei. Observers are of opinion that it will be perceived as a kind of toy with its 3.4m by 1.5m size.
   
For Japanese quality everyone is concerned about quality and that is what suppliers concentrate on whereas in US looks play an important role in customers choice of vehicle. This does not imply that either of the qualities is neglected in either of the markets yet preference is given to the stated qualities.

Barriers to entry
Japan auto market is satisfied by Japanese manufacturers. American car manufacturers which were driven out by Japanese government during World War II were never able to return back firstly due to the trade restrictions then because of stringent investment and import laws which still are proving to be discouraging factor for foreign firms to enter. Even if any firm, being patient enough, is able to over come these barriers than the arrangements between Japanese manufacturers and the fact that dealers have been prohibited to sell foreign autos or to partner with foreign automakers is another obstacle. Even if this was not enough the automotive technical regulations and tax laws are so strict that it will cause prices to drive up very high as compared to local manufacturers. In order to retain its competitive advantage Japanese government has been manipulating its currency so that imports remain expensive and the local industry continues to fulfill the needs of the market (American Auto Council c 2010).

As for the local manufacturers entering the market there are virtually no barriers to entry imposed by government. Though the usual barriers to entry i.e. the large amount of initial capital required, the specialized nature of equipment and machinery required (Japan is already using robots in automotive industry), economies of scale that the existing manufacturers are enjoying may act as a barrier to entry.

US auto market invited seemingly all Japanese manufacturers to US auto market and recently other countries have also tried their luck in the US auto market. So virtually there are no restrictions to enter the US auto market. The US auto market is an established one and has foreign manufacturers as well, unlike Japan, so almost all niches that would have existed are filled so the customers might be unwilling to spend precious dollars, in current economic situation to purchase vehicle from an unknown buyer. They would rather prefer to stick to existing manufacturers with whom they can identify certain characteristics. Dealers may also demonstrate the same philosophy as the consumers.
The existing economic crisis has lead the existing manufacturers to seek government assistance the entry of new firm in such a situation is ridiculous as the existing manufacturers are struggling for survival.

Price determination
Oligopoly is the word used to describe world auto market at large which includes US and Japan. Oligopoly is when few large firms dominate the market hence determining the price it is also known as monopolistic competition.

Japan has strict barriers to entry so oligopoly in its true form can be considered In Japan. Japanese auto market has always been highly influenced by government so together with the forces of demand and supply and the effect that their prices will have on other competitors in the market, government policies also have to be adhered to. Consumers perception of product can never be ignored as a price that may be unacceptable to the consumers will have negative influence. Costs also need to be considered before any decision could be made.

In US restriction to enter the auto market are not so stringent so oligopoly in its true form can not be said to exist there as oligopoly arises when barrier to entry restricts competition. Oligopoly watch observes that US auto market initially priced it products with full cost plus pricing strategy i.e. calculating the total and adding a certain percentage to it as margin when market was dominated by few firms. With the increase in competition locally as well as foreign firms entering the market this strategy was altered. Now a number of factors are considered before pricing is done. Although it is an oligopolistic market US has a much more fierce competition as compared to Japan as not only local but also foreign firms are present in the market.
 
Conclusion
It can easily be seen from the above discussion that though many Japanese firms have significant share in the US market Toyota being the market leader. Globalization has lead to the differences that once existed in the US and Japan auto markets to disappear to a great extent still the two markets are significantly different from each other. As world becomes global village in true sense there is a great probability that the existing differences will also disappear.