The North American Free-Trade Agreement: An Opportunity to Restructure the us Automobile Industry

Abstract

Initially, US automakers dismissed the rise in power of the Japanese automakers as insignificant. However, when these and other minimal efforts failed to effectively combat the Japanese's growing US market share, the US automakers were required to look inward to find the source of their ills. What followed was an ever increasing knowledge of the evolutionary superiority of lean production (Japanese automakers) over the more traditional mass production system (US automakers). With this knowledge in hand, ways were sought to minimize the competitive gap between lean and mass production without the pain a massive restructuring would cause. When these efforts failed, it was realized that the only real solution was for the us automotive industry to restructure itself in a lean production format. This paper seeks to explore the thesis that the proposed North American Free-Trade Agreement (NAFTA) is an ideal opportunity to undertake this task. A belief expressed throughout this paper is that the survival of the US automotive industry is dependent on a successful restructuring. The foundation for this belief will be laid by first demonstrating the inherent superiority of lean production over mass production. Once this is accomplished, background information on NAFTA, the Mexican economy, and the US automotive industry will be provided. With a general understanding of these three components in hand, an examination of the necessity and ramifications of NAFTA will be conducted. This paper will conclude that NAFTA is an opportunity which the us automotive industry (and overall US economy) can ill afford to miss. Although NAFTA will result in the painful dislocation of many American workers, NAFTA will dampen these negative results through the accruement of numerous other positive benefits associated with free-trade. Among these benefits are new job opportunities in all sectors of the US economy and increased profits throughout the US automotive industry. The greatest benefit to be gained from NAFTA, however, is the long term survival of the us automotive industry.