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2013 Syllabus

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Prerequisite: Economics 101

Meeting times: Daily 10:10am-11:05am and 1:20pm-3:25pm. While we will not meet for 3 hours every day, extended hours allows us to watch videos in class and facilitates interaction with guest speakers. This class is NOT compatible with PE classes (unless the PE only meets weekends).

Economics 244 is a broad examination of the automotive industry from the perspective of an economist. Narrowly, “the” industry encompasses not just assemblers such as GM and Toyota and their product and price strategies (is the industry an oligopoly?). It also includes suppliers (who employ roughly 3x as many workers as do the assemblers) and distribution (which employs more than all of manufacturing). Thus arise issues of vertical coordination, the wider cost structure of the industry, and the nature of innovation in a very complex industry, where product specifications must be set well in advance of initial sales (e.g., in late 2012 firms are already working on MY2015 projects). But that’s not the worst of it: vehicles remain in production 4 or more years, so some of the projects on which firms are working today will still be on vehicles still being sold in 2020. Finally, the industry is glboal, with substantial economies of scale. So where do you make vehicles, given flux in exchange rates and business cycles, and how much do you adapt them from marekt to market? All in all, it is a complicated web of issues.

Cars — more precisely, motor vehicles, as in poorer countries trucks and tractors and motorcycles may dominate — well, cars are also durable consumer goods. That exerts pressure for product differentiation, as consumer “needs” differ markedly both within and across countries. It also leads to short product cycles, to lessen the competition between new and used vehicles. The cost of transportation also affects the structure of cities, where we live and (increaslingly) where we work. When combined with the ebb and flow of individual companies and the lessening of intertia, this has speeded the “hollowing out” of various cities, most prominently Detroit. Cars also pollute, and allowing largely untrained and often distracted individuals to drive at high speeds is inherently unsafe. We regulate the industry for both reasons. The industry is politically salient, too, not only in the recently concluded US presidential election but in domestic politics and (for franchises and tax considerations) state and local politics.

Finally, as a major consumer item cars “produce” and are in turn molded by culture. They were featured in early films (Charlie Chaplin, the Marx Brothers), in art (the Diego Rivera murals at the Detroit Institute of Art, as but one example) and in music. How we socialize has changed; while street car suburbs antedated the car, modern American suburbia could not exist without it.

To approach these topics, we will begin the first week reading a short history of the (American) industry, and selected readings on dealerships, on suppliers, and on the entry of new competitors across national boundaries. In addition, targeting the second week, we will have outside speakers who will address these issues — assemblers, distribution & service — while I will bring my own knowledge of the supplier segment to bear. The third week will be spent in Detroit, visiting factories, R&D centers and museums, seeing in the process the impact of the industry’s success and more recent decline on the City of Detroit. For the fourth week we return to Lexington, with potentially one final guest speaker and an attempt to integrate what we have learned.

Formal output for the course includes (i) a “road journal” on visits in Detroit and locally, (ii) contributions to the course blog (one per week plus at least one comment a day), (iii) short papers on select readings and (iv) a powerpoint presentation (to give us roughly one student ppt per day). I may also ask for a final exam or final paper in which you pull together observations from throughout the term.

See the schedule page for more details on the course, and the readings page for readings. I am still arranging guest speakers, but typically aim for 3 to visit on campus. As details firm up, I’ll modify the schedule to reflect who will be coming and the readings I’ll assign to prepare for their visits.

Fees: see the Registrar’s Spring Term course list. The fee is set by the administration, based on estimated travel costs, and book and other costs.