The impact of shocks to exchange rates and oil prices on US sales of American and Japanese automakers

Since 1973, floating exchange rates and significant oil-price changes have coincided with dramatic market-share gains (losses) by Japanese (American) automakers in the U.S. market. This paper analyzes and empirically estimate s the extent to which exchange rate and oil price changes have contributed to this market shift. We first develop a dynamic Cournot model of long-run profit-maximizing firms that operate in a macroeconomy characterized by sho cks to income, exchanges rates, oil prices, and firm-specific demands and s upplies. Using the solutions for quantities sold from this model, we then c onstruct a structural vector autoregression (VAR) to estimate and identify a reduced-form VAR. The empirical results indicate that a strong yen increa ses quantities sold by American automakers and decreases quantities sold by Japanese automakers; this exchange-rate effect accounts for approximately four percent of the variance of changes in monthly-sales quantity for autom akers. Oil-price increases reduce the quantity of automobiles sold by Ameri can automakers, but, contrary to the common belief, have little effect on J apanese automakers; this oil-price effect accounts for 6.5 percent of the v ariance of changes in monthly-sales quantities for American automakers. Ove r the two decades we analyze, however, the real value of the dollar has alm ost steadily declined against the yen, and the real price of oil has ended up unchanged, so these variables cannot explain the decline (rise) of Ameri can (Japanese) automakers. Clearly, automobile sales are exposed to exchang e rate, oil price, and income risk; between 10 and 20 percent of the change s in monthly-sales quantities can be explained by the macroeconomic variabl es that we analyze. However, we conclude that firm-specific policies probab ly account for the bulk of gains and losses actually experienced by the aut omakers. (C) 1999 Elsevier Science B.V.