Evaluating the costs of regulating the automobile industry: An econometric systems model

An econometric model consisting of nineteen equations that describe key relationships in the automobile market industry is developed to forecast the impact of automobile-related regulations on the industry and the auto-buying public and to provide data that are used to assess the impact on other sectors of the economy. In the development of the model, automobile market behavior (seller-buyer interaction) and output pricing and resource requirement decisions of manufacturers are explored in detail. The process of using the model to forecast the effects of Government regulation on prices, retail sales, production volume, resource requirements, productivity, and other industry variables is described.;The model is used to forecast the effect of Government regulation of automobile noise emissions. The forecast is then used to conduct an input/output analysis of the impact on other industries and to assess the macro-economic effects of the regulation. The study finds that automobile noise regulations (and auto-related regulations, in general): (1) Add to the auto industry's unit manufacturing cost; (2) Cause automakers to increase prices by at least as much as the amount by which costs increase; (3) Decrease the sales volume of the auto manufacturing industry, supplier industries, and after-market industries; (4) Increase the capital requirements of the auto industry; (5) Reduce the productivity of auto industry labor; (6) Decrease the labor requirements of affected industries, thereby adding to national unemployment; (7) Add to price inflation.;The study also finds that the timing of auto manufacturers cost-pass-through has a direct effect on their profitability and on the short-term incidence of regulatory costs.